<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1993
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission file number:1-7377.
Exact name of registrant as specified in its charter:
BANKAMERICA CORPORATION
Address and telephone
of principal
State of incorporation: executive offices: I.R.S. Employer I.D. No:
Delaware. Bank of America Center 94-1681731.
San Francisco, California 94104
415-622-3530
Securities registered pursuant to Section 12(b) of the Act:
New York, Chicago, and Pacific Stock Exchanges: Common Stock, Par Value $1.5625
and Preferred Share Purchase Rights New York Stock Exchange:
<TABLE>
<S> <C> <C>
Cumulative Adjustable Preferred 9% Cumulative Preferred Stock, 8.16% Cumulative Preferred Stock,
Stock, Series A Series H Series L
Cumulative Adjustable Preferred 8 3/8% Cumulative Preferred Stock, 7 7/8% Cumulative Preferred Stock,
Stock, Series B Series K Series M
9 5/8% Cumulative Preferred Stock, Depositary Shares Each Representing a 8 1/2% Cumulative Preferred Stock,
Series F One-Twentieth Interest in a Share of: Series N
6 1/2% Cumulative Convertible 11% Preferred Stock, Series I Floating Rate Subordinated Capital
Preferred Stock, Series G 11% Preferred Stock, Series J Notes Due August 15, 1996
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
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 by check mark if disclosure of deliquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affilates of the
registrant, computed by reference to the closing price on the consolidated
transaction reporting system on January 31, 1994, was in excess of $16.6
billion.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 31, 1994.
Common Stock, $1.5625 par value----357,991,436 shares outstanding on
January 31, 1994*
* In addition, 589,413 shares were held in treasury.
Documents incorporated by reference and parts of Form 10-K into which
incorporated:
Portions of the Annual Report to Shareholders for the Year Ended
December 31, 1993 Part I, II & IV
Portions of the Proxy Statement for May 26, 1994 Annual Meeting of
Shareholders Part III
<PAGE>
FORM 10-K
<TABLE>
<CAPTION>
================================================================================
<S> <C> <C>
Part I Items 1 and 2. Business and Properties
General................................................... 2
Distribution of Assets, Liabilities, and Stockholders'
Equity; Interest Rates and Interest Differential......... 5
Securities Available for Sale and Securities Held for
Investment............................................... 8
Loan Portfolio............................................ 9
Summary of Credit Loss Experience......................... 11
Deposits.................................................. 12
Return on Equity and Assets............................... 13
Short-Term Borrowings..................................... 13
Competition............................................... 13
Supervision and Regulation................................ 14
Employees................................................. 16
Item 3. Legal Proceedings................................... 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
- --------------------------------------------------------------------------------
Part II Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 18
Item 6. Selected Financial Data............................. 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 18
Item 8. Financial Statements and Supplementary Data......... 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 18
- --------------------------------------------------------------------------------
Part III Item 10. Directors and Executive Officers of the Registrant.. 19
Item 11. Executive Compensation.............................. 21
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 21
Item 13. Certain Relationships and Related Transactions...... 21
- --------------------------------------------------------------------------------
Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................... 22
- --------------------------------------------------------------------------------
Signatures ............................................................. 25
</TABLE>
1
<PAGE>
PART I
===============================================================================
Items 1 and 2. Business and Properties
- -------------------------------------------------------------------------------
General BankAmerica Corporation (the Parent) is a bank holding
company that was incorporated under the laws of the state of
Delaware on October 7, 1968, and is registered under the Bank
Holding Company Act of 1956, as amended. At December 31,
1993, BankAmerica Corporation and consolidated subsidiaries
(the Corporation) was the second largest bank holding company
in the United States, based on total assets of $186.9
billion.
The Parent's largest subsidiaries, based on total assets at
year-end 1993, are Bank of America NT&SA (the Bank) and
Seafirst Corporation (Seafirst). The Bank was founded by A.P.
Giannini in San Francisco, California, and began business as
Bank of Italy on October 17, 1904, offering banking services
to individuals and small businesses in the community. It
adopted its present name on November 1, 1930, and became a
subsidiary of the Parent on April 1, 1969. Seafirst, the
largest bank holding company in Washington State, based on
total assets at December 31, 1993, was acquired by the Parent
in 1983. Seafirst's principal banking subsidiary,
Seattle-First National Bank (Seattle-First), has a major
presence in the consumer and commercial banking sectors of
the Pacific Northwest.
As a result of the April 22, 1992 merger with Security
Pacific Corporation (the Merger) and various acquisitions
made during 1989, 1990, 1991, and 1992, the Parent's
subsidiaries also include Bank of America Arizona, Bank of
America Nevada, and Bank of America Oregon, all of which have
state charters; Bank of America Alaska N.A., Bank of America
Idaho, N.A., Bank of America New Mexico, N.A., and Bank of
America Texas, N.A., which are national banks; and Bank of
America, FSB (FSB), a federal savings bank. In addition, as a
result of the Merger, the Parent acquired an association, now
known as Bank of America, National Association, which holds a
national charter and offers credit card services, primarily
to individuals, throughout the United States. At December 31,
1993, the Corporation, through its subsidiaries, operated
approximately 1,900 branches in the western states.
On February 1, 1993, the parent, through its subsidiary, Bank
of America Texas, N.A., acquired certain branches and assets
and assumed certain liabilities of First Gibraltar Bank, FSB,
headquartered in Texas. In addition, on January 27, 1994, the
Parent and Continental Bank Corporation (Continental) signed
an agreement under which the parent will acquire Continental
for a combination of stock and cash consideration, subject to
adjustment and termination in certain circumstances.
Additional information related to the pending Continental
acquisition, the Merger, and the Corporation's other
acquisitions is incorporated by reference from page 16 and
Notes 2, 4, and 5 on pages 52 through 56 of the 1993 Annual
Report to Shareholders.
2
<PAGE>
================================================================================
Operations
----------------------------------------------------------------
The Corporation, through its banking and other subsidiaries,
provides banking and financial services throughout the United
States and in selected international markets to consumers and
business customers, including corporations, governments, and
other institutions.
Consumer banking products and services provided by the
Corporation, largely through the Bank, Seafirst, and other
domestic banking subsidiaries, primarily consist of residential
real estate and other consumer loans, retail deposit services,
personal trust, investment services to high net-worth
individuals, credit card products, and mutual fund products. In
California, the Corporation's most significant market, the Bank
was the largest provider of retail banking services at December
31, 1993. At that date, the Bank operated nearly 1,000 branches
in California and maintained at least one banking relationship
with approximately half the households in the state. Seattle-
First, the major operating unit of Seafirst, contributes
significantly to the Corporation's market position in the
Pacific Northwest. Seattle-First had approximately 270 branches
at December 31, 1993.
The Corporation, primarily through the Bank and Seafirst,
provides commercial banking services for large U.S. corporate
and middle-market customers, including commercial and
construction real estate developers. In addition, it offers a
wide range of payments services, such as trade finance and
electronic payment services.
The Corporation, primarily through the Bank, is also a global
financial intermediary, serving large corporate and
institutional customers throughout the world. In this capacity,
the Corporation provides services, including corporate finance
and lending, cash management services, trust services, and
investment banking services, including interest rate risk and
foreign exchange management products, capital markets products,
and advisory services.
Additional information about the Corporation and its operations
is incorporated by reference from the inside front cover, page
18, and Note 26 on page 76 of the 1993 Annual Report to
Shareholders.
3
<PAGE>
================================================================================
Properties
----------------------------------------------------------------
The Corporation's principal offices are located at 555
California Street in San Francisco, California (the World
Headquarters Complex) where the Corporation, under lease
agreements, occupies approximately 40 percent of the premises.
The World Headquarters Complex is owned by a partnership in
which the Parent holds a 50.0 percent interest.
Seafirst's principal offices, which were purchased in 1989, are
located at 701 Fifth Avenue in Seattle, Washington.
At December 31, 1993, the Corporation owned approximately
one-half of its domestic branch and customer service locations,
which are concentrated in California, Washington, and the other
western states. The remaining domestic facilities were leased.
The majority of the Corporation's foreign facilities were
leased.
4
<PAGE>
================================================================================
Distribution of Assets, Liabilities, and Stockholders' Equity; Interest Rates
and Interest Differential
Net Interest Income Analysis
<TABLE>
<CAPTION>
==================================================================================================================================
Year Ended December 31, 1993 over 1992 Year Ended December 31, 1992 over 1991
-------------------------------------- --------------------------------------
Increase (Decrease)/a/ Increase (Decrease)/a/
-------------------------------------- -------------------------------------
(in millions) Volume Rate Net Volume Rate Net
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income/b/
Interest-bearing deposits in banks $(104) $ 15 $ (89) $ 10 $ (68) $ (58)
Federal funds sold (17) (9) (26) (23) (36) (59)
Securities purchased under resale
agreements (20) 31 11 107 (51) 56
Trading account assets 131 (56) 75 92 (70) 22
Securities available for sale 191 (34) 157 123 -- 123
Securities held for investment:
U.S. Treasury securities 30 (25) 5 126 (30) 96
U.S. federal agency securities 344 (147) 197 126 5 131
State, county, and municipal
securities -- (2) (2) 30 1 31
Other domestic securities (8) (17) (25) 39 42 81
Foreign securities (19) (5) (24) (33) (5) (38)
------ ------
Total securities held for
investment 151 301
Domestic loans:
Consumer--secured by first mortgages
on residential properties 276 (393) (117) 666 (348) 318
Consumer--credit card (75) (34) (109) 116 (38) 78
Other consumer 143 (186) (43) 712 (200) 512
Commercial and industrial 60 14 74 396 (301) 95
Commercial loans secured by real estate 75 (43) 32 266 (95) 171
Construction and development loans
secured by real estate (51) (3) (54) 154 (118) 36
Loans for purchasing or carrying
securities 17 (4) 13 37 (13) 24
Financial institutions 5 (7) (2) 19 (35) (16)
Lease financing 14 (35) (21) 93 101 194
Agricultural 4 (3) 1 37 (24) 13
Other 14 (1) 13 21 (1) 20
------ ------
Total domestic loans (213) 1,445
Foreign loans 149 (201) (52) 98 (162) (64)
------ ------
Total loans (265) 1,381
------ ------
Net Increase $ 14 $1,766
====== ======
Interest Expense
Domestic interest-bearing deposits:
Transaction $ 36 $ (77) $ (41) $136 $(154) $ (18)
Savings 15 (102) (87) 191 (191) --
Money market 192 (237) (45) 433 (427) 6
Time (36) (401) (437) 214 (840) (626)
------ ------
Total domestic interest-bearing
deposits (610) (638)
Foreign interest-bearing deposits:
Banks located in foreign countries (7) (32) (39) -- (63) (63)
Governments and official institutions -- (16) (16) (11) (36) (47)
Time, savings, and other 7 (140) (133) (28) (100) (128)
------ ------
Total foreign interest-bearing
deposits (188) (238)
------ ------
Total interest-bearing deposits (798) (876)
Federal funds purchased (2) (2) (4) 9 (12) (3)
Securities sold under repurchase
agreements 45 5 50 6 (30) (24)
Other short-term borrowings (55) (14) (69) 125 (91) 34
Long-term debt 212 (99) 113 449 (90) 359
Subordinated capital notes (23) 22 (1) 37 (20) 17
------ ------
Net Decrease $ (709) $ (493)
====== ======
==================================================================================================================================
</TABLE>
/a/ Changes which are the result of a joint volume and rate fluctuation are
allocated in proportion to the volume and rate changes.
/b/ Interest income is presented on a taxable-equivalent basis. The
taxable-equivalent basis adjustments are based on a marginal tax rate of 40
percent for 1993 and 39 percent for 1992 and 1991.
5
<PAGE>
Average Balances, Interest, and Average Rates
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
---------------------------------- ----------------------------------
(dollar amounts in millions) Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits in banks/c/ $ 2,642 $ 194 7.36 % $ 4,055 $ 283 6.97 %
Federal funds sold 1,131 35 3.12 1,617 61 3.76
Securities purchased under resale agreements 3,903 174 4.46 4,400 163 3.70
Trading account assets 6,341 375 5.91 4,234 300 7.08
Securities available for sale 4,118 280 6.79 1,401 123 8.79
Securities held for investment:
U.S. Treasury securities 3,554 188 5.28 3,036 183 6.06
U.S. federal agency securities 10,784 785 7.28 6,341 588 9.27
State, county, and municipal securities 553 44 7.93 549 46 8.34
Other domestic securities 740 96 13.01 797 121 15.13
Foreign securities 128 10 7.61 369 34 9.17
--------- ------- -------- --------
Total securities held for investment 15,759 1,123 7.13 11,092 972 8.76
Domestic loans:/c/
Consumer--secured by first mortgages on
residential properties 29,083 1,858 6.39 25,231 1,975 7.83
Consumer--credit card 7,499 1,220 16.26 7,963 1,329 16.70
Other consumer 24,659 2,230 9.04 23,149 2,273 9.82
Commercial and industrial 20,580 1,301 6.32 19,640 1,227 6.25
Commercial loans secured by real estate 9,707 729 7.51 8,735 697 7.98
Construction and development loans secured by
real estate 5,718 295 5.17 6,700 349 5.21
Loans for purchasing or carrying securities 1,447 59 4.05 1,049 46 4.38
Financial institutions 1,948 68 3.48 1,821 70 3.85
Lease financing 1,773 219 12.36 1,669 240 14.40
Agricultural 1,605 122 7.62 1,554 121 7.81
Other 1,099 55 5.03 830 42 5.10
--------- ------- -------- --------
Total domestic loans 105,118 8,156 7.76 98,341 8,369 8.51
Foreign loans/c/ 19,531 1,312 6.72 17,492 1,364 7.80
--------- ------- -------- --------
Total loans 124,649 9,468 7.60 115,833 9,733 8.40
--------- ------- -------- --------
Total earning assets 158,543 $11,649 7.35 142,632 $11,635 8.16
======= ========
Nonearning assets 30,609 26,984
Less: Allowance for credit losses 3,826 3,764
--------- --------
Total Assets/d/ $185,326 $165,852
========= ========
Liabilities and Stockholders' Equity
Domestic interest-bearing deposits:
Transaction $ 13,469 $ 181 1.34 % $ 11,368 $ 222 1.95 %
Savings 13,977 312 2.23 13,454 399 2.96
Money market 34,182 851 2.49 27,504 896 3.26
Time 30,939 772 2.50 31,925 1,209 3.79
--------- ------- -------- --------
Total domestic interest-bearing deposits 92,567 2,116 2.29 84,251 2,726 3.24
Foreign interest-bearing deposits:
Banks located in foreign countries 3,346 230 6.88 3,440 269 7.83
Governments and official institutions 1,927 78 4.08 1,931 94 4.86
Time, savings, and other 10,276 547 5.32 10,173 680 6.68
--------- ------- -------- --------
Total foreign interest-bearing deposits 15,549 855 5.50 15,544 1,043 6.71
--------- ------- -------- --------
Total interest-bearing deposits 108,116 2,971 2.75 99,795 3,769 3.78
Federal funds purchased 570 16 2.78 626 20 3.24
Securities sold under repurchase agreements 2,837 158 5.58 2,015 108 5.35
Other short-term borrowings 3,088 201 6.52 3,913 270 6.90
Long-term debt 14,090 727 5.16 10,158 614 6.04
Subordinated capital notes 1,499 113 7.52 1,836 114 6.22
--------- ------- -------- --------
Total interest-bearing liabilities 130,200 $ 4,186 3.22 118,343 $ 4,895 4.14
======= ========
Domestic noninterest-bearing deposits 30,688 26,029
Foreign noninterest-bearing deposits 1,425 1,521
Other noninterest-bearing liabilities 6,728 7,360
--------- --------
Total liabilities/d/ 169,041 153,253
Stockholders' equity 16,285 12,599
--------- --------
Total Liabilities and Stockholders'
Equity $185,326 $165,852
========= ========
Interest income as a percentage of average
earning assets 7.35 % 8.16 %
Interest expense as a percentage of average
earning assets (2.64) (3.43)
----- -----
Net Interest Margin 4.71 % 4.73 %
===== =====
</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 basis adjustments are based on a marginal
tax rate of 40 percent for 1993 and 39 percent for 1992 and 1991.
/c/ Average balances include nonaccrual assets.
/d/ The percentage of average total assets attributable to foreign operations
for the years ended December 31, 1993, 1992, and 1991 were 15 percent, 16
percent, and 20 percent, respectively. The percentage of average total
liabilities attributable to foreign operations for the same periods were
16 percent, 16 percent, and 20 percent, respectively.
6
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================================
Year Ended December 31, 1991 Fourth Quarter 1993 Fourth Quarter 1992
------------------------------------ ----------------------------- -------------------------------
Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,938 $ 341 8.64 % $ 3,142 $ 54 6.82 % $ 3,162 $ 64 8.09 %
2,086 120 5.76 878 6 3.09 956 8 3.18
1,828 107 5.86 4,830 54 4.42 4,932 40 3.25
3,066 278 9.08 7,296 103 5.57 4,506 73 6.45
-- -- -- 3,388 62 7.30 2,763 65 9.41
1,050 87 8.33 3,527 49 5.56 3,050 43 5.57
4,981 457 9.17 11,506 198 6.87 7,408 163 8.80
184 15 7.95 524 10 7.55 613 13 8.13
469 40 8.63 557 11 7.51 832 34 16.54
722 72 9.96 254 5 7.98 -- -- --
-------- ------- -------- ------ -------- ------
7,406 671 9.06 16,368 273 6.65 11,903 253 8.48
17,247 1,657 9.61 30,108 456 6.06 28,380 520 7.32
7,271 1,251 17.21 7,227 292 16.16 8,112 337 16.62
16,053 1,761 10.97 24,084 532 8.77 25,820 612 9.43
13,927 1,132 8.13 20,197 348 6.84 21,807 318 5.80
5,532 526 9.51 9,317 178 7.62 10,122 197 7.77
4,133 313 7.57 4,874 74 5.98 7,305 84 4.60
297 22 7.50 2,266 22 3.84 1,237 13 4.26
1,447 86 5.92 2,266 20 3.56 2,098 19 3.66
748 46 6.19 1,737 44 10.08 1,870 79 16.88
1,110 108 9.70 1,572 32 7.93 1,628 32 7.78
428 22 5.28 1,178 14 4.83 1,101 13 4.82
-------- ------- -------- ------ -------- ------
68,193 6,924 10.15 104,826 2,012 7.64 109,480 2,224 8.10
16,312 1,428 8.75 19,998 318 6.31 17,772 950 7.84
-------- ------- -------- ------ -------- ------
84,505 8,352 9.88 124,824 2,330 7.43 127,252 2,574 8.07
-------- ------- -------- ------ -------- ------
102,829 $ 9,869 9.60 160,726 $2,882 7.16 155,474 $3,077 7.90
======= ====== ======
13,747 29,670 33,844
2,606 3,690 4,147
-------- -------- --------
$113,970 $186,706 $185,171
======== ======== ========
$ 6,276 $ 240 3.83 % $ 13,684 $ 40 1.16 % $ 13,368 $ 51 1.51 %
8,266 399 4.83 14,130 72 2.04 15,398 101 2.60
16,753 890 5.31 34,007 203 2.37 31,280 221 2.82
28,268 1,835 6.49 28,349 185 2.59 32,291 216 2.66
-------- ------- -------- ------ -------- ------
59,563 3,364 5.65 90,170 500 2.20 92,337 589 2.54
3,441 332 9.65 4,130 67 6.40 3,466 63 7.28
2,106 141 6.69 2,568 26 4.02 1,698 19 4.45
10,546 808 7.66 10,343 122 4.70 10,190 160 6.25
-------- ------- -------- ------ -------- ------
16,093 1,281 7.96 17,041 215 5.01 15,354 242 6.28
-------- ------- -------- ------ -------- ------
75,656 4,645 6.14 107,211 715 2.65 107,691 831 3.07
409 23 5.66 511 4 2.81 532 3 2.64
1,929 132 6.84 3,548 46 5.15 1,820 23 5.04
2,327 236 10.12 3,538 56 6.30 3,252 50 6.15
3,035 255 8.40 13,871 177 5.04 13,935 201 5.72
1,280 97 7.58 817 13 6.22 2,069 32 6.11
-------- ------- -------- ------ -------- ------
84,636 $ 5,388 6.37 129,496 $1,011 3.10 129,299 $1,140 3.51
------- ------ ------
15,709 32,283 31,055
1,232 1,473 1,592
5,274 6,602 8,186
-------- -------- --------
106,851 169,854 170,132
7,119 16,852 15,039
-------- -------- --------
$113,970 $186,706 $185,171
======== ======== ========
9.60 % 7.16 % 7.90 %
(5.24) (2.50) (2.92)
----- ----- -----
4.36 % 4.66 % 4.98 %
===== ===== =====
------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
Securities Available for Sale and Securities Held for Investment
Carrying Value and Yield by Contractual Maturity Date
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Securities Available For Sale Securities Held For Investment
------------------------------------- ---------------------------------------------------------
December 31, 1993 December 31, 1992 December 31, 1993 December 31, 1992 December 31, 1991
----------------- ----------------- ----------------- ----------------- -----------------
(in millions) Amount Yield/a/ Amount Yield/a/ Amount Yield/a/ Amount Yield/a/ Amount Yield/a/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S Treasury Securities
Due in one year or less $ 51 3.13% $ -- --% $ 1,730 5.43% $ 856 3.36% $ 48 5.22%
Due after one year through
five years 593 7.69 600 8.08 997 6.31 1,883 6.46 774 8.23
Due after five years through
ten years 101 8.39 100 8.50 28 7.74 35 7.45 426 8.40
Due after ten years 3 8.50 -- -- 694 6.63 -- -- 1 8.66
------- ------- ------- ------- -------
748 700 3,449 2,774 1,249
U.S. Federal Agency Securities/b/
Due in one year or less -- -- -- -- 42 6.03 48 5.82 1 9.15
Due after one year through
five years -- -- -- -- 116 6.69 317 7.05 20 8.43
Due after five years through
ten years 7 9.00 25 8.41 488 6.92 623 6.63 67 7.99
Due after ten years 1,737 5.62 1,218 6.76 10,671 7.00 7,296 7.68 5,485 8.52
------- ------- ------- ------- -------
1,744 1,243 11,317 8,284 5,573
State, County, and Municipal
Securities
Due in one year or less -- -- -- -- 60 6.55 63 7.39 6 5.25
Due after one year through
five years -- -- -- -- 173 7.08 191 7.77 24 5.47
Due after five years through
ten years -- -- -- -- 116 6.99 149 9.50 53 4.80
Due after ten years -- -- -- -- 167 7.82 195 10.44 98 5.00
------- ------- ------- ------- -------
-- -- 516 598 181
Other Securities
Due in one year or less 583 5.41 291 6.18 515 8.69 237 7.08 135 10.13
Due after one year through
five years 108 7.46 304 6.98 302 7.69 304 7.52 593 8.02
Due after five years through
ten years 72 8.13 120 7.34 157 6.47 273 7.96 448 8.15
Due after ten years 27 4.67 3 5.49 159 8.82 123 6.55 181 7.73
------- ------- ------- ------- -------
790 718 1,133 937 1,357
------- ------- ------- ------- -------
$ 3,282 $ 2,661 $16,415 $12,593 $ 8,360
------- ------- ------- ------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Yields on tax-exempt securities have not been computed on a
taxable-equivalent basis.
/b/ Represents mortgage-backed securities of U.S. federal agencies.
The Corporation modified its accounting policies beginning in the third quarter
of 1992 to classify a portion of its securities portfolio as being available for
sale. Information on this modification and the securities portfolios is
incorporated by reference from pages 48 and 49 in Note 1 and Note 7 on pages 56
and 57 of the 1993 Annual Report to Shareholders. In May 1993, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 is effective for fiscal years beginning after December
15, 1993 and will be adopted by the Corporation effective January 1, 1994.
Additional information regarding SFAS No. 115 is incorporated by reference from
page 25 and Note 7 on pages 56 and 57 of the 1993 Annual Report to Shareholders.
8
<PAGE>
================================================================================
Loan Portfolio Loan Outstandings by Type
---------------------------------------------------------
Information on loan outstandings by type is
incorporated by reference from page 27 of the 1993
Annual Report to Shareholders.
Maturity Distribution and Interest Rate Sensitivity of
Certain Types of Loans
---------------------------------------------------------
<TABLE>
<CAPTION>
Remaining Maturities as of December 31, 1993
-------------------------------------------------------------
Due after One
Due in One Year through Due after
(in millions) Year or Less Five Years Five Years Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity Distribution of Loans
Domestic commercial loans:
Secured by real estate $ 2,870 $ 3,419 $2,962 $ 9,251
Construction and development secured by
real estate 2,811 1,316 291 4,418
Commercial and industrial, financial
institutions, and agricultural 17,695 5,604 1,036 24,335
Foreign loans 12,784 2,130 5,306 20,220
- -----------------------------------------------------------------------------------------------------------
$38,160 $12,469 $9,595 $58,224
===========================================================================================================
Loans Due after One Year
Predetermined interest rates $ 3,430 $4,187 $ 7,617
Floating or adjustable interest rates 9,039 5,408 14,447
- -----------------------------------------------------------------------------------------------------------
$12,469 $9,595 $22,064
===========================================================================================================
</TABLE>
Principal repayments of loans are reported above in the maturity category in
which remaining payments are due under the contractual terms of the loan.
Certain loan agreements provide rollover options that may extend the contractual
maturity of these loans. However, these extensions are not reflected in the
table above until such time as the option is exercised.
9
<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/ December 31 Sector/e/ Banks/e/ Sector/e/ Outstandings of Total Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Japan 1993 $ 10 $1,490 $2,054 $3,554 1.90%
1992 6 891 1,953 2,850 1.58
1991 - 1,808 1,835 3,643 3.15
Hong Kong 1993 - 110 2,181 2,291 1.23
1992 - 1,008 1,005 2,013 1.11
1991 - 146 228 374 0.32
Spain 1993 56 105 1,941 2,102 1.12
1992 33 39 1,026 1,098 0.61
1991 13 21 549 583 0.50
United Kingdom 1993 272 177 815 1,264 0.68
1992 154 176 1,890 2,220 1.23
1991 252 150 1,500 1,902 1.65
- ------------------------------------------------------------------------------------------------------------------------------
</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, 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 head-
quartered. 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 December 31, 1993, total unfunded commitments of the above countries,
whose unfunded commitments exceeded 10 percent of their respective
cross-border outstandings, were as follows: Japan, $1,022 million and the
United Kingdom, $1,440 million.
/c/ Included in the cross-border outstandings of the countries listed are loans
and other interest-bearing assets on nonaccrual status as follows: $16
million and $14 million for Japan at December 31, 1993 and 1992,
respectively; $7 million for Hong Kong at December 31, 1993; $6 million and
$2 million for Spain at December 31, 1993 and 1992, respectively; and,
$52 million, $72 million, and $59 million for the United Kingdom at December
31, 1993, 1992, and 1991, respectively. Also included in cross-border
outstandings are loans which are past due 90 days or more and still accruing
interest of $1 million for Hong Kong at December 31, 1993.
/d/ Countries whose cross-border outstandings were between 0.75 percent and 1.00
percent of total assets were as follows: $1,150 million and $958 million for
Canada and Mexico, respectively, at December 31, 1991.
Not included in cross-border outstandings with Mexico were par bonds issued
by the government of Mexico with a face value of $1,341 million, $1,341
million, and $1,219 million at December 31, 1993, 1992, and 1991,
respectively. The par bonds had a carrying value of $1,297 million, $1,299
million, and $1,187 million at December 31, 1993, 1992, and 1991,
respectively. At December 31, 1993, the par bonds had a market value of
approximately $1,140 million. 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 December 31, 1993, this collateral had a fair value of
approximately $250 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 securities of
$45 million at December 31, 1993, 1992, and 1991, which are fully
collateralized at maturity by separate zero-coupon U.S. Treasury securities.
No other 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. However, not included in Venezuela's cross-border outstandings at
December 31, 1993, 1992, and 1991, were par bonds issued by the government
of Venezuela with a face value of $930 million and a carrying value of
$927 million. At December 31, 1993, the par bonds had a market value of
approximately $690 million. Principal repayment of these par bonds is
collateralized by zero-coupon U.S. Treasury securities which, at maturity in
2020, will have a redemption value equal to the face value of the par bonds.
At December 31, 1993, this collateral had a fair value of approximately $150
million. Future interest payments for a rolling fourteen-month period are
also collateralized by additional U.S. dollar-denominated securities
permitted by the agreement. The details of the transaction in which these
par bonds were acquired were reported in the Parent's Annual Report on
Form 10-K for the year ended December 31, 1990. Venezuela's cross-border
outstandings also excluded additional securities which are fully
collateralized at maturity by separate zero-coupon U.S. Treasury
securities of $35 million at December 31, 1993, 1992, and 1991.
/e/ Sector definitions are based on Federal Financial Institutions Examination
Council Instructions for preparing the Country Exposure Report.
10
<PAGE>
================================================================================
Additional information on cross-border outstandings,
information on countries currently experiencing liquidity
problems, and a discussion of the risks inherent in the
Corporation's foreign operations are incorporated by
reference from pages 30 and 37 and Note 9 on pages 58 and 59
of the 1993 Annual Report to Shareholders.
Nonaccrual Assets, Restructured Loans, and Loans Past Due 90
Days or More and Still Accruing Interest
===============================================================
Information on nonaccrual assets, restructured loans, and
loans past due 90 days or more and still accruing interest is
incorporated by reference from pages 33 through 35 of the
1993 Annual Report to Shareholders.
Information on interest income foregone on nonaccrual assets,
nonaccrual loan accounting policies, and interest income
foregone on restructured loans is incorporated by reference
from page 35, Note 1 on page 49, and Note 9 on pages 58 and
59 of the 1993 Annual Report to Shareholders.
Other Interest-Bearing Assets on Nonaccrual Status
===============================================================
Information on other interest-bearing assets on nonaccrual
status is incorporated by reference from pages 33 through 35
of the 1993 Annual Report to Shareholders.
- --------------------------------------------------------------------------------
Summary of Annual Credit Loss Experience
Credit Loss ===============================================================
Experience Information on annual credit loss experience is incorporated
by reference from pages 30 through 33 of the 1993 Annual
Report to Shareholders.
11
<PAGE>
================================================================================
Allowance for Foreign Credit Losses/a/
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 559 $ 808 $1,665 $2,473 $2,631
Credit losses 36 126 375 548 295
Credit loss recoveries 66 174 54 96 92
--------------------------------------------------------------------------------------------------------------------
Net credit (losses) recoveries 30 48 (321) (452) (203)
Provision for credit losses -- 3 -- 262 629
Losses on the sale or swap of loans
to restructuring countries (3) (72) (207) (620) (584)
Other net additions (deductions) (264)/a//b/ (228)/a/ (329)/a/ 2 --
--------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 322 $ 559 $ 808 $1,665 $2,473
--------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ The allocations of the allowance for credit losses and the
provision for credit losses are used to measure divisional
profitability and are based on management's judgment of
potential losses in the respective portfolios. This
allocation process resulted in reductions in the allowance
for foreign credit losses of $166 million, $212 million,
and $327 million in 1993, 1992, and 1991, respectively.
These reductions primarily related to Latin America. While
management has allocated reserves to various portfolio
segments for purposes of this table, the allowance is
general in nature and is available for the portfolio in
its entirety.
/b/ Includes a $36 million addition related to the consolidation
of subsidiaries and operations that were held for
disposition at December 31, 1992 and a deduction of $128
million related to the transfer of certain assets net of
their related allowance to assets pending disposition, of
which $88 million was regulatory-related allocated transfer
risk reserve.
Allocation of Allowance for Credit Losses
================================================================
Information on the allocation of the allowance for credit losses
is incorporated by reference from page 32 of the 1993 Annual
Report to Shareholders.
- --------------------------------------------------------------------------------
Deposits Average Deposit Balances and Average Rates
================================================================
Average deposit balances, average rates, and average foreign
deposit liabilities are shown on pages 6 and 7 of this report.
Maturity Distribution of Domestic Time Deposits of $100,000 or
More
<TABLE>
<CAPTION>
====================================================================================
December 31, 1993
----------------------------------------
Time Certificates Other Time
at Deposit Deposits
(in millions) of $100,000 or More of $100,000 or More
------------------------------------------------------------------------------------
<S> <C> <C>
Time Remaining until Maturity
Three months or less $3,537 $ 120
After three months through six months 1,169 24
After six months through twelve months 736 48
After twelve months 1,082 141
------------------------------------------------------------------------------------
$6,524 $ 333
====================================================================================
</TABLE>
12
<PAGE>
================================================================================
Return on The ratio of average stockholders' equity to average total
Equity assets, the rates of return on average total assets and average
and Assets total and common stockholders' equity, and the dividend payout
ratios for the years ended December 31, 1993, 1992, and 1991
are incorporated by reference from page 17 of the 1993 Annual
Report to Shareholders.
- --------------------------------------------------------------------------------
Short-Term
Borrowings
<TABLE>
<CAPTION>
===============================================================================================================
December 31 Average during Year
----------------------------- -----------------------------
Maximum Weighted Weighted
Outstandings Average Average
(dollar amounts in millions) during Year Outstandings Interest Rate Outstandings Interest Rate
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Federal funds purchased/a/ $1,763 $ 220 2.84% $ 570 2.78%
Securities sold under repurchase
agreements/a/ 4,361 4,229 4.95 2,837 5.58
Other short-term borrowings 3,581 3,523 6.66 3,083 6.52
---------------------------------------------------------------------------------------------------------------
1992
Federal funds purchased/a/ $1,469 $ 417 2.57% $ 626 3.24%
Securities sold under repurchase
agreements/a/ 2,542 926 6.28 2,015 5.35
Other short-term borrowings 7,128 2,092 6.81 3,913 6.90
---------------------------------------------------------------------------------------------------------------
1991
Federal funds purchased/a/ $ 714 $ 258 4.29% $ 409 5.66%
Securities sold under repurchase
agreements/a/ 2,758 1,645 6.18 1,929 6.84
Other short-term borrowings 2,772 1,939 9.96 2,327 10.12
===============================================================================================================
/a/ Federal funds purchased and securities sold under repurchase agreements mature either overnight or weekly.
</TABLE>
- --------------------------------------------------------------------------------
Competition The Corporation, both in the United States and internationally,
operates in intensely competitive environments. Domestically,
the Corporation competes with other major banks, financial
institutions, and nonbanking institutions, such as insurance
companies, brokerage firms, and investment banking firms,
throughout the United States. In recent years, competition has
also developed from predominantly non-finance companies that
offer credit card and other consumer finance services.
Internationally, the Corporation primarily competes with major
foreign banks, domestic banks with international operations, and
other financial institutions. Both domestically and
internationally, the Corporation strives to maintain and improve
its competitive position by providing high quality service and a
wide array of products at competitive prices.
The competitive environment within the United States is largely
defined by federal and state legislation. Banking laws have had
a substantial impact on the structure and competitive dynamics
of financial services markets in the United States since, among
other things, they limit the types of financial services that a
bank can offer and the geographic boundaries within which it can
operate. In addition, banking laws impact the competitive
environment in domestic markets by subjecting foreign banks to
essentially the same requirements as domestic banks with regard
to branching, reserve requirements, and other regulations.
13
<PAGE>
================================================================================
Technological innovation has also led to greater competition
in domestic and international financial services markets.
Since the introduction of automated transfer payment systems,
competition between depository and nondepository institutions
has increased. The sources of competition include savings and
loan associations, credit unions, brokerage firms, money
market mutual funds, finance and insurance companies, mortgage
banking firms, and retail establishments. In addition, both
foreign and domestic banks have developed greater
international network capabilities.
The actions and policy directives of the Federal Reserve Board
(FRB) determine, to a significant degree, the cost and
availability of funds obtained from money market sources for
lending and investing. The FRB also exerts substantial
influence on interest rates and credit conditions by varying
the discount rate on member bank borrowings and setting
reserve requirements against deposits.
Legislative changes, along with technological and economic
factors, can be expected to have an ongoing impact on the
competitive environment within the financial services
industry. As a major and active participant in the financial
markets, the Corporation strives to anticipate and adapt to
these changing competitive conditions, but there can be no
assurance as to their impact on the future results of
operations or financial position of the Corporation.
- --------------------------------------------------------------------------------
Supervision The Parent and Seafirst are primarily regulated by the Board
and Regulation of Governors of the Federal Reserve System. The Bank, Seattle-
First, and the other national-bank subsidiaries of the Parent
are primarily regulated by the Office of the Comptroller of
the Currency (OCC). The state-chartered bank subsidiaries of
the Parent are primarily regulated by the Federal Deposit
Insurance Corporation (FDIC) and state banking regulators,
except for Bank of America Nevada, which is primarily
regulated by the FRB and state banking regulators. FSB is
subject to the regulatory authority of the Office of Thrift
Supervision (OTS) and the FRB. In addition, all domestic
depository-institution subsidiaries of the Parent are insured
institutions, and therefore, subject to the authority of the
FDIC.
In 1989, Congress passed the Financial Institution Reform,
Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA
established new regulations to improve regulatory control over
savings and loan institutions by reorganizing regulatory
authority, raising capital requirements and standards for both
banks and savings and loan institutions, granting additional
authority and responsibility to the FDIC, and expanding the
civil enforcement powers of industry regulators. In addition,
FIRREA altered banking regulations to allow banks and bank
holding companies to acquire and operate savings and loan
institutions, even in states where such banks and bank holding
companies had not been operating previously. FIRREA also
created the Resolution Trust Corporation (RTC) and provided
for funding to enable the RTC to resolve troubled savings and
loan institutions. During 1991 and 1992, the Parent, through
its subsidiaries, assumed certain liabilities and acquired
selected assets of six financial institutions in four western
states from the RTC.
The primary emphasis of the capital standards required by
FIRREA is to ensure that financial institutions have
sufficient capital to support the risk levels of their assets
and off-balance-sheet commitments. The risk-based capital
ratios and the leverage ratio, as required by FIRREA, each
provide a means to measure financial institutions' compliance
with capital standards.
14
<PAGE>
================================================================================
FIRREA contains a "cross-guarantee" provision that could
result in any insured depository institution owned by the
Parent (i.e., any bank subsidiary) being assessed for losses
incurred by the FDIC in connection with assistance provided
to, or the failure of, any other depository institution owned
by the Parent. Under FRB policy, the Parent is expected to act
as a source of financial strength and to commit resources to
support each subsidiary bank. As a result of such policy and
the legislation described below, the Parent may be required to
commit resources to its subsidiary banks in circumstances
where it might not do so absent such policy.
During 1991, the United States Congress passed the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
which focused primarily on recapitalizing the Bank Insurance
Fund (BIF) and tightening the supervision of banks and thrifts.
FDICIA modifies certain provisions of the Federal Deposit
Insurance Act and makes revisions to several other banking
statutes. FDICIA also requires bank regulators to set forth
numerous new regulations, most of which have been finalized.
Among other things, FDICIA provides increased funding for the
BIF, primarily by increasing the authority of the FDIC to
borrow from the U.S. Treasury Department, and provides for
expanded regulation of depository institutions and their
affiliates, including bank holding companies. The FDIC has not
yet needed to borrow funds from the U.S. Treasury Department.
However, any future borrowings would be repaid by insurance
premiums assessed by the FDIC on BIF members, including the
Parent's banking subsidiaries. In addition, FDICIA
generally mandates that the FDIC achieve a ratio of BIF reserves
to insured deposits of banks of 1.25% by 2006, which is also
to be financed by insurance premiums. FDICIA also provides
authority for special assessments against deposits of all BIF
members.
In response to the passage of FDICIA, the FDIC implemented a
regulation to modify deposit insurance premiums beginning in
1993. Under this regulation, the amount of FDIC assessments
paid by individual insured depository institutions is based on
their relative risk as measured by regulatory capital ratios
and certain other factors. Under this new system, in
establishing the insurance premium assessment for each bank,
the FDIC takes into consideration the probability the BIF will
incur a loss with respect to that bank, and charges a bank with
perceived higher inherent risks a higher insurance premium.
The FDIC also considers the different categories and
concentrations of assets and liabilities of the institution,
the likely amount of any such loss, the revenue needs of the
BIF, and any other factors the FDIC deems relevant. Although
the FDIC may establish separate risk-based assessment systems
for large and small members of the BIF, it has not yet done so.
Regardless of the potential risk to the BIF, FDICIA prohibits
assessment rates from falling below the assessment rate of 23
cents per $100 of eligible deposits if the FDIC has outstanding
borrowings from the U.S. Treasury Department, or the 1.25%
designated reserve ratio has not been met.
It is the Corporation's policy to maintain the risk-based
capital ratios of its banking subsidiaries above the "well
capitalized" level, which allows it to avoid certain
additional regulatory requirements that may be imposed under
FDICIA in certain cases. If a bank does not meet any one of
the capital requirements set by its regulators, FDICIA requires
that it submit a capital restoration plan for improving its
capital. A holding company of a bank must guarantee that the
bank will meet its capital restoration plan, subject to certain
limitations. If such a guarantee were deemed to be a commitment
to maintain capital under the Federal Bankruptcy Code, a claim
under such guarantee in a bankruptcy proceeding involving the
holding company would be entitled to a priority over third-party
creditors of the holding company. In addition, FDICIA prohibits
a bank from making a capital distribution to its holding company
or otherwise if it fails to meet any capital requirements and
from paying interest on subordinated debt after the bank becomes
"critically undercapitalized" as that term is defined by the
appropriate federal banking
15
<PAGE>
================================================================================
agency. Furthermore, under certain circumstances, a holding
company of a bank that fails to meet certain of its capital
requirements may be prohibited from making capital
distributions. FDICIA also restricts the acceptance of brokered
deposits by insured depository institutions and contains a
number of consumer banking provisions, including disclosure
requirements and substantive contractual limitations with
respect to deposit accounts.
Information related to the 1993 revision of risk-based capital
guidelines and the pending regulatory proposal to incorporate
interest rate risk into the risk-based capital framework is
incorporated by reference from page 40 of the 1993 Annual Report
to Shareholders.
The amount of funds available to the Parent from its
subsidiaries is limited by federal and state law. The U.S.
National Bank Act prohibits the payment of dividends by a
national bank under certain circumstances, and limits the amount
a national bank can pay without prior approval of the OCC. In
addition, FSB is subject to regulatory restrictions by the OTS
on its payment of dividends. Furthermore, the Federal Reserve
Act restricts the amount of loans that bank subsidiaries may
extend to their parent and sets out specific lending terms that
must be followed by the subsidiary and parent in such
transactions. Specific information related to restrictions on
funds available to the Parent is incorporated by reference from
Note 25 on pages 74 through 75 of the 1993 Annual Report to
Shareholders.
The banking and financial services businesses in which the
Corporation engages are highly regulated. The laws and
regulations affecting such businesses are constantly under
review by Congress, regulatory agencies, and state legislatures,
and may be changed dramatically in the future. Such changes
could affect the ability of bank holding companies to engage in
nationwide banking and in nonbanking businesses, such as
securities underwriting and insurance, in which they have been
allowed to engage only on a limited basis. Such changes may also
affect the amount of capital that banks and bank holding
companies are required to maintain, the premiums paid for or the
availability of deposit insurance, or other matters directly
affecting earnings. It is not certain what changes will occur or
the effect that any changes would have on the profitability of
the Corporation, its ability to compete effectively, or its
ability to take advantage of new opportunities.
Because the Corporation is not involved with the manufacture or
transport of chemicals or toxins that might have an adverse
effect on the environment, its primary exposure to environmental
legislation is through its lending and trust activities. The
Corporation's lending and trust procedures include steps to
identify and monitor this exposure to avoid any significant loss
or liability related to environmental regulations.
- --------------------------------------------------------------------------------
Employees In December 1993, the actual number of persons employed by the
Corporation was 96,428. On a full-time-equivalent basis, the
Corporation's staff level was 79,225 in December 1993.
16
<PAGE>
================================================================================
Item 3. Legal Proceedings
- --------------------------------------------------------------------------------
The Corporation, because of the nature of its business, is
subject to various threatened or filed legal actions.
Although the amount of the ultimate exposure, if any,
cannot be determined at this time, the Corporation, based
upon the advice of counsel, does not expect the final
outcome of threatened or filed suits to have a material
adverse effect on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
None.
17
<PAGE>
PART II
===============================================================================
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -------------------------------------------------------------------------------
Information on dividend restrictions, dividend payments, the
principal market for and trading price of the Parent's common
stock, and the number of holders of such stock is incorporated
by reference from page 17, Note 25 on pages 74 and 75, and
Note 27 on page 77 of the 1993 Annual Report to Shareholders.
Item 6. Selected Financial Data
- -------------------------------------------------------------------------------
Selected financial data is incorporated by reference from page
17 of the 1993 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations is incorporated by reference from
pages 16 through 41 of the 1993 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
- -------------------------------------------------------------------------------
The Report of Independent Auditors and the consolidated
financial statements of the Corporation are incorporated by
reference from pages 43 through 77 of the 1993 Annual Report
to Shareholders. See Item 14 of this report for information
concerning financial statements and schedules filed with this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- -------------------------------------------------------------------------------
None.
18
<PAGE>
PART III
================================================================================
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------------------------
Reference is made to the text under the captions, "Executive
Compensation, Benefits and Related Matters" and "Item No. 1--
Election of Directors" in the Proxy Statement for the May 26,
1994 Annual Meeting of Shareholders of the Parent for
incorporation of information concerning directors and persons
nominated to become directors. Information concerning executive
officers of the Parent as of March 1, 1994 is set forth below.
<TABLE>
<CAPTION>
Name Age Position with Registrant
<S> <C> <C>
Richard M. Rosenberg 63 Chairman of the Board, Chief Executive
Officer, and President
Lewis W. Coleman 52 Vice Chairman of the Board, Chief
Financial Officer, and Treasurer
David A. Coulter 46 Vice Chairman
Luke S. Helms 50 Vice Chairman
Jack L. Meyers 51 Vice Chairman
Thomas E. Peterson 58 Vice Chairman
Michael E. Rossi 49 Vice Chairman
Martin A. Stein 53 Vice Chairman
Kathleen J. Burke 42 Executive Vice President and Personnel
Relations Officer
</TABLE>
Richard M. Rosenberg was appointed Chairman of the Board and
Chief Executive Officer of the Parent and the Bank on May 24,
1990, in addition to his title as President. He was appointed
President of the Parent and the Bank on February 5, 1990. On
May 23, 1992, Mr. Rosenberg relinquished his title as President,
but was reappointed President on October 5, 1992. Previously,
Mr. Rosenberg was Vice Chairman of the Board of the Parent and
the Bank from 1987 to 1990.
Lewis W. Coleman was appointed Chief Financial Officer and
Treasurer of the Parent and the Bank on February 1, 1993, in
addition to his title of Vice Chairman of the Board. He was
appointed Vice Chairman of the Board of the Parent and the Bank
on February 5, 1990. Previously, he was Vice Chairman of the
Parent and the Bank from 1988 to 1990. From 1987 to 1988, he was
Executive Vice President of the Bank and head of the Bank's
Capital Markets Group.
David A. Coulter was appointed Vice Chairman of the Parent and
the Bank on February 1, 1993. Previously, he was Group Executive
Vice President of the Bank and head of the Bank's U.S. Division
from 1992 to February 1993. From 1990 to 1992, he was Executive
Vice President of the Bank and head of the Bank's U.S. Division.
From 1989 to 1990, he was Executive Vice President and head of
the Bank's Capital Markets Division. In 1988, he was appointed
Senior Vice President of the Bank and Director of Corporate
Finance-Americas.
19
<PAGE>
================================================================================
Luke S. Helms was appointed Vice Chairman of the Parent and
the Bank on August 2, 1993. Previously, he was Chairman and
Chief Executive Officer of Seafirst and Seattle-First. He was
appointed President of Seafirst and Seatle-First in 1987.
Jack L. Meyers was appointed Vice Chairman of the Parent and
the Bank on October 4, 1993. He was appointed Chief Credit
Officer of the Bank on September 3, 1993. He was Group
Executive Vice President responsible for the Bank's Commercial
Business Group from 1991 to 1993. He was named head of the
Commercial Banking Division in September 1990. He was
Executive Vice President of the California Commercial Banking
Group from 1989 to 1990. He was head of Credit Risk Management
of the California Commercial Banking Group from 1986 to 1989.
Thomas E. Peterson was appointed Vice Chairman of the Parent
and the Bank on February 5, 1990. Previously, he was appointed
Executive Vice President of the Bank and head of Retail
Banking Division in 1987.
Michael E. Rossi was appointed Vice Chairman of the Parent and
the Bank on October 7, 1991. He was appointed Executive Vice
President of the Parent on December 3, 1990, when he was also
designated to be the head of Credit Policy for the Bank. He
was Executive Vice President of the Commercial Banking
Division--Commercial Markets Group of the Bank from 1988 to
1990. He was Executive Vice President and Chief Credit Officer
of the World Banking Group of the Bank from 1987 to 1988.
Martin A. Stein was appointed Vice Chairman of the Parent and
the Bank on April 27, 1992. He was appointed Executive Vice
President of the Parent and the Bank on June 25, 1990. At the
same time, he was appointed head of the BankAmerica Systems
Engineering Group of the Bank. Prior to joining the Bank, he
was Executive Vice President, Director of National Operations,
and Chief Information Officer for PaineWebber, Inc., New York,
New York from 1985 to 1990.
Kathleen J. Burke was appointed Executive Vice President and
Personnel Relations Officer of the Parent and Executive Vice
President of the Bank on April 22, 1992 and Group Executive
Vice President of the Bank on April 27, 1992. From 1989 to
1992, Ms. Burke served as Executive Vice President of SPC and
SPNB. She also served as Executive Vice President and
Secretary of SPC and SPNB from May 1989 to June 1989, Senior
Vice President and Secretary from April 1988 to May 1989, and
First Vice President and Assistant Secretary from December
1987 to April 1988.
The present term of office for each of the officers named
above will expire on May 26, 1994 or on their earlier
retirement, resignation, or removal. There is no family
relationship between any such officers.
20
<PAGE>
================================================================================
Item 11. Executive Compensation
- --------------------------------------------------------------------------------
Information concerning executive compensation is incorporated
by reference from the text under the captions, "Corporate
Governance-Director Remuneration, Retirement Policy and
Attendance" and "Executive Compensation, Benefits and Related
Matters" (excluding the material under the headings "Report of
the Executive Personnel and Compensation Committee" and
"Shareholder Return Performance Graph" therein) in the Proxy
Statement for the May 26, 1994 Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------------
Information concerning ownership of equity stock of the Parent
by certain beneficial owners and management is incorporated by
reference from the text under the caption, "Ownership of BAC
Stock and Equivalents" in the Proxy Statement for the May 26,
1994 Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------------------------------
Information concerning certain relationships and related
transactions with officers and directors is incorporated by
reference from the text under the caption, "Executive
Compensation, Benefits and Related Matters" in the Proxy
Statement for the May 26, 1994 Annual Meeting of Shareholders.
21
<PAGE>
PART IV
================================================================================
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a)(1) The report of independent auditors and the following
Financial consolidated financial statements of the Corporation are
Statements incorporated herein by reference from the 1993 Annual Report to
Shareholders; page number references are to the 1993 Annual
Report to Shareholders.
<TABLE>
<CAPTION>
Page
<S> <C>
BankAmerica Corporation:
Report of Independent Auditors............................ 43
Consolidated Statement of Operations--
Years Ended December 31, 1993, 1992, and 1991.......... 44
Consolidated Balance Sheet--December 31, 1993 and 1992.... 45
Consolidated Statement of Cash Flows--Years Ended
December 31, 1993, 1992, and 1991...................... 46
Consolidated Statement of Changes in Stockholder's
Equity--Years Ended December 31, 1993, 1992, and 1991.. 47
Notes to Consolidated Financial Statements................ 48
</TABLE>
- --------------------------------------------------------------------------------
(a)(2) Schedules to the consolidated financial statements (Nos. I and
Financial II of Rule 9-07) for which provision is made in the applicable
Statement accounting regulation of the Securities and Exchange Commission
Schedules (Regulation S-X) are inapplicable and, therefore, are not
included.
Financial statements and summarized financial information of
unconsolidated subsidiaries or 50% or less owned persons
accounted for by the equity method are not included as such
subsidiaries do not, either individually or in the aggregate,
constitute a significant subsidiary.
- --------------------------------------------------------------------------------
(a)(3) Exhibits
<TABLE>
<CAPTION>
Incorporated by Reference From File
No. 1-7377:
--------------------------------------
Report on Form
--------------------------
10-Q or 10-K
Filed 8-K for the Period Exhibit
No. Description Herewith Dated Ending No.
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.a. BankAmerica Corporation Certificate of 12/31/92 3(a)
Incorporation, as amended.
3.b. BankAmerica Corporation By-laws, as amended.
Exhibit 3(b) for the Parent's Form S-4
Registration Statement, filed as amended
dated January 12, 1994 (File No. 33-51333)
incorporated herein by reference.
</TABLE>
22
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Incorporated by Reference From File
No. 1-7377:
--------------------------------------
Report on Form
--------------------------
10-Q or 10-K
Filed 8-K for the Period Exhibit
No. Description Herewith Dated Ending No.
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4.a. The Parent and certain of its consolidated
subsidiaries have outstanding certain long-
term debt and subordinated capital notes.
See Notes 14 and 15 on pages 61 and 62
of the 1993 Annual Report to Shareholders.
None of such debt exceeds 10% of the total
assets of the Corporation; therefore, copies
of constituent instruments defining the
rights of holders of such debt are not
included as exhibits. The Parent agrees to
furnish copies of such instruments to the
Securities and Exchange Commission upon
request.
4.b. Rights Agreement dated as of April 11, 1988, 4/11/88 & 4
between the Parent and Manufacturers Hanover 8/12/91 4
Trust Company of California, as Rights Agent,
as amended.
10.a. BankAmerica Corporation Retirement Plan for 12/31/91 10(j)
Nonofficer Directors./a/
10.b. BankAmerica Corporation Deferred Compensation 12/31/92 10(b)
Plan for Directors./a/ 3/31/93 10
10.c. BankAmerica Corporation Deferred Compensation X
Plan, as amended./a/
10.d. BankAmerica Corporation Senior Management X
Incentive Plan (formerly the "Annual
Management Incentive Plan")./a/
10.e. Supplemental CareerAccounts Plan./a/ 3/31/92 10(a)
10.f. BankAmerica Corporation Executive Programs 9/30/89 10(b)
Summary./a/
10.g. BankAmerica Corporation 1987 Management Stock 12/31/91 10(f)
Plan./a/
10.h. Management Incentive Stock Plan./a/ 12/31/91 10(g)
10.i. 1992 Management Stock Plan./a/ 12/31/91 10(h)
10.j. BankAmerica Corporation 1991 Stock Appreciation 6/30/92 10(a)
Rights Plan./a/
10.k. Employment agreement dated April 30, 1987 12/31/92 10(k)
between R.M. Rosenberg and the Parent and the
Bank, and Supplemental Benefits Agreement dated
as of November 21, 1985 between R.M. Rosenberg
and Seafirst and Seattle-First./a/
10.l. Employment Agreement effective June 8, 1987 3/31/92 10(j)
between Thomas E. Peterson and the Bank./a/
10.m. Security Pacific Corporation Stock-Based 3/31/92 10(e)
Incentive Award Plan./a/
</TABLE>
- --------------------
/a/Management contract or compensatory plan, contract, or arrangement.
23
<PAGE>
<TABLE>
<CAPTION>
Incorporated by Reference From File
No. 1-7377:
----------------------------------------
Report on Form
---------------------------
10-Q or 10-K
Filed 8-K for the Period Exhibit
No. Description Herewith Dated Ending No.
-----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
10.n. Security Pacific Corporation Stock
Option Plan./a/ 3/31/92 10(f)
11. Computation of Earnings Per Common Share. X
12.a. Ratios of Earnings to Fixed Charges and X
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
12.b. Historical and Pro Forma Combined Ratios X
of Earnings to Fixed Charges and Ratios
of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
13. 1993 Annual Report to Shareholders. X
Portions not incorporated by reference
are furnished for informational purposes
and are not filed herewith.
21. BankAmerica Corporation Subsidiaries. X
23. Consent of Ernst & Young. X
24. Powers of Attorney. X
99.a. Information concerning the agreement to 2/1/94
merge Continental Bank Corporation with
and into BankAmerica Corporation.
</TABLE>
-------------------------
/a/Management contract or compensatory contract, or arrangement.
- --------------------------------------------------------------------------------
(b)Reports on During the fourth quarter of 1993, the Parent filed a report on
Form 8-K Form 8-K dated October 20, 1993. The October 20, 1993 report
filed, pursuant to Items 5 and 7 of the report, a copy of the
Parent's press release titled "BankAmerica Third Quarter
Earnings." After the fourth quarter of 1993, the Parent filed
reports on Form 8-K dated January 19, 1994, January 27, 1994,
and March 11, 1994. The January 19, 1994 report filed,
pursuant to Items 5 and 7 of the report, a copy of the
Parent's press release titled "BankAmerica Fourth Quarter
Earnings." The January 27, 1994 report disclosed, pursuant to
Items 5 and 7 of the report, Continental's agreement to merge
with and into the Parent and a related stock option agreement
to purchase Continental common stock dated as of January 27,
1994. The March 11, 1994 report disclosed, pursuant to Items 5
and 7 of the report, certain information regarding the pending
Continental acquisition.
24
<PAGE>
SIGNATURES
================================================================================
Pursuant to the requirements of Section 13 or 15(d) 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.
March 16, 1994
BANKAMERICA CORPORATION
By /s/ Joseph B. Tharp
------------------------------
(Joseph B. Tharp,
Executive Vice President
and Financial Controller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title
Principal Executive Officer and Director:
/s/ Richard M. Rosenberg Chairman of the Board and Chief
- ----------------------------------------- Executive Officer
(Richard M. Rosenberg)
Principal Financial Officer and Director:
/s/ Lewis W. Coleman Vice Chairman of the Board and
- ----------------------------------------- Chief Financial Officer
(Lewis W. Coleman)
Principal Accounting Officer:
/s/ Joseph B. Tharp Executive Vice President
- ----------------------------------------- and Finacial Controller
(Joseph B. Tharp)
Directors:
JOSEPH F. ALIBRANDI* Director FRANK L. HOPE, JR.* Director
PETER B. BEDFORD* Director LAWRENCE O. KITCHEN* Director
ANDREW F. BRIMMER* Director IGNACIO E. LOZANO, JR.* Director
RICHARD A. CLARKE* Director CORNELL C. MAIER* Director
TIMM F. CRULL* Director WALTER E. MASSEY* Director
C. R. DAHL* Director RUBEN F. METTLER* Director
KATHLEEN FELDSTEIN* Director A. MICHAEL SPENCE* Director
DONALD E. GUINN* Director JACQUES S. YEAGER* Director
PHILIP M. HAWLEY* Director
A majority of the members of the Board of Directors.
*By /s/ Cheryl Sorokin
----------------------------------
(Cheryl Sorokin, Attorney-in-Fact)
Dated: March 16, 1994
25
<PAGE>
Other information about
BankAmerica Corporation may
be found it its Quarterly
Reports to Shareholders and its
Annual Report to Shareholders.
These reports, as well as additional
copies of this Form 10-K, may be
obtained from:
Corporate Public Relations #3124
Bank of America
P.O. Box 37000
San Francisco, CA 94137
================================================================================
[BANKAMERICA CORPORATION LOGO APPEARS HERE]
BankAmerica Corporation
- --------------------------------------------------------------------------------
NL-9 2-94 Recycled
[Recycled paper logo appears here] Paper
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Exhibit Index
Incorporated by Reference From File
No. 1-7377:
----------------------------------------------
Reported on Form
-------------------------------------
10-Q or 10-K
Filed 8-K for the Exhibit
No. Description Herewith Dated Period Ending No.
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3.a. BankAmerica Corporation Cert- 12/31/92 3(a)
ificate of Incorporation, as
amended.
3.b. BankAmerica Corporation By-laws,
as amended. Exhibit 3(b) for the
Parent's Form S-4 Registration
Statement filed as amended dated
January 12, 1994 (File No. 33-51333)
incorporated herein by reference.
4.a. The Parent and certain of its consol-
idated subsidaries have outstanding
certain long-term debt and subord-
inated capital notes. See Notes 14
and 15 on pages 61 and 62 of the 1993
Annual Report to Shareholders. None
of such debt exceeds 10% of the total
assets of the Corporation; therefore,
copies of constituent instruments
defining the rights of holders of such
debt are not included as exhibits.
The Parent agrees to furnish copies of
such instruments to the Securities and
Exchange Commission upon request.
4.b. Rights Agreement dated as of April 11, 4/11/88 & 4
1988, between the Parent and Manufac- 8/12/91 4
turers Hanover Trust Company of California,
as Rights Agent, as amended.
10.a. BankAmerica Corporation Retirement Plan 12/31/91 10(j)
for Nonofficer Directors./a/
10.b. BankAmerica Corporation Deferred 12/31/92 10(b)
Compensation Plan for Directors./a/ 3/31/93 10
10.c. BankAmerica Corporation Deferred X
Compensation Plan, as amended./a/
10.d. BankAmerica Corporation Senior X
Management Incentive Plan (formerly
the "Annual Management Incentive
Plan")./a/
10.e. Supplemental Career Accounts Plan./a/ 3/31/92 10(a)
10.f. BankAmerica Corporation Executive 9/30/89 10(b)
Programs Summary./a/
10.g. BankAmerica Corporation 1987 Management Stock
Plan./a/ 12/31/91 10(f)
10.h. Management Incentive Stock Plan./a/ 12/31/91 10(g)
10.i. 1992 Management Stock Plan./a/ 12/31/91 10(h)
10.j. BankAmerica Corporation 1991 Stock 6/30/92 10(a)
Appreciation Rights Plan./a/
</TABLE>
------------------------------
/a/Management contract or compensatory plan, contract, or
arrangement.
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Exhibit Index
Incorporated by Reference From File
No. 1-7377:
-------------------------------------
Report on Form
---------------------------
10-Q or 10-K
Filed 8-K for the Period Exhibit
No. Description Herewith Dated Ending No.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10.k. Employment agreement dated April 30, 1987 12/31/92 10(k)
between R.M. Rosenberg and the Parent and
the Bank, and Supplemental Benefits
Agreement dated as of November 21, 1985
between R.M. Rosenberg and Seafirst and
Seattle-First./a/
10.l. Employment Agreement effective June 8, 1987 3/31/92 10(j)
between Thomas E. Peterson and the Bank./a/
10.m. Security Pacific Corporation Stock-Based 3/31/92 10(e)
Incentive Award Plan./a/
10.n. Security Pacific Corporation Stock Option 3/31/92 10(f)
Plan./a/
11. Computation of Earnings Per Common Share. X
12.a. Ratios of Earnings to Fixed Charges and X
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
12.b. Historical and Pro Forma Combined Ratios of X
Earnings to Fixed Charges and Ratios of
Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
13. 1993 Annual Report to Shareholders. Portions X
not incorporated by reference are furnished
for informational purposes and are not filed
herewith.
21. BankAmerica Corporation Subsidiaries. X
23. Consent of Ernst & Young. X
24. Powers of Attorney. X
99.a. Information concerning the agreement to 2/1/94
merge Continental Bank Corporation with
and into BankAmerica Corporation.
</TABLE>
- ------------------------------------
/a/ Management contract or compensatory plan, contract, or arrangement.
<PAGE>
Exhibit 10.c.
-------------
AMENDMENT TO BANKAMERICA CORPORATION
DEFERRED COMPENSATION PLAN
The BankAmerica Corporation Deferred Compensation Plan (the "Plan"), as
amended and restated in its entirety on October 22, 1993 is further amended by
BankAmerica Corporation as follows, effective January 1, 1993:
The definition of "Eligible Officer" at Section 1.1(i) is amended by the
addition of the following sentence:
"However, a member of Senior Management who is classified as an
International Assignee or Foreign Local Employee under the personnel
policy of the Company shall not be an Eligible Officer."
IN WITNESS WHEREOF, BankAmerica Corporation has caused this instrument to
be executed by its duly authorized officer on this 6th day of December 1993.
BANKAMERICA CORPORATION
By /S/ KATHLEEN J. BURKE
---------------------------
Kathleen J. Burke
Personnel Relations Officer
<PAGE>
BANKAMERICA CORPORATION
DEFERRED COMPENSATION PLAN
ARTICLE I
Purpose
-------
The purpose of this Plan is to provide members of Senior Management of
BankAmerica Corporation and its subsidiaries the opportunity to defer the
receipt of Salary and Annual Incentive Awards.
The Plan is unfunded and is maintained by BankAmerica Corporation primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees.
The Plan was originally adopted on November 7, 1977 and, as amended from
time to time thereafter, is hereby amended and restated in its entirety,
effective January 1, 1994, to read as stated below.
ARTICLE II
Definitions
-----------
1.1 The following terms shall have the meanings set forth below, if
capitalized.
(a) "Account" means a Deferred Compensation Account described in
Article IV.
(b) "Annual Incentive Award" means a discretionary cash incentive
award under an Annual Incentive Plan, payable with respect to a Plan Year.
(c) "Annual Incentive Plan" means the BankAmerica Corporation Annual
Management Incentive Plan, as amended from time to time, and any other written
plan of the Company providing for annual discretionary cash awards which
permits the deferral of such awards by Eligible Officers under this Plan.
(d) "Beneficiary" means the person designated by the Participant
under Section 5.6.
(e) "Committee" means the Executive Personnel and Compensation
Committee of the Board of Directors of BankAmerica Corporation.
(f) "Company" means BankAmerica Corporation and any
-2-
<PAGE>
subsidiary of BankAmerica Corporation which has been authorized by BankAmerica
Corporation to participate in the Plan.
(g) "Deferred Compensation" means Salary or an Annual Incentive
Award which has been deferred by a Participant under the Plan.
(h) "Election" means the irrevocable election agreement which must
be executed in accordance with the provisions of Article III in order for an
Eligible Officer to defer Salary or an Annual Incentive Award for any Plan
Year. The Election shall be in the form prescribed by the Plan Administrator.
(i) "Eligible Officer" means a member of Senior Management, as
defined from time to time by the Committee.
(j) "Participant" means any Eligible Officer who has filed an
Election pursuant to Article III for any Plan Year. The status as a
Participant shall continue until the earlier of (1) death, or (2) receipt of
the full amount of all benefits payable to such person under this Plan.
(k) "Plan"means the BankAmerica Corporation Deferred Compensation
Plan as it may be amended from time to time.
(l) "Plan Administrator" means the manager of Executive Programs of
Bank of America NT&SA.
(m) "Plan Year" means the calendar year to which an Election
relates.
(n) "Retirement" means the early, normal or postponed retirement as
defined under the retirement policy of the Company.
(o) "Salary" means the base salary of an Eligible Officer payable
during a Plan Year.
(p) "Termination" means the date on which a Participant ceases to
be an employee of a Participating Employer, which shall occur on the earliest
of discharge, resignation, death before Retirement, or Retirement.
ARTICLE III
Participation
-------------
3.1 An Eligible Officer may file an Election under this Plan to defer
the receipt of Salary or an Annual Incentive Award. A separate Election must
be filed for each Plan Year for which Salary or an Annual Incentive Award is
to be deferred.
-3-
<PAGE>
To defer the receipt of Salary, the Participant's Election must be filed
with the Plan Administrator prior to the beginning of the Plan Year during
which the Salary is payable. To defer the receipt of an Annual Incentive Award
for a Plan Year (which is payable after the end of the Plan Year), the
Election must be filed with the Plan Administrator prior to the end of the
Plan Year to which the Annual Incentive Award relates. All elections must be
filed by the date specified by the Plan Administrator.
3.2 Each Election shall state the following:
(a) The Plan Year to which the Election applies.
(b) The amount of Salary or Annual Incentive Award which the Eligible
Officer elects to treat as Deferred Compensation. Deferred Compensation shall
be designated as a percentage or as a fixed dollar amount.
(c) The time and manner of payment of that Plan Year's Deferred
Compensation, selected in accordance with Section 5.1.
3.3 The maximum amount that a Participant may defer under the Plan is
75 percent of Salary and 100 percent of an Annual Incentive Award.
3.4 The Company shall withhold payment of the applicable portion of each
Salary payment and Annual Incentive Award designated by the Participant as
Deferred Compensation for the Plan Year.
ARTICLE IV
Deferred Compensation Accounts
------------------------------
4.1 The Plan Administrator shall establish a bookkeeping liability for
each Participant in the Plan on the following terms:
(a) A separate Account shall be established with respect to each
Election filed by a Participant.
(b) An Account shall serve solely as a device for determining the
amount to be paid to the Participant at the time specified for payment.
Accounts shall not be funded by the Company and shall not constitute or be
treated as funds set aside in trust or escrow and the Participant shall have no
property rights with respect to such Accounts.
(c) Payments from an Account shall be made only at the time and in
the manner specified in the applicable Election, or otherwise in accordance with
the provisions of Article V.
-4-
<PAGE>
4.2 Accounts shall be adjusted as follows:
(a) The Participant's Account for the Plan Year shall be credited on
the last business day of any month in which an amount designated as Deferred
Compensation would have otherwise been paid to the Participant.
(b) All Accounts shall be credited with interest at the rate to be
determined from time to time by the Committee. Interest shall be credited
commencing with the date the Deferred Compensation would have been paid in the
absence of the Election and on the last day of each month thereafter. Interest
on amounts paid from an Account shall be credited through the last day of the
month in which the payment is made.
(c) The balance of an Account shall equal the sum of all credits made
to the Account as of the date on which the balance is computed.
(d) An Account shall be closed when the full balance has been paid
in accordance with the Election and Article V.
4.3 Deferred amounts credited as of December 31, 1992 under the
BankAmerica Corporation Annual Management Incentive Plan and the Honfed 1991
Deferred Compensation Plan for Directors and Key Associates (the "Honfed
Plan") shall be credited to Participants' Accounts on January 1, 1993 and
shall be subject to the terms of this Plan on and after January 1, 1993.
Deferred amounts credited as of December 31, 1993 under any other Annual
Incentive Plan shall similarly be credited to Participants' Accounts on
January 1, 1994. Participant elections under the Annual Incentive Plans and
the Honfed Plan shall remain in effect, except that payment of deferred
amounts must commence no later than is permitted under Article V.
ARTICLE V
Payments of Benefits
--------------------
5.1 The balance of an Account shall be paid at the time and in the
manner specified in the applicable Election, in accordance with the following
provisions:
(a) The Participant shall designate in the Election the date at which
payment of the Account shall commence. This date may not be later than 36
months after the date of the Participant's Retirement.
(b) The Participant shall designate in the Election that payment of
the Account shall be made in accordance with one of the following options:
-5-
<PAGE>
(1) In a single payment.
(2) In a specified number of approximately equal annual
installments.
(c) The Participant shall designate in the Election that, in the
event of the Participant's Termination (other than Termination upon death or
Retirement) prior to the payment date specified in (a), payment of the Account
shall be made in accordance with one of the following options:
(1) In a single payment within 60 days of the Termination.
(2) In a single payment within the first 60 days of the
calendar year immediately following the calendar year in which the Termination
occurs.
(3) In three approximately equal payments, each made within the
first 60 days of the three calendar years immediately following the calendar
year in which the termination occurs.
5.2 For Elections filed before January 1, 1993, in the event of a
Participant's Termination (other than Termination upon death or Retirement)
prior to the payment date specified in the Election for an Account, the full
balance of such Account shall be paid to the Participant in a single payment
within 60 days of the Termination.
5.3 In the event a Participant incurs a substantial and unanticipated
financial hardship which cannot be satisfied from other resources reasonably
available to the Participant, the Plan Administrator in his or her sole
discretion may, upon the Participant's written request, authorize a payment to
the Participant from his or her Accounts no greater than the amount necessary to
satisfy such hardship. The Plan Administrator shall establish a procedure
specifying which Accounts of a Participant are to be charged for a payment under
this section.
5.4 A Participant may at any time submit a written request to the Plan
Administrator for immediate payment of the full balance of the Participant's
Accounts. In such event, 10 percent of the balance of the Participant's
Accounts shall be forfeited and the remaining 90 percent paid to the Participant
in a single payment within 60 days of the request. A Participant who elects an
immediate payment under this section shall be ineligible to participate in the
Plan during any future Plan Year.
5.5 In the event of a Participant's death prior to the payment of the full
balance of the Participant's Accounts, the remaining balance shall be paid in a
single payment within 60
-6-
<PAGE>
days of the Participant's death to the Participant's Beneficiary. If no
Beneficiary has been designated, or if no Beneficiary is alive at the date of
the Participant's death, payment shall be made to the Participant's estate.
5.6 Each Participant may designate one or more Beneficiaries to receive
any portion of the Participant's Accounts which remains unpaid at the
Participant's death by filing a Beneficiary designation with the Plan
Administrator. The Beneficiary designation shall be on the form specified by
the Plan Administrator and the designation may be changed from time to time by
the Participant. Only one Beneficiary designation shall be in effect at any
given time with respect to all Accounts of a Participant.
5.7 The Company shall have the right to deduct from payments under the
Plan any and all withholding taxes which may be required to be collected under
federal, state or local law.
ARTICLE VI
Administration of the Plan
--------------------------
6.1 The Plan Administrator shall administer the provisions of the Plan.
The Plan Administrator shall have the power to construe and interpret the Plan,
adopt and revise rules and regulations relating to the Plan and make any other
determinations which he or she deems necessary or advisable for the
administration of the Plan. Any decision concerning the administration,
construction or interpretation of the Plan shall be within the Plan
Administrator's absolute discretion and be conclusive and binding on all
parties.
ARTICLE VII
Other Provisions
----------------
7.1 BankAmerica Corporation reserves the right to amend, modify, terminate
or discontinue the Plan in whole or part at any time by a written amendment
executed by a duly authorized officer of BankAmerica Corporation. However, no
such action shall reduce the balance of a Participant's Accounts as of the date
of such action. Upon termination of the Plan, all Participants shall be paid
the balance of their Accounts in a single payment within 60 days.
7.2 The designation of an employee as an Eligible Officer shall not give
such employee any right to be retained in the employ of the Company and the
ability of the Company to suspend, demote, transfer, remove or terminate the
employee is
-7-
<PAGE>
specifically reserved.
7.3 No Participant shall have the right to alienate, assign, encumber,
hypothecate, or pledge his or her Accounts under the Plan, voluntarily or
involuntarily, and any attempt to do so shall be void.
7.4 This document is a complete statement of the Plan and as of the
effective date above supersedes any prior plans, proposals, representations,
promises, and inducements, written or oral, relating to its subject matter. The
Company shall not be bound by or liable to any employee for any representation,
promise, or inducement made by any person which is not embodied in this document
or in any authorized written amendment to the Plan.
7.5 The validity and effect of the Plan and the rights and obligations of
all persons under the Plan are to be construed and determined in accordance with
applicable federal law, and to the extent that federal law is inapplicable,
under the laws of the State of California.
IN WITNESS WHEREOF, BankAmerica Corporation has caused this instrument to
be executed by its duly authorized officer this 22nd day of October, 1993 to
be effective January 1, 1994.
BANKAMERICA CORPORATION
By /S/ KATHLEEN J. BURKE
-------------------------
Kathleen J. Burke
Executive Vice President
and Personnel Relations
Officer
-8-
<PAGE>
EXHIBIT 10.d.
------------
BANKAMERICA CORPORATION
SENIOR MANAGEMENT INCENTIVE PLAN
ARTICLE I
---------
PURPOSE AND EFFECTIVE DATE
--------------------------
The purpose of the BankAmerica Corporation Senior Management Incentive
Plan (the "Plan") is to encourage superior performance by eligible Executive
Officers and Senior Officers of BankAmerica Corporation and its subsidiaries and
affiliates through the payment of annual cash incentive awards.
This Plan is effective as of January 1, 1994, and constitutes an amendment
in its entirety to the BankAmerica Corporation Annual Management Incentive Plan,
as amended, effective January 1, 1982, and as amended from time to time
thereafter.
ARTICLE II
----------
DEFINITIONS
-----------
2.1 The following items shall have the meanings set forth below, if
capitalized.
(a) "Committee" means the Executive Personnel and Compensation
Committee of the Board of Directors of BankAmerica Corporation.
(b) "CEO" means the chief executive officer of BankAmerica
Corporation.
(c) "Company" means BankAmerica Corporation and any subsidiary or
affiliate of BankAmerica Corporation which has been authorized by BankAmerica
Corporation to participate in the Plan.
(d) "Executive Officer" means an individual designated by the
BankAmerica Corporation Board of Directors as an executive officer for federal
securities law purposes.
(e) "Participant" means an officer of the Company designated as a
Participant for a Plan Year under Sections 3.1 or 3.2.
(f) "Plan" means the BankAmerica Corporation Senior Management
Incentive Plan as it may be amended from
<PAGE>
time to time.
(g) "Plan Year" means the calendar year.
(h) "Retirement" means early, normal or postponed retirement as
defined under the retirement policy of the Company.
(i) "Senior Officer" means an officer of the Company designated by
the CEO as an impact level I or II officer.
ARTICLE III
-----------
DESIGNATION OF PARTICIPANTS
---------------------------
3.1 Each Executive Officer of the Company shall be a Participant in the
Plan, provided such Executive Officer is also a member of the Managing Committee
of Bank of America NT&SA.
3.2 Each Senior Officer of the Company shall be a Participant in the Plan,
unless such officer participates in an annual cash incentive program within his
or her business unit or subsidiary.
3.3 No member of the Committee, and no member of the Board of Directors of
BankAmerica Corporation who is not also a regular salaried employee of the
Company, shall be eligible to participate in the Plan.
3.4 The Committee may, but need not, consider for prorated or full
incentive awards Participants who have ceased employment because of death,
disability, or retirement prior to the date the Committee determines incentive
awards under the Plan. Participants who terminate employment (or give notice of
intent to terminate employment) for reasons other than death, disability, or
retirement prior to the date the Committee determines the incentive awards under
the Plan will not be eligible to be considered for an incentive award, unless
the Committee determines in its sole discretion that, because of special
circumstances, the Participant should be eligible to be considered.
3.5 Participation in the Plan shall not entitle any officer to an award
under the Plan. All awards shall be made in the sole discretion of the
Committee.
-2-
<PAGE>
ARTICLE IV
----------
DETERMINATION OF INCENTIVE POOL
-------------------------------
4.1 Incentive awards under the Plan shall be made from the Incentive Award
Pool established for each Plan Year. The Incentive Award Pool shall be an
amount equal to 2 percent of BankAmerica Corporation's income for the Plan Year
before income tax expense, extraordinary items and the cumulative effect of
accounting changes as specified in BankAmerica Corporation's announcement of
annual financial results filed with the Securities and Exchange Commission.
However, if BankAmerica Corporation's return on average common shareholders'
equity for the Plan Year is less than 12 percent, the Incentive Award Pool shall
be reduced by 10 percent for each percent (or fraction thereof) that the return
on average common shareholders' equity is less than 12 percent.
4.2 The Committee may, but need not, grant incentive awards up to the full
amount of the Incentive Award Pool.
4.3 All officers are expected to maintain satisfactory operational and
financial controls for their respective areas of responsibility. As applicable,
Participants are expected to achieve satisfactory audits, both internal and
external, satisfactory credit examinations, to maintain proper financial records
and controls in accordance with applicable policy, and to respond promptly to
any control problems that might arise. The maintenance of and adherence to
internal controls is a key factor in evaluation of performance. If the
Participant fails to satisfactorily meet the requirements described above, the
Committee and CEO, in their sole judgment, may grant a lesser award or make no
award to a Participant in view of such failure.
ARTICLE V
---------
DETERMINATION OF AWARDS FOR EXECUTIVE OFFICERS
----------------------------------------------
5.1 The Committee shall allocate a percentage of the Incentive Award Pool
to each Executive Officer who is a Participant for the Plan Year. The
allocation shall be made prior to January 31, 1994 and prior to January 1 of
each subsequent Plan Year. No Participant may be allocated more than 10 percent
of the Incentive Award Pool. No incentive award shall exceed the Participant's
allocated percentage of the Incentive Award Pool.
5.2 After the end of the Plan Year, the Committee shall calculate the
nominal value of each Participant's allocated percentage of the Incentive Award
Pool.
-3-
<PAGE>
5.3 The Committee shall assess the performance of each Executive Officer
who is a Participant, taking into account the Participant's individual
performance and overall contribution to the Company for the Plan Year, the
corporate performance of BankAmerica Corporation for the Plan Year, and such
other criteria as the Committee may determine to promote the purposes of the
Plan in an individual case. The Committee shall determine the amount of each
Participant's incentive award for the Plan Year in its sole discretion. The
Committee may use its discretion to reduce an incentive award below the nominal
value of a Participant's allocated percentage of the Incentive Award Pool.
ARTICLE VI
----------
DETERMINATION OF AWARDS FOR SENIOR OFFICERS
-------------------------------------------
6.1 The CEO shall establish a target award for each Senior Officer who is
a Participant as soon as practicable after the beginning of the Plan Year. The
CEO shall advise the Committee of the target award for each Participant.
6.2 After the end of the Plan Year, each Participant's performance shall
be assessed by the CEO who shall make an award recommendation to the Committee
for the Participant. The incentive award recommendation shall be based on the
achievement of corporate, division and individual objectives as determined by
the CEO.
6.3 The designation of annual award recipients and the amount of
individual awards shall be in sole discretion of the Committee following receipt
of recommendations from the CEO. In determining awards, the Committee may
follow the award recommendation by the CEO or may make a lesser or greater
award, taking into account the Participant's overall contribution to the Company
for the Plan Year, the corporate performance of BankAmerica Corporation for the
Plan Year, and such other criteria as the Committee may determine to promote the
purposes of the Plan in an individual case.
6.4 The aggregate amount of incentive awards to Senior Officers shall not
exceed the portion of the Incentive Award Pool not allocated to Executive
Officers.
ARTICLE VII
-----------
PAYMENT AND DEFERRAL
--------------------
7.1 Incentive awards granted by the Committee, less applicable withholding
taxes, shall be paid in cash as soon as reasonably possible after being awarded.
-4-
<PAGE>
7.2 A Participant may elect to defer receipt of all or part of any annual
incentive award under the BankAmerica Corporation Deferred Compensation Plan.
ARTICLE VIII
------------
OTHER PROVISIONS
----------------
8.1 The Board of Directors of BankAmerica Corporation reserves the right
to modify, suspend or terminate this Plan at any time.
8.2 The Committee and CEO shall each have the power to construe and
interpret the Plan. Any decision arising out of or in connection with the
construction, interpretation and administration of the Plan shall lie within the
Committee's absolute discretion and shall be final and binding on all parties.
8.3 The designation of an officer as a Participant or the grant of an
award to an officer shall not give such officer any right to be retained in the
employ of the Company and the ability of the Company to dismiss or discharge the
officer is specifically reserved.
8.4 No Participant shall have the right to alienate, assign, encumber,
hypothecate or pledge his or her interest in any award under the Plan,
voluntarily or involuntarily, prior to payment and any attempt to dispose of any
such interest shall be void. Notwithstanding the preceding sentence, the
Company shall have the right to offset from an unpaid or deferred award any
amounts due and owing from the Participant to the extent permitted by law. The
Company shall not be required to segregate physically any cash or to establish
any separate account or accounts to fund any awards made or to be made under the
Plan.
8.5 This document is a complete statement of the Plan and as of the date
below supersedes all prior plans, proposals, representations, promises and
inducements, written or oral, relating to its subject matter. The Company shall
not be bound by or liable to any person for any representation, promise or
inducement made by any person which is not embodied in this document or in any
authorized written amendment to the Plan.
8.6 The Plan shall be construed and enforced in accordance with California
law.
-5-
<PAGE>
Exhibit 11
----------
BANKAMERICA CORPORATION
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Year Ended December 31
(Dollar amounts in millions, except -------------------------------------
per share data) 1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Income before extraordinary credit $1,954 $1,492 $1,124
Extraordinary credit - - -
------ ------ ------
Net income 1,954 1,492 1,124
Less: Preferred stock dividends 241 169 61
------ ------ ------
Net Income Applicable to Common Stock $1,713 $1,323 $1,063
====== ====== ======
Average number of common shares
outstanding 355,106,722 308,190,534 215,845,828
Average number of common and common
equivalent shares outstanding 357,679,670 312,218,182 220,749,152
Average number of common shares
outstanding assuming full dilution 363,243,993 317,855,736 224,317,916
Earnings per common and common
equivalent share $ 4.79 $ 4.24 $ 4.81
Earnings per common share-
assuming full dilution $ 4.76 $ 4.21 $ 4.78
</TABLE>
Earnings per common and common equivalent share are computed by dividing net
income applicable to common stock by the total of the average number of common
shares outstanding and the additional dilutive effect of stock options and
warrants outstanding during the respective period. The dilutive effect of stock
options and warrants is computed using the average market price of BankAmerica
Corporation's common stock for the period.
Earnings per common share, assuming full dilution, are computed based on the
average number of common shares outstanding during the period, and the
additional dilutive effect of stock options and warrants outstanding during the
period. The dilutive effect of outstanding stock options and warrants is
computed using the greater of the closing market price or the average market
price of BankAmerica Corporation's common stock for the period. Earnings per
common share, assuming full dilution, also includes the dilution which would
result if BankAmerica Corporation's 6 1/2% Cumulative Convertible Preferred
Stock, Series G (Convertible Preferred Stock), outstanding during the period had
been converted at the beginning of the period. Net income applicable to common
stock is adjusted for dividends declared on the Convertible Preferred Stock of
$16 million, $16 million, and $10 million during the years ended December 31,
1993, 1992 and 1991, respectively.
<PAGE>
Exhibit 12. a.
------------
Page 1 of 3
------------
BANKAMERICA CORPORATION
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
(dollar amounts in millions) 1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Fixed charges:
Interest expense (other
than interest on deposits) $1,215 $1,126 $ 743 $ 912 $ 932
Interest factor in rent expense 112 95 82 85 93
Other 2 1 1 1 1
------ ------ ------ ------ ------
$1,329 $1,222 $ 826 $ 998 $1,026
====== ====== ====== ====== ======
Earnings:
Income from operations $1,954 $1,492 $1,124 $1,115 $1,103
Applicable income taxes 1,474 1,190 749 284 245
Fixed charges 1,329 1,222 826 998 1,026
Other (39) (14) (15) (16) (25)
------ ------ ------ ------ ------
$4,718 $3,890 $2,684 $2,381 $2,349
====== ====== ====== ====== ======
Ratio of earnings to fixed charges,
excluding interest on deposits 3.55 3.18 3.25 2.39 2.29
INCLUDING INTEREST ON DEPOSITS
Fixed charges:
Interest expense $4,186 $4,895 $5,388 $6,097 $5,536
Interest factor in rent expense 112 95 82 85 93
Other 2 1 1 1 1
------ ------ ------ ------ ------
$4,300 $4,991 $5,471 $6,183 $5,630
====== ====== ====== ====== ======
Earnings:
Income from operations $1,954 $1,492 $1,124 $1,115 $1,103
Applicable income taxes 1,474 1,190 749 284 245
Fixed charges 4,300 4,991 5,471 6,183 5,630
Other (39) (14) (15) (16) (25)
------ ------ ------ ------ ------
$7,689 $7,659 $7,329 $7,566 $6,953
====== ====== ====== ====== ======
Ratio of earnings to fixed charges,
including interest on deposits 1.79 1.53 1.34 1.22 1.23
</TABLE>
See notes on page 3 of this exhibit
<PAGE>
Exhibit 12.a.
--------------
Page 2 of 3
--------------
BANKAMERICA CORPORATION
Ratio of Earnings to Fixed Charges and Preferred Dividends
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
(dollar amounts in millions) 1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Fixed charges and preferred
dividends:
Interest expense (other
than interest on deposits) $1,215 $1,126 $ 743 $ 912 $ 932
Interest factor in rent expense 112 95 82 85 93
Preferred dividend
requirements/a/ 423 304 102 58 66
Other 2 1 1 1 1
------ ------ ------ ------ ------
$1,752 $1,526 $ 928 $1,056 $1,092
====== ====== ====== ====== ======
Earnings:
Income from operations $1,954 $1,492 $1,124 $1,115 $1,103
Applicable income taxes 1,474 1,190 749 284 245
Fixed charges, excluding
preferred
dividend requirements 1,329 1,222 826 998 1,026
Other (39) (14) (15) (16) (25)
------ ------ ------ ------ ------
$4,718 $3,890 $2,684 $2,381 $2,349
====== ====== ====== ====== ======
Ratio of earnings to fixed charges
and preferred dividends,
excluding
interest on deposits 2.69 2.55 2.89 2.25 2.15
INCLUDING INTEREST ON DEPOSITS
Fixed charges and preferred
dividends:
Interest expense $4,186 $4,895 $5,388 $6,097 $5,536
Interest factor in rent expense 112 95 82 85 93
Preferred dividend
requirements/a/ 423 304 102 58 66
Other 2 1 1 1 1
------ ------ ------ ------ ------
$4,723 $5,295 $5,573 $6,241 $5,696
====== ====== ====== ====== ======
Earnings:
Income from operations $1,954 $1,492 $1,124 $1,115 $1,103
Applicable income taxes 1,474 1,190 749 284 245
Fixed charges, excluding
preferred dividend
requirements 4,300 4,991 5,471 6,183 5,630
Other (39) (14) (15) (16) (25)
------ ------ ------ ------ ------
$7,689 $7,659 $7,329 $7,566 $6,953
====== ====== ====== ====== ======
Ratio of earnings to fixed
charges, and preferred
dividends, including
interest on deposits 1.63 1.45 1.32 1.21 1.22
</TABLE>
See notes on page 3 of this exhibit
<PAGE>
Exhibit 12.a.
-------------
Page 3 of 3
-----------
BANKAMERICA CORPORATION
Notes to
Ratio of Earnings To Fixed Charges and
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
/a/ Preferred dividend requirements represent pretax earnings necessary to cover
preferred dividends declared during the years ended December 31, 1993, 1992,
1991, 1990, and 1989 of $241 million, $169 million, $61 million, $46
million, and $54 million, respectively.
<PAGE>
Exhibit 12.b.
-------------
Page 1 of 2
-----------
BANKAMERICA CORPORATION
Historical and Pro Forma Combined Ratios of Earnings
to Fixed Charges and Ratios of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends is computed by dividing earnings by the sum of fixed charges and
preferred stock dividend requirements. Earnings consist primarily of income
(loss) before income taxes adjusted for fixed charges. Fixed charges consist
primarily of interest expense on short- and long-term borrowings and one-third
(the portion deemed representative of the interest factor) of net rents under
long-term leases.
The following table sets forth (i) the historical ratios of earnings to fixed
charges and the ratios of earnings to combined fixed charges and preferred stock
dividends for the periods indicated for BankAmerica Corporation and its
consolidated subsidiaries (BAC) and for Security Pacific Corporation and its
consolidated subsidiaries (SPC) and (ii) the pro forma combined ratios of
earnings to fixed charges and ratios of earnings to combined fixed charges and
preferred stock dividends for the periods indicated, giving effect to the April
22, 1992 merger between BAC and SPC (the Merger) as if it had been consummated
on January 1, 1991. The pro forma combined ratios have been calculated using
the pro forma combined financial information for the years ended December 31,
1992 and 1991, and should be read in conjunction with and are qualified in their
entirety by such pro forma combined information included in the 1993 Annual
Report to Shareholders. Pro forma adjustments made to arrive at the pro forma
combined ratios are based on the purchase method of accounting and are based
upon actual amounts recorded by BAC subsequent to the effective time of the
Merger.
<PAGE>
Exhibit 12.b.
-------------
Page 2 of 2
-----------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1992 December 31, 1991
------------------------- ---------------------
Pro Pro
Historical Forma Historical Forma
-------------- -------- ----------- --------
BAC/a/ SPC Combined BAC/a/ SPC Combined
------ --- -------- ------ --- --------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges
Excluding interest on
deposits 3.18 /b/ 2.05 3.25 /c/ 1.46
Including interest on
deposits 1.53 /b/ 1.27 1.34 /c/ 1.10
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends
Excluding interest on
deposits 2.55 /b/ 1.87 2.89 /c/ 1.43
Including interest on
deposits 1.45 /b/ 1.26 1.32 /c/ 1.10
</TABLE>
- --------------------------------------------------------------------------------
/a/ This financial information reflects the effects of the Merger subsequent to
the Merger's consummation on April 22, 1992.
/b/ Because the Merger was consummated on April 22, 1992, there is no year-to-
date data for SPC.
/c/ For the year ended December 31, 1991, SPC's ratios of earnings to fixed
charges and ratios of earnings to combined fixed charges and preferred
stock dividends were less than 1.00 primarily as a result of noncash
charges which increased the allowance for credit losses. Earnings, as
defined, for the year ended December 31, 1991, were $1,092 million and
$1,139 million below the level required to provide one-to-one coverage of
fixed charges and combined fixed charges and preferred stock dividends,
respectively.
These pro forma combined ratios are intended for informational purposes and
are not necessarily indicative of the future ratios of earnings to fixed charges
and ratios of earnings to combined fixed charges and preferred stock dividends
of the combined company or the ratios of earnings to fixed charges and ratios of
earnings to combined fixed charges and preferred stock dividends of the combined
company that would have actually occurred had the Merger been effective on
January 1, 1991.
<PAGE>
EXHIBIT 13
BANKAMERICA CORPORATION ANNUAL REPORT
[BANK OF AMERICA CORPORATION LOGO APPEARS HERE]
1993
<PAGE>
BANKAMERICA TODAY
- --------------------------------------------------------------------------------
BankAmerica Corporation and its consolidated subsidiaries provide diverse
financial products and services to individuals, businesses, government agencies,
and financial institutions throughout the world. BankAmerica Corporation is the
second-largest bank holding company in the United States, based on total assets
at December 31, 1993.
BankAmerica Corporation's principal banking subsidiaries operate branches
in California, Washington, Texas, Arizona, Oregon, Nevada, New Mexico, Hawaii,
Idaho, and Alaska, as well as corporate banking and business credit offices in
major U.S. cities, and branches, corporate offices, and representative offices
in 38 countries. In addition, BA Investment Services, a licensed broker-dealer
subsidiary of BankAmerica Corporation, distributes stocks and bonds, annuities,
self-directed IRAs, and a variety of mutual funds, including the Bank of
America-managed Pacific Horizon Funds, in branches throughout the western
states. BankAmerica Business Credit provides asset-based financing for mid-sized
businesses in all 50 states, Security Pacific Financial Services operates
consumer finance offices in 34 states and provides executive financial services
for clients nationwide, Security Pacific Housing Services provides dealer
financing for manufactured housing throughout the United States, and Bank of
America Community Development Bank provides loans for affordable housing and
small businesses in several western states. Bank of America provides trust
services to individuals in the United States, as well as fiduciary, securities,
and information processing services for institutional trust customers around the
world. Bank of America offices throughout the world finance and facilitate trade
between countries and provide payments and advisory services, as well as access
to capital markets, for multi-national business clients, and private banking
services to high-net-worth individuals. In addition, the bank's International
Trade Banking Division coordinates the delivery of letters of credit, asset-
based lending, documentation services and other trade-related products to
clients worldwide.
- --------------------------------------------------------------------------------
Note: The following abbreviations, among others, appear in the text of this
report: BankAmerica Corporation and its consolidated subsidiaries (BankAmerica,
the corporation), BankAmerica Corporation (the parent), Bank of America NT&SA
(Bank of America, BofA, the bank), Seafirst Corporation (Seafirst), and Seattle-
First National Bank (Seattle-First).
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Chairman's Letter to Shareholders 2
Connecting With a Diverse Customer Base 5
- --------------------------------------------------------------------------------
Overview 16
Selected Financial Data 17
Results of Operations 18
Business Sectors 18
Net Interest Income 18
Noninterest Income 20
Noninterest Expense 21
Income Taxes 23
Comparison of 1992 Versus 1991 23
Balance Sheet Analysis 24
Securities Available for Sale and Securities Held for Investment 24
Assets Pending Disposition 24
Goodwill and Identifiable Intangibles 25
Pending Accounting Standards 25
Loan Portfolio 26
Restructuring Country Debt 30
Allowance for Credit Losses 30
Nonaccrual Assets, Restructured Loans, and Loans Past Due 90 Days
or More and Still Accruing Interest 33
Real Estate Acquired in Satisfaction of Debt 35
Off-Balance-Sheet Financial Instruments 36
Credit-Related Financial Instruments 36
Derivatives and Foreign Exchange 36
Risk Management 37
Credit Risk 37
Market Risk 38
Funding and Capital 38
Asset and Liability Management 38
Liquidity 38
Capital 39
Interest Rate Risk Management 41
- --------------------------------------------------------------------------------
Report of Management 42
Report of Independent Auditors 43
Consolidated Financial Statements 44
Notes to Consolidated Financial Statements 48
- --------------------------------------------------------------------------------
Boards of Directors/BankAmerica Corporation and Bank of America NT&SA 78
Honorary Directors/BankAmerica Corporation and Bank of America
NT&SA (nonvoting) 79
Principal Officers/BankAmerica Corporation 79
Advisor-BankAmerica Corporation 79
Senior Management Council/Bank of America NT&SA 80
Chairmen/Presidents/Other Subsidiary Banks 80
</TABLE>
<PAGE>
MANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
BankAmerica Corporation and subsidiaries (the corporation), headquartered in San
Francisco, California, is a bank holding company with total assets of $186.9
billion at December 31, 1993. The corporation reported earnings per share of
$4.79 for 1993, based on net income of $1,954 million. These results reflect the
first full year of combined operations following the merger of BankAmerica
Corporation (the parent) and Security Pacific Corporation (SPC) on April 22,
1992 (the Merger). Earnings per share for 1992 were $4.24, based on net income
of $1,492 million.
The results of operations for 1992 were affected by nonrecurring and
certain other items, which are discussed in the Net Interest Income, Noninterest
Income, and Noninterest Expense sections on pages 18-22. Excluding the effects
of these items, the corporation's results of operations for 1992 were $1,682
million, or $4.85 per common share. The net effect of nonrecurring items in 1993
had virtually no effect on net income.
Despite the pressures of a sluggish economic environment, the corporation's
1993 results of operations demonstrated the potential of its diverse franchise.
Various business sectors, customer types, and geographic regions contributed to
the corporation's total earnings base. The corporation also maintained a strong
focus on controlling noninterest expenses during 1993 to keep them in line with
revenues, and announced further expense-reduction measures in an effort to
control operating expenses in 1994.
The corporation's credit quality improved significantly during 1993.
Nonaccrual assets declined by $2,349 million, or 45 percent, from their December
31, 1992 balance. As a result, the corporation's ratio of nonaccrual assets to
total loans declined to 2.28 percent at year-end 1993 from 4.16 percent at
December 31, 1992. In addition, net credit losses for 1993 decreased $189
million, or 14 percent, from the amount reported in 1992.
In the first quarter of 1993, the parent, through its subsidiary, Bank of
America Texas, N.A., expanded the corporation's domestic banking operations by
acquiring certain branches and assets and assuming certain liabilities of First
Gibraltar Bank, FSB (First Gibraltar), headquartered in Texas. For further
information regarding the First Gibraltar transaction, refer to Note 5 of the
Notes to Consolidated Financial Statements on pages 55-56.
In addition, on January 27, 1994, the parent and Continental Bank
Corporation (Continental) of Chicago, Illinois, signed an agreement under which
the parent will acquire Continental for an estimated 21.25 million shares of the
parent's common stock and $939 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 cash and stock consideration would be
approximately $1.9 billion. In addition, Continental's preferred stock will be
converted into the parent's preferred stock having substantially the same terms.
The parent has also announced that, prior to the completion of the transaction,
it intends to repurchase approximately $500 million of its common stock. After
giving effect to the share repurchase, the transaction is expected to be
nondilutive to the parent's shareholders from the first year of the acquisition.
The completion of this transaction is conditioned upon approval by Continental's
shareholders and certain other conditions, including regulatory approvals and
the completion of a due diligence review of Continental by the parent. The
acquisition is presently expected to be completed in the third quarter of 1994.
Continental, which primarily conducts commercial banking activities,
reported total assets of $22.6 billion, including loans of $11.7 billion, at
December 31, 1993. For additional information on this pending acquisition, refer
to Note 2 of the Notes to Consolidated Financial Statements on pages 52-53.
The corporation's management expects that overall economic growth in the
United States will continue to be moderate in the near term. In California, the
corporation's most significant market, the economy remains fragile and economic
weakness persists in the southern part of the state as a result of defense
cutbacks and reduced consumer confidence due to the recent earthquake. In
addition, the economy of Hawaii is declining primarily as a result of reduced
investment from Japan and California. However, other regions of the country
where the corporation has significant retail presence -- the Pacific Northwest,
Texas, and the Southwest -- are participating in the U.S. economic expansion.
Global economic growth is expected to improve modestly in 1994. The economy
of the European Community should begin to recover from recession, but will
continue to be constrained by unification problems faced by Germany. In
addition, Japan's economy is likely to face ongoing economic problems in the
aftermath of deflation of its real estate and equity markets. However, the
economies of Southeast Asia remain strong, and U.S. trade with Latin America,
especially Mexico, should continue to grow rapidly with the passage of the North
American Free Trade Agreement.
In making business decisions, the corporation's management takes the
current state of the economy, as well as economic forecasts, into account.
However, economic forecasts reflect subjective judgments and assumptions, and
unexpected events may occur. Therefore, there can be no assurance that
developments will transpire as forecasted.
16
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------------------------------
(dollar amounts in millions, except per share data)/a/ 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Interest income $ 11,627 $ 11,613 $ 9,860 $ 10,249 $ 9,559
Interest expense 4,186 4,895 5,388 6,097 5,536
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 7,441 6,718 4,472 4,152 4,023
Provision for credit losses/b/ 803 1,009 805 905 770
Noninterest income 4,273 3,649 2,408 2,074 1,830
Noninterest expense/b/ 7,483 6,676 4,202 3,922 3,735
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary credit 3,428 2,682 1,873 1,399 1,348
Provision for income taxes 1,474 1,190 749 522 528
- -----------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary credit 1,954 1,492 1,124 877 820
Extraordinary credit resulting from previously
unrecognized tax benefits -- -- -- 238 283
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,954 $ 1,492/c/ $ 1,124 $ 1,115 $ 1,103
===================================================================================================================================
Earnings per Common and Common Equivalent Share
Income before extraordinary credit $ 4.79 $ 4.24/c/ $ 4.81 $ 3.85 $ 3.79
Net income $ 4.79 $ 4.24/c/ $ 4.81 $ 4.95 $ 5.19
Earnings per Common Share -- Assuming Full Dilution
Income before extraordinary credit $ 4.76 $ 4.21/c/ $ 4.78 $ 3.84 $ 3.74
Net income $ 4.76 $ 4.21/c/ $ 4.78 $ 4.94 $ 5.11
- -----------------------------------------------------------------------------------------------------------------------------------
Stock Data
Dividends declared per common share $ 1.40 $ 1.30 $ 1.20 $ 1.00 $ 0.60
Book value per common share at year end 39.58 35.88 30.78 27.21 23.31
Number of common shares outstanding at year end/d/ 357,912,170 348,602,976 218,879,830 213,363,520 210,319,019
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Condition and Capital -- Year-End Balances
Loans/b/ $126,379 $125,709 $ 86,634 $ 85,815 $ 75,903
Total assets 186,933 180,646 115,509 110,728 98,764
Deposits 141,618 137,883 94,067 92,321 81,186
Long-term debt and subordinated capital notes 14,115 16,395 4,378 3,931 4,075
Common stockholders' equity 14,165 12,509 6,737 5,806 4,904
Total stockholders' equity 17,144 15,488 8,063 6,419 5,534
- -----------------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios
Rate of return (based on net income) on:
Average total assets 1.05% 0.90% 0.99% 1.04% 1.14%
Average common stockholders' equity 12.88 12.65 17.09 20.00 25.65
Average total stockholders' equity 12.00 11.84 15.78 18.68 23.10
Ratio of common stockholders' equity to total assets 7.58 6.92 5.83 5.24 4.96
Ratio of total stockholders' equity to total assets 9.17 8.57 6.98 5.80 5.60
Ratio of average stockholders' equity to average total assets 8.79 7.60 6.25 5.55 4.91
Dividend payout ratio 28.99 30.30 24.39 19.84 11.30
Risk-based capital ratios:
Total risk-based capital ratio 12.00/e/ 11.48 10.83 9.30 9.09
Tier 1 risk-based capital ratio 7.61/e/ 6.82 7.25 5.96 5.61
Tier 1 leverage ratio 6.64/e/ 6.37 6.80 5.50 5.42
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Due to the pending acquisition of Continental Bank Corporation, certain
financial data included 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 52-53.
/b/ During 1993, in-substance repossessions (ISR) were reclassified to the loan
portfolio as a result of regulatory clarification of the definition of an
ISR. For information on this reclassification, refer to the Loan
Outstandings table on page 27 and the Allowance for Credit Losses table on
page 31.
/c/ Earnings and earnings per share were affected by the net effect of
nonrecurring and certain other items, including the accrual of restructuring
expenses related to the Merger and a net gain on the sale of Bank of America
NT&SA's payroll processing business. If the nonrecurring and certain other
items had been excluded from the results of operations, net income would
have been $1,682 million. In addition, earnings per common and common
equivalent share would have been $4.85 and earnings per common share
assuming full dilution would have been $4.81.
/d/ There were 164,105 common stockholders of record at January 31, 1994.
/e/ Refer to the table on page 40 of the Funding and Capital section for
information on the calculation of risk-based capital ratios.
Note: Information included in the text and tables of the Management's
Discussion and Analysis of Financial Condition and Results of Operations
reflects the effects of the Merger from April 22, 1992 forward.
Accordingly, information pertaining to the corporation's results of
operations for 1993 is not comparable to the corresponding information for
1992, nor is the information for either 1993 or 1992 comparable to the
corresponding information for any of the preceding years. Furthermore,
information pertaining to the corporation's financial position at December
31, 1993 and 1992 is not comparable to the corresponding information at
any preceding year end.
17
<PAGE>
RESULTS OF OPERATIONS
BUSINESS SECTORS
The corporation segregates 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, for purposes of this
discussion, the unallocated allowance for credit losses and related provision
for credit losses is allocated to the business sectors. The information set
forth in the table below reflects the corporation's net income, average total
assets, and average total deposits by customer and market sectors and does not
necessarily represent their financial condition and results of operations if
managed as independent entities.
<TABLE>
<CAPTION>
BUSINESS SECTORS
- -----------------------------------------------------------------------------
Year Ended December 31, 1993
--------------------------------------------
Net Average Total Average Total
(in millions) Income Assets Deposits
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate, institutional,
and foreign $ 749 $ 51,316 $ 19,945
California consumer 715 54,803 67,870
Seafirst Corporation 263 15,054 11,905
Middle market 146 9,941 5,427
Commercial real estate 45 11,672 2,381
Private bank 42 1,965 4,590
Other non-California banks (45) 20,439 24,708
Other 39 20,136 3,403
- -----------------------------------------------------------------------------
$1,954 $185,326 $140,229
=============================================================================
</TABLE>
Corporate, institutional, and foreign banking provides services to domestic
and foreign large and multinational customers, as well as financial institutions
and governments. Products delivered encompass corporate loans, cash management
services, trade finance, and investment banking services, including interest
rate risk and foreign exchange management products, capital markets products,
and advisory services. The corporate, institutional, and foreign sector also
includes the venture capital portfolio and its related results.
California consumer banking provides a full range of financial products and
services to retail customers predominantly located in California. These products
and services include consumer and residential real estate loans, retail deposit
services, credit card products, insurance services, mutual fund products, and
consumer finance.
Seafirst Corporation (Seafirst), whose customers are primarily located in
Washington, provides consumer, middle market, and corporate banking services.
Seafirst's consumer banking products and services include consumer and
residential real estate loans, retail deposit services, credit card products,
insurance services, mutual fund products, and consumer finance. Seafirst's
middle market and corporate products include commercial loans and deposit
services, including cash management, as well as investment banking, trade
finance, and national commercial finance.
Middle market banking offers a wide scope of banking and financial services
to a diverse group of small and medium-sized businesses primarily located in
California. Products include commercial loans and deposit services, including
cash management, as well as investment banking, trade finance, and national
commercial finance.
Commercial real estate banking provides nationwide commercial lending and
financing services for commercial and construction real estate-related projects.
In addition, the commercial and construction workout real estate portfolios
acquired in recent acquisitions are included within this sector.
Private banking offers an array of financial products and services to high-
net-worth individuals.
Other non-California banks primarily provide retail banking services for
customers domiciled in the Western states other than California and Washington.
Other banking amounts are primarily associated with the corporation's asset
and liability management activities. In addition, other banking provides
institutional trust and securities services and various other services.
NET INTEREST INCOME
On a taxable-equivalent basis, net interest income amounted to $7,463 million in
1993, up $723 million, or 11 percent, from $6,740 million in 1992. Net interest
income for 1992 included $34 million of nonrecurring Brazilian cash interest
payments relating to the restructuring of interest arrearages from prior years.
Excluding this nonrecurring income, taxable-equivalent net interest income for
1993 was $757 million higher than the amount reported for 1992. The main factor
contributing to this growth was a $15.9 billion increase in average earning
assets for 1993 over the amount reported for 1992. Average earning assets were
higher in 1993 largely because the increases caused by the Merger and other 1992
acquisitions were reflected in the average for the full year, while the 1992
average only reflected these increases for the months subsequent to the
respective consummation dates of the transactions.
The corporation's net interest margin was 4.71 percent for 1993, compared
with 4.73 percent for 1992. The corporation's net interest margin includes the
results of hedging with certain off-balance-sheet financial instruments. Such
hedging is an integral component of the corporation's interest rate risk
management, and, accordingly, management does not consider it meaningful to
separate the results of hedging from the net interest income arising from the
hedged assets and liabilities.
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES AND RATES
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------------
1993 1992 1991
------------------- ------------------- -------------------
(dollar amounts in millions) Balance/a/ Rate/b/ Balance/a/ Rate/b/ Balance/a/ Rate/b/
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits in banks/c/ $ 2,642 7.36% $ 4,055 6.97% $ 3,938 8.64%
Federal funds sold 1,131 3.12 1,617 3.76 2,086 5.76
Securities purchased under resale agreements 3,903 4.46 4,400 3.70 1,828 5.86
Trading account assets 6,341 5.91 4,234 7.08 3,066 9.08
Securities available for sale 4,118 6.79 1,401 8.79 -- --
Securities held for investment:
U.S. Treasury securities 3,554 5.28 3,036 6.06 1,050 8.33
U.S. federal agency securities 10,784 7.28 6,341 9.27 4,981 9.17
State, county, and municipal securities 553 7.93 549 8.34 184 7.95
Other domestic securities 740 13.01 797 15.13 469 8.63
Foreign securities 128 7.61 369 9.17 722 9.96
- ------------------------------------------------------------------------------------------------------------------------------
Total securities held for investment 15,759 7.13 11,092 8.76 7,406 9.06
Domestic loans:/c/
Consumer--secured by first mortgages on residential properties 29,083 6.39 25,231 7.83 17,247 9.61
Consumer--credit card 7,499 16.26 7,963 16.70 7,271 17.21
Other consumer 24,659 9.04 23,149 9.82 16,053 10.97
Commercial and industrial 20,580 6.32 19,640 6.25 13,927 8.13
Commercial loans secured by real estate 9,707 7.51 8,735 7.98 5,532 9.51
Construction and development loans secured by real estate 5,718 5.17 6,700 5.21 4,133 7.57
Loans for purchasing or carrying securities 1,447 4.05 1,049 4.38 297 7.50
Financial institutions 1,948 3.48 1,821 3.85 1,447 5.92
Lease financing 1,773 12.36 1,669 14.40 748 6.19
Agricultural 1,605 7.62 1,554 7.81 1,110 9.70
Other 1,099 5.03 830 5.10 428 5.28
- ------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 105,118 7.76 98,341 8.51 68,193 10.15
Foreign loans/c/ 19,531 6.72 17,492 7.80 16,312 8.75
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 124,649 7.60 115,833 8.40 84,505 9.88
- ------------------------------------------------------------------------------------------------------------------------------
Total earning assets 158,543 7.35 142,632 8.16 102,829 9.60
Nonearning assets 30,609 26,984 13,747
Less: Allowance for credit losses 3,826 3,764 2,606
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $185,326 $165,852 $113,970
==============================================================================================================================
Liabilities and Stockholders' Equity
Domestic interest-bearing deposits:
Transaction $ 13,469 1.34% $ 11,368 1.95% $ 6,276 3.83%
Savings 13,977 2.23 13,454 2.96 8,266 4.83
Money market 34,182 2.49 27,504 3.26 16,753 5.31
Time 30,939 2.50 31,925 3.79 28,268 6.49
- ------------------------------------------------------------------------------------------------------------------------------
Total domestic interest-bearing deposits 92,567 2.29 84,251 3.24 59,563 5.65
Foreign interest-bearing deposits 15,549 5.50 15,544 6.71 16,093 7.96
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 108,116 2.75 99,795 3.78 75,656 6.14
Federal funds purchased 570 2.78 626 3.24 409 5.66
Securities sold under repurchase agreements 2,837 5.58 2,015 5.35 1,929 6.84
Other short-term borrowings 3,088 6.52 3,913 6.90 2,327 10.12
Long-term debt 14,090 5.16 10,158 6.04 3,035 8.40
Subordinated capital notes 1,499 7.52 1,836 6.22 1,280 7.58
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 130,200 3.22 118,343 4.14 84,636 6.37
Domestic noninterest-bearing deposits 30,688 26,029 15,709
Foreign noninterest-bearing deposits 1,425 1,521 1,232
Other noninterest-bearing liabilities 6,728 7,360 5,274
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 169,041 153,253 106,851
Stockholders' equity 16,285 12,599 7,119
- ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $185,326 $165,852 $113,970
==============================================================================================================================
Interest income as apercentage of average earning assets 7.35% 8.16% 9.60%
Interest expense as a percentage of average earning assets (2.64) (3.43) (5.24)
- ------------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 4.71% 4.73% 4.36%
==============================================================================================================================
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Average rates are presented on a taxable-equivalent basis. The taxable-
equivalent basis adjustments are based on a marginal tax rate of 40 percent
for 1993 and 39 percent for 1992 and 1991.
/c/ Average balances include nonaccrual assets.
19
<PAGE>
NONINTEREST INCOME
Noninterest income amounted to $4,273 million in 1993, an increase of $624
million, or 17 percent, from the amount reported for 1992. Noninterest income
for 1993 included $38 million of nonrecurring income representing previously
unrecognized post-Merger 1992 earnings of Bank of America (Asia) Limited,
formerly Security Pacific Asia Bank, Ltd. (SPABL). At year-end 1992, this
subsidiary was included in assets pending disposition. However, in the first
quarter of 1993, management decided to retain the subsidiary, and it was
consolidated into the corporation's financial statements effective January 1,
1993. Noninterest income for 1993 also included $80 million of nonrecurring
gains on sales of certain assets pending disposition, primarily resulting from a
sale of commercial loans secured by real estate, as discussed on page 25 in the
Balance Sheet Analysis section.
Noninterest income for 1992 included a nonrecurring gain of $157 million
related to the sale of Bank of America NT&SA's (the bank) payroll processing
business. Excluding nonrecurring items, noninterest income for 1993 grew by $663
million from the amount reported for 1992, primarily due to higher revenues from
fees and commissions, resulting from a Merger-related increase in the volume of
existing fee-generating services, as well as to higher trading income and other
income.
Total fees and commissions, the largest component of noninterest income,
increased $386 million, or 15 percent, in 1993 from the amount reported for
1992. Other fees and commissions for 1993 included $179 million of loan
servicing fees, up from $136 million for 1992. Mutual funds commissions also
grew significantly over the prior year, and totaled $99 million for 1993. Growth
in these two categories was attributable to both the Merger and subsequent
expansion of these activities. Also contributing to the increase in total fees
and commissions in 1993 compared with 1992 was a $72 million increase in
revenues from trust fees, which was primarily related to operations added as a
result of the Merger.
<TABLE>
<CAPTION>
Noninterest Income (Stacked block graphs in non-EDGAR version)
(in millions of dollars) 1992 1993
-------- --------
<S> <C> <C>
Total Noninterest Income $3,649 $4,273
======== ========
Other Noninterest Income 643 775
Trading Income 463 569
Fees and Commissions 2,543 2,929
</TABLE>
<TABLE>
<CAPTION>
NONINTEREST INCOME
- -------------------------------------------------------------------------------
Year Ended December 31
----------------------------
(in millions) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Fees and Commissions
Deposit account fees $1,198 $1,049 $ 645
Credit card fees 354 350 308
Trust fees 294 222 68
Other fees and commissions 1,083 922 686
- -------------------------------------------------------------------------------
2,929 2,543 1,707
Trading Income 569 463 326
Other Noninterest Income
Net securities gains 61 11 33
Net gain on sales of subsidiaries
and operations -- 155 3
Net gain on sales of assets/a/ 106 117 135
Other income 608 360 204
- -------------------------------------------------------------------------------
775 643 375
- -------------------------------------------------------------------------------
$4,273 $3,649 $2,408
===============================================================================
</TABLE>
/a/ Net gain on sales of assets includes gains and losses from the disposition
of loans, premises and equipment, and certain other assets.
Trading income increased $106 million, or 23 percent, from the amount
reported in 1992. The corporation's trading income represents the net amount
earned from its 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. The profitability of
these trading activities depends largely on the volume and diversity of the
transactions the corporation executes, the level of risk it is willing to
assume, and the volatility of price and rate movements.
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, which represents the results of
trading activities with off-balance-sheet financial instruments entered into to
manage interest rate trading positions; foreign exchange trading, which
represents the results of trading activities entered into to manage foreign
exchange trading positions; and debt instruments trading, which represents the
results of debt securities transactions.
20
<PAGE>
Trading income, as disclosed in the corporation's consolidated statement of
operations, does not include the net interest revenue or expense associated with
trading activities. However, the net interest revenue or expense amounts are
presented in the table below, as they are an integral factor in evaluating the
overall profitability of those activities. Net interest revenue or expense
attributable to trading activities primarily results from accruals on interest-
earning and interest-bearing trading-related positions, as well as from
allocated amounts, based on short-term interest rates, reflecting the cost or
benefit associated with trading positions.
<TABLE>
<CAPTION>
TRADING INCOME AND NET INTEREST INCOME (EXPENSE) BY FUNCTION
FOR THE YEAR ENDED DECEMBER 31, 1993
- ------------------------------------------------------------------------------
Interest Foreign Debt
(in millions) Rate Exchange Instruments Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading income $80 $307 $182 $569
Net interest income (expense) 1 (9) 26 18
- ------------------------------------------------------------------------------
$81 $298 $208 $587
==============================================================================
</TABLE>
Other noninterest income for 1993 included the recognition of nonrecurring
income related to the consolidation of SPABL and the nonrecurring gains on sales
of certain assets pending disposition, which were recorded in other income,
while other noninterest income for 1992 included a nonrecurring gain on the sale
of the bank's payroll processing business, as discussed earlier. Excluding these
nonrecurring items, other noninterest income was $657 million in 1993, up $171
million from $486 million in 1992. This increase was primarily due to growth in
other income as a result of higher venture capital gains and higher income from
assets pending disposition. Also contributing to the increase in other
noninterest income were higher net securities gains. The aggregate effect of
these increases was partially offset by a lower net gain on sales of assets.
NONINTEREST EXPENSE
Noninterest expense for 1993 was up $807 million from the amount reported for
1992. The primary reason for this increase was that the 1993 amount reflected
post-Merger expense levels for the full year, while 1992 noninterest expense
only reflected these expense levels subsequent to the consummation date of the
Merger. In addition, noninterest expense for 1993 included a nonrecurring charge
of $26 million for a special recognition award given to employees, as well as a
charge to other expense of $90 million related to the accrual of various
restructuring expenses, which are described on page 22. Noninterest expense for
1993 also included additional employee benefits expense related to the adoption
of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and additional
amortization of intangibles due to the adoption of SFAS No. 109, "Accounting for
Income Taxes," as well as the incremental ongoing operating expenses resulting
from the February 1993 First Gibraltar transaction.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
- ------------------------------------------------------------------------------
Year Ended December 31
----------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries $2,886 $2,557 $1,847
Employee benefits 573 491 339
Occupancy 684 561 465
Equipment 610 523 372
Amortization of intangibles 421 248 48
Communications 330 305 215
Regulatory fees and related expenses 309 265 160
Professional services 268 201 135
Merger-related restructuring expense 9 449 --
Other expense 1,393 1,076 621
- ------------------------------------------------------------------------------
$7,483 $6,676 $4,202
==============================================================================
</TABLE>
In 1992, noninterest expense included a nonrecurring restructuring charge
of $449 million related to the Merger. This charge represented the expenses
associated with restructuring the pre-Merger operations of BankAmerica
Corporation and subsidiaries. Also included in 1992 noninterest expense were
other charges totaling $84 million for non-Merger-related restructuring
expenses and net additions to operating loss reserves, primarily related to
legal matters.
Excluding nonrecurring items, non-Merger-related restructuring charges,
and net additions to operating loss reserves, noninterest expense for 1993 was
$7,367 million, compared with $6,143 million for 1992.
Salaries and employee benefits (personnel expense), the largest
component of noninterest expense, totaled $3,459 million in 1993, up $411
million from the amount reported for 1992. Excluding the nonrecurring special
employee recognition award and the additional employee benefits expense
related to the adoption of SFAS No. 106 discussed earlier, personnel expense
for 1993 increased $344 million over the amount reported for 1992, largely
because personnel expense for 1992 reflected higher staff levels resulting
from the Merger and other 1992 acquisitions for only the months subsequent to
their respective consummation dates.
During 1993, the corporation's staff level on a full-time-equivalent
(FTE) basis decreased by approximately 4,000 to approximately 79,200 in
December 1993, largely due to branch divestitures and consolidations, as well
as to other reductions in the number of FTEs. These reductions were partially
offset by increases in staff, primarily related to the First Gibraltar
transaction.
21
<PAGE>
<TABLE>
<CAPTION>
STAFF LEVELS
- -----------------------------------------------------------------------------
December
------------------------------------
(in thousands) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Full-time-equivalent staff/a//b/ 79.2 83.2 54.4 56.3 54.8
Number of employees/b/ 96.4 99.2 62.6 65.2 63.1
=============================================================================
</TABLE>
/a/ Full-time-equivalent is a measurement equal to one full-time employee
working on a standard day and is based on the number of hours worked in
December.
/b/ Includes both full-time and part-time employees.
In 1992, the Financial Accounting Standards Board (FASB) issued SFAS No.
112, "Employers' Accounting for Postemployment Benefits." This statement
applies to postemployment benefits provided to former or inactive employees,
their beneficiaries, and covered dependents after employment but before
retirement. SFAS No. 112 will be adopted by the corporation beginning January
1, 1994 in accordance with the requirements of the statement. The accounting
policies of the corporation are already substantially in compliance with SFAS
No. 112, and, accordingly, the adoption of this statement will not have a
significant effect on the corporation's future results of operations or
financial position.
Amortization of intangibles for 1993 increased $173 million from the amount
reported for 1992. The 1993 amount was higher largely because the 1992 amount
included amortization of intangibles related to the Merger and 1992 acquisitions
for only the months subsequent to their respective consummation dates, and did
not include the effect of the 1993 adoption of SFAS No. 109, as discussed on
page 25 in the Balance Sheet Analysis section.
Other expense increased $317 million in 1993 from the amount reported for
1992. Other expense for 1993 included a nonrecurring charge of $90 million
related to the accrual of various restructuring expenses. Of these restructuring
expenses, approximately 75 percent was related to salaries and employee benefits
in connection with the staff reductions discussed below, approximately 20
percent was related to various systems, equipment, and other expenses, and
approximately 5 percent was related to occupancy expense. The majority of these
restructuring expenses are expected to be paid during 1994. Excluding this 1993
nonrecurring charge and the nonrecurring charges for non-Merger-related
restructuring expenses and net additions to operating loss reserves in 1992,
other expense for 1993 was $311 million higher than the amount reported for
1992. This increase primarily reflected higher expenses resulting from the
Merger and other 1992 acquisitions for a full year, as well as incremental
operating expenses related to the First Gibraltar transaction.
<TABLE>
<CAPTION>
Noninterest Expense (Stacked block graphs in non-EDGAR version)
(in millions of dollars) 1992 1993
-------- --------
<S> <C> <C>
Total Noninterest Expense $6,676 $7,483
======== ========
Other Noninterest Expense $2,296 $2,309
Amortization of Intangibles 248 421
Occupancy and Equipment Expense 1,084 1,294
Personnel Expense 3,048 3,459
</TABLE>
As a result of the Merger, the corporation achieved reductions in operating
expenses through consolidation of certain operations and elimination of
redundant costs. Merger-related operating expenses for purposes of making the
reduction estimates did not include items such as regulatory fees and related
expenses and amortization of intangibles. In addition, Merger-related operating
expense reductions excluded the effects of operating expenses of acquisitions
completed subsequent to the announcement of the Merger, as well as the effects
of operating expenses related to post-Merger growth in certain operations.
The corporation realized Merger-related operating expense reductions of
$1.0 billion during 1993 and $0.4 billion during the post-Merger period of
1992. Management continues to expect that by the end of the second twelve-
month period following the consummation of the Merger, Merger-related
operating expense reductions will have increased to an ongoing annual rate of
approximately $1.2 billion.
In the fourth quarter of 1993, the corporation announced expected staff
level reductions of approximately 3,000 to 3,750 positions by the end of 1994.
Many of these reductions are expected to result from the elimination of open
positions. Some of these reductions are Merger-related and will help the
corporation achieve its $1.2 billion objective.
The anticipated operating expense reductions will be partially or entirely
offset by increases in operating expenses to support profitable and growing
activities of the corporation. It is also possible that additional operating
expense reduction measures may be initiated. For these reasons, and because of
the substantial achievement of the $1.2 billion Merger-related operating expense
reduction goal, the corporation does not expect to make future announcements
with respect to its achievement of specific operating expense reduction
objectives.
22
<PAGE>
INCOME TAXES
The corporation's effective income tax rate was 43.0 percent in 1993, compared
with 44.4 percent in 1992. The corporation's effective tax rate decreased during
1993 primarily due to the adoption of SFAS No. 109, as discussed below. However,
the decrease in rate associated with the adoption of SFAS No. 109 was partially
offset by the effects of tax legislation signed into law in August 1993, which
included a one percent increase in the federal corporate tax rate.
There was no cumulative effect on net income related to the adoption of
SFAS No. 109. However, the application of the new accounting standard for
income taxes decreased pre-tax accounting income for 1993. The reduction to
1993 pre-tax income resulted primarily from increased amortization expense for
identifiable intangibles as a result of the SFAS No. 109 requirement to report
assets acquired in business combinations at their gross amounts instead of
their net-of-tax carrying values, as prescribed by Accounting Principles Board
Opinion (APB) No. 11, "Accounting for Income Taxes" and APB No. 16, "Business
Combinations." The reduction in 1993 pre-tax income was virtually offset by a
corresponding reduction in the provision for income taxes, resulting from a
decrease in the corporation's effective tax rate under SFAS No. 109.
For further information concerning the provisions for federal, state, and
foreign income taxes and the adoption of SFAS No. 109, refer to Note 19 of the
Notes to Consolidated Financial Statements on pages 64-65.
COMPARISON OF 1992 VERSUS 1991
In the majority of the corporation's income and expense categories, the largest
increases in the amounts reported for 1992 compared with the amounts reported
for 1991 resulted from the Merger.
Taxable-equivalent net interest income for 1992 was $2,259 million higher
than the amount reported for 1991, primarily due to a 39 percent increase in
average earning assets, which was largely attributable to the Merger and other
1992 acquisitions. The net interest margin for 1992 was 4.73 percent, up 37
basis points from 4.36 percent in 1991.
Noninterest income for 1992 included a $157 million nonrecurring gain,
which is discussed on page 20, while noninterest income for 1991 included a
nonrecurring gain of $11 million related to the disposition of securities
received in connection with the 1987 sale of The Charles Schwab Corporation.
Excluding nonrecurring items, noninterest income for 1992 increased $1,095
million over the amount reported for 1991, primarily due to Merger-related
growth in most categories of noninterest income.
Fees and commissions for 1992 increased $836 million over the amount
reported for 1991, primarily due to growth in the volume of existing fee-
generating services and the number of customer deposit accounts. Loan
servicing fees, which are included in other fees and commissions, increased
$75 million during 1992 from $61 million for 1991. Fees and commissions for
1992 also increased due to a Merger-related increase in revenues from trust
fees of $154 million, as the corporation added to its corporate trust business
and reentered the personal trust business.
Trading income for 1992 increased $137 million over the amount reported for
1991, primarily due to an expansion of the corporation's customer base in
selected global markets, which allowed it to capitalize on periods of increased
trading activity and volatility.
Other noninterest income increased $268 million in 1992 from the amount
reported in 1991. Excluding the previously mentioned nonrecurring gains of $157
million in 1992 and $11 million in 1991, noninterest income for 1992 was $122
million higher than the amount reported for 1991.
Noninterest expense for 1992 included $449 million of Merger-related
restructuring expense and $84 million of other charges, as discussed on page 21,
while 1991 noninterest expense included charges of $52 million, primarily
related to severance and other restructuring expense. Excluding Merger-related
restructuring expense and other charges, noninterest expense for 1992 increased
$1,993 million over the amount reported for 1991, primarily due to higher
personnel and other operating expenses reflecting post-Merger operations, higher
amortization of intangibles related to the Merger and, to a lesser extent, the
additional operating expenses of the acquisitions completed during 1992 and
1991.
Personnel expense for 1992 was $862 million higher than the amount reported
for 1991. Included in personnel expense for 1991 was $35 million of
restructuring-related severance expense. Excluding this item, the primary factor
causing the increase in personnel expense for 1992 compared to 1991 was the
higher staff levels subsequent to the consummation of the Merger. The
corporation's FTE staff level at the end of 1992 was up approximately 28,800
from the end of 1991, primarily due to the Merger and, to a lesser extent, the
other 1992 acquisitions.
Regulatory fees were $105 million higher in 1992 than the amount reported
for 1991, primarily due to higher Federal Deposit Insurance Corporation (FDIC)
assessments. FDIC assessments for 1992 reflected a higher volume of deposits
and a full year's effect of the July 1, 1991 increase in the assessment rate.
23
<PAGE>
Excluding the previously discussed 1992 charges of $84 million and 1991
restructuring expenses of $17 million, other expense for 1992 was $388 million
higher than the amount reported for 1991.
The corporation's effective income tax rate for 1992 increased to 44.4
percent from 40.0 percent in 1991. This increase was primarily due to the effect
of purchase accounting for the Merger in accordance with APB Nos. 11 and 16,
which were required at that time, as discussed on page 23.
BALANCE SHEET ANALYSIS
During 1993, the corporation's total assets grew by $6.3 billion, or 3 percent,
mainly due to an increase of $10.3 billion in earning assets, partially offset
by a $4.0 billion decrease in nonearning assets. The growth in earning assets
included increases in all categories, most notably, securities held for
investment and trading account assets, which increased $3.8 billion and $3.4
billion, respectively. The decline in nonearning assets was primarily due to a
$2.9 billion decrease in assets pending disposition, as described on pages 24-
25, and a $1.4 billion decrease in cash and due from banks, reflecting lower
reserve requirements.
During 1992, total assets grew by $65.1 billion, or 56 percent, due to
increases in nearly all categories of assets as a result of the Merger. The
largest increases during 1992 occurred in loans, which grew $39.1 billion;
securities available for sale and securities held for investment, which grew a
combined $6.9 billion; intangible assets, which grew $5.0 billion; and cash and
due from banks, which grew $4.5 billion.
During 1993, interest-bearing deposits in foreign offices increased $7.2
billion, while total deposits in domestic offices decreased $3.0 billion,
partially reflecting a shift in the corporation's funding sources. The increase
in interest-bearing deposits in foreign offices was primarily due to expansion
in selected global markets and to the previously discussed consolidation of
SPABL. Total deposits increased $43.8 billion during 1992, primarily due to the
Merger, and, to a lesser extent, to other 1992 acquisitions.
The corporation's assets and liabilities that are considered financial
instruments are primarily variable rate instruments, and, as such, reduce the
effects of significant interest rate movements on the corporation. As a result,
the computed fair values for these variable rate on-balance-sheet financial
instruments do not differ significantly from their carrying values. For further
information regarding the fair values of financial instruments, refer to Note 23
of the Notes to Consolidated Financial Statements on pages 71-73.
For information related to the corporation's management of assets and
liabilities, as well as information on the corporation's liquidity and capital,
refer to the Risk Management and Funding and Capital sections of this report on
pages 37-38 and 38-41, respectively.
SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD FOR INVESTMENT
During the third quarter of 1992, the corporation modified its accounting
policies and began to classify a portion of its securities portfolio as being
available for sale. Securities are classified as available for sale when the
corporation intends to hold the securities for an indefinite period of time, but
not necessarily to maturity.
The corporation sold certain securities available for sale in 1993,
receiving aggregate proceeds of $2,018 million. These sales resulted in gross
realized gains of $61 million and no gross realized losses. During the second
half of 1992, which was subsequent to the accounting policy change, the
corporation sold securities available for sale for aggregate proceeds of $410
million, resulting in gross realized gains of $2 million and no gross realized
losses. During the first half of 1992, the corporation sold securities held for
investment for aggregate proceeds of $431 million, resulting in gross realized
gains of $9 million and no gross realized losses. During the fourth quarter of
1992, the corporation also sold securities held for investment totaling $22
million, resulting in no gross realized gains or losses. These securities held
for investment had been acquired in connection with the third-quarter 1992
acquisition of H.F. Holdings, Inc. (HFH), the parent of HonFed Bank in Hawaii.
The analysis of these securities for purposes of determining if they would be
held for investment or sold prior to maturity was finalized during the fourth
quarter of 1992. Upon completion of this analysis, it was determined that these
securities did not meet the corporation's criteria for holding them as
securities held for investment.
For further information concerning the corporation's total securities
portfolio, including market values and unrealized gains and losses, refer to
Note 7 of the Notes to Consolidated Financial Statements on pages 56-57.
ASSETS PENDING DISPOSITION
Assets pending disposition includes Merger-related assets pending disposition,
which consists primarily of SPC assets, including loans, real estate acquired
in satisfaction of debt, and other assets that were identified for accelerated
disposition at the date of the Merger as they were not deemed essential to the
operating goals of the corporation. Assets pending disposition also includes
loans held for sale in the normal course of business and certain restructuring-
country-related assets.
24
<PAGE>
Assets pending disposition decreased $2.9 billion between December 31, 1992
and December 31, 1993, primarily due to continuing sales and paydowns, including
the sale of $0.7 billion of real-estate-related assets to a partnership
controlled by The Morgan Stanley Real Estate Fund, L.P. (MSREF) on June 30, 1993
and the sale of certain commercial loans secured by real estate to a partnership
controlled by Goldman Sachs & Co. on December 9, 1993. Also contributing to this
decrease were the consolidation of SPABL and the reclassification of $0.5
billion of tax effects from assets pending disposition to deferred income taxes
in connection with the previously discussed adoption of SFAS No. 109. Of the
reclassified net tax effects, $0.3 billion related to assets sold in connection
with the MSREF transaction.
For further information concerning assets pending disposition, refer to
Note 12 of the Notes to Consolidated Financial Statements on page 60.
GOODWILL AND IDENTIFIABLE INTANGIBLES
Goodwill, net of accumulated amortization, was essentially unchanged between
December 31, 1992 and year-end 1993, and increased $3.8 billion between December
31, 1991 and year-end 1992. During 1993, goodwill was increased by $265 million
in connection with the finalization of purchase accounting for the Merger and by
$135 million due to the First Gibraltar transaction. However, these 1993
increases were substantially offset by the combined effect of various
adjustments, including a reduction of $93 million resulting from the recognition
of tax benefits related to Merger-related capital losses, a net reduction of $65
million related to valuation refinements of certain assets acquired and
liabilities assumed from SPC, and other net reductions due to purchase
accounting refinements related to other acquisitions. During 1993, amortization
of goodwill amounted to $168 million. The increase in goodwill during 1992 was
primarily due to goodwill recorded in connection with the Merger. During 1992,
amortization of goodwill totaled $114 million.
Identifiable intangibles, net of accumulated amortization, increased $0.6
billion and $1.2 billion during 1993 and 1992, respectively. The increase in
identifiable intangibles during 1993 was mostly due to the reclassification of
$715 million of purchase-accounting-related net tax effects to deferred income
taxes in connection with the corporation's adoption of SFAS No. 109, as well as
to the addition of $158 million of core deposit intangibles (CDI), primarily due
to the First Gibraltar transaction. These 1993 increases were partially offset
by adjustments recorded during the year, including valuation refinements related
to other acquisitions and reversals attributable to branch divestitures. During
1993, amortization related to identifiable intangibles amounted to $253 million.
The increase in identifiable intangibles during 1992 was primarily related to
intangibles recorded in connection with the Merger. During 1992, amortization
related to identifiable intangibles of $134 million was recorded. The largest
component of net identifiable intangibles at year-end 1993, 1992, and 1991 was
CDI, which totaled $1.8 billion, $1.3 billion, and $0.4 billion, respectively.
PENDING ACCOUNTING STANDARDS
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 114 is effective for fiscal years
beginning after December 15, 1994 and is expected to be adopted by the
corporation beginning in 1995. SFAS No. 115 is effective for fiscal years
beginning after December 15, 1993 and will be adopted by the corporation
effective January 1, 1994. The corporation does not expect that, at adoption,
either SFAS No. 114 or SFAS No. 115 will have a material effect on its financial
position or results of operations. However, upon adoption of SFAS No. 115,
certain securities will be reclassified from securities held for investment to
securities available for sale, and certain par bonds and other securities will
be reclassified from loans to the securities portfolio. For additional
information on SFAS Nos. 114 and 115, refer to Notes 1 and 7 of the Notes to
Consolidated Financial Statements on pages 48-52 and 56-57, respectively.
In 1992, the FASB issued FASB Interpretation No. 39 (FIN 39), "Offsetting
of Amounts Related to Certain Contracts," which will be adopted by the
corporation on January 1, 1994. FIN 39 requires unrealized gains on forward,
swap, and other conditional or exchange contracts to be recorded as assets and
unrealized losses on these contracts to be recorded as liabilities. Unrealized
gains and losses may be netted if right of set-off criteria are met or contracts
are executed under legally enforceable master netting agreements with
counterparties. Through December 31, 1993, unrealized gains and unrealized
losses were recorded on the consolidated balance sheet on a net basis for most
products. At year-end 1993, the net unrealized gain on certain contracts, which
was recorded as an asset, amounted to $0.9 billion, while the net
25
<PAGE>
unrealized loss on certain other contracts, which was recorded as a liability,
amounted to $0.7 billion. The pro forma amounts in the table below represent the
amounts that would have been recorded on the corporation's consolidated balance
sheet at December 31, 1993 if FIN 39 had been adopted at that date.
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET EFFECT OF FIN 39/a/
- --------------------------------------------------------------------------------
December 31, 1993
------------------------------------------
Foreign
Exchange
(in billions) Derivatives Contracts Other/b/ Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross unrealized gains $9.1 $4.5 $0.1 $13.7
Gross unrealized losses 8.3 4.8 0.1 13.2
Pro forma amounts
under FIN 39:/c/
Asset 5.1 3.0 0.1 8.2
Liability 4.3 3.3 0.1 7.7
- --------------------------------------------------------------------------------
</TABLE>
/a/ Excludes amounts related to derivatives and foreign exchange contracts
accounted for as hedges and exchange-traded financial instruments. Refer to
pages 36-37 for information on derivatives and foreign exchange contracts.
/b/ Includes amounts related to foreign currency options purchased and sold.
/c/ Includes netting of certain unrealized gains and losses, as allowed by FIN
39, where legally enforceable master netting agreements were in place with
the counterparties effective December 31, 1993.
The corporation uses two types of internationally recognized legally
enforceable master netting agreements with its derivative and foreign exchange
customers. For derivatives, the International Swaps and Derivatives
Association (ISDA) agreement is employed. It has been the corporation's policy
since 1991 to obtain ISDA agreements from its derivative customers. The
Foreign Exchange Committee, under sponsorship of the Federal Reserve Bank of
New York, and the British Bankers' Association introduced the International
Foreign Exchange Master Agreement (IFEMA) in September 1993. Since then, the
corporation has been pursuing the execution of IFEMA agreements with its
foreign exchange customers and will continue doing so throughout 1994. Had
these agreements been in place at December 31, 1993 for all foreign exchange
customers, the pro forma asset and liability amounts for foreign exchange
contracts under FIN 39 in the above table would have been reduced by
approximately 70 percent.
The amounts of the assets and liabilities recorded under FIN 39 at any
point in time depend largely on the volume of contracts outstanding at that
date and on the impact of past price and rate movements on such contracts.
Accordingly, the FIN 39 asset and liability balances shown in the table above
are not necessarily indicative of the effects the adoption of FIN 39 will have
on the corporation's financial position at future balance sheet dates.
The adoption of FIN 39 will not have an impact on risk-based capital, as
the above-mentioned contracts are currently included in the risk-based capital
calculation. However, the amount of the asset recorded under FIN 39, which
will vary based on the factors discussed earlier, will affect the
corporation's Tier 1 leverage ratio. Based on the corporation's off-balance-
sheet positions at December 31, 1993, the adoption of FIN 39 would not have
had a significant effect on this ratio.
LOAN PORTFOLIO
Total loans increased $0.7 billion between year-end 1992 and year-end 1993,
largely due to an increase in foreign loans resulting primarily from the
consolidation of SPABL and, to a lesser extent, to the First Gibraltar
transaction. The increase in foreign loans during 1993 was partially offset by
decreases in most categories of domestic loans, including the reclassification
of approximately $0.8 billion of net tax effects to deferred income taxes in
connection with the corporation's adoption of SFAS No. 109.
During 1992, total loans increased $39.1 billion, primarily due to loans
acquired in connection with the Merger and, to a lesser extent, other 1992
acquisitions. The increase in loans during 1992 was reflected in virtually every
sector of the corporation's portfolio, with the largest growth occurring in
domestic commercial loans ($19.3 billion) and domestic consumer loans ($18.8
billion). The Merger also caused a shift in the mix of the loan portfolio during
1992. As a percentage of total loans, domestic consumer loans represented 49
percent at December 31, 1992, relatively unchanged from 50 percent at December
31, 1991; however, domestic commercial loans increased from 31 percent to 37
percent, and foreign loans decreased from 19 percent to 14 percent during 1992.
At December 31, 1993, the loan portfolios of the bank and Seafirst
comprised 76 percent and 9 percent, respectively, of the corporation's total
loans, compared with 78 percent and 10 percent, respectively, at year-end 1992
and 85 percent and 11 percent, respectively, at year-end 1991. Due to growth
in the loan portfolios of the parent's other banking subsidiaries during the
past two years, the loan portfolios of the bank and Seafirst decreased as a
percentage of the corporation's total loans. The majority of these other
banking subsidiaries were established or acquired in connection with the
corporation's acquisitions during 1992 and 1991, and grew in size as a result
of the Merger and, to a lesser extent, other subsequent acquisitions.
The pending acquisition of Continental is expected to result in an
increase in both the amount of domestic commercial loan outstandings and the
relative size of the domestic commercial loan portfolio. For information
regarding the pending Continental acquisition, refer to Note 2 of the Notes to
Consolidated Financial Statements on pages 52-53.
26
<PAGE>
DOMESTIC CONSUMER LOANS
Domestic consumer loan outstandings decreased slightly during 1993, primarily
due to declines in installment loans and credit card loans, partially offset by
increases in loans secured by first mortgages on residential properties and
individual lines of credit. The declines in installment loans and credit card
loans were both primarily due to relatively high levels of paydowns during 1993,
while the growth in residential real estate loans resulted from loan
originations outpacing the level of paydowns.
Consumer loans increased $18.8 billion during 1992, primarily due to the
Merger. However, the level of consumer loan originations during 1992, both
before and after the Merger, was relatively low, primarily due to a decreased
demand for credit among qualified borrowers. In addition, the level of
consumer loan paydowns was relatively high during 1992.
Loans secured by first mortgages on residential properties, which are
primarily adjustable rate mortgages, is the largest component of the consumer
loan portfolio. This portfolio increased $1.9 billion, or 7 percent, during 1993
and $9.5 billion during 1992. Approximately 84 percent of the residential real
estate loans at December 31, 1993 were secured by properties in California, and,
within California, approximately 52 percent were secured by properties in Los
Angeles, Orange, San Bernardino, San Diego, Riverside, and Ventura counties in
Southern California. Of residential real
<TABLE>
<CAPTION>
LOAN OUTSTANDINGS
- -----------------------------------------------------------------------------------------------------------------------------
December 31
-----------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic
Consumer:
Secured by first mortgages on residential properties/a/ $30,306 $ 28,404 $18,897 $16,310 $11,672
Installment/b/ 15,332 16,663 10,961 10,809 9,212
Credit card 7,474 8,306 7,712 7,323 6,039
Individual lines of credit/b/ 8,486 8,347 5,546 4,566 3,412
Other/b/ 382 354 181 186 328
- -----------------------------------------------------------------------------------------------------------------------------
61,980 62,074 43,297 39,194 30,663
Commercial:
Commercial and industrial 20,486 21,632 13,831 14,749 14,632
Loans secured by real estate/a/ 9,251 10,123 5,366 5,718 5,673
Construction and development loans secured by real estate/a/ 4,418 6,781 4,002 4,265 3,500
Loans for purchasing or carrying securities 3,090 987 216 255 376
Financial institutions 2,170 2,017 1,427 1,424 1,131
Lease financing 1,715 1,889 779 825 835
Agricultural 1,679 1,704 1,124 1,177 1,159
Other 1,370 1,360 497 730 624
- -----------------------------------------------------------------------------------------------------------------------------
44,179 46,493 27,242 29,143 27,930
- -----------------------------------------------------------------------------------------------------------------------------
106,159 108,567 70,539 68,337 58,593
Foreign
Commercial and industrial 11,448 10,338 9,538 10,577 10,797
Governments and official institutions 3,429 3,513 3,557 3,934 3,374
Banks and other financial institutions 2,279 1,855 2,080 1,867 2,181
Other/a/ 3,064 1,436 920 1,100 958
- -----------------------------------------------------------------------------------------------------------------------------
20,220 17,142 16,095 17,478 17,310
- -----------------------------------------------------------------------------------------------------------------------------
Total loans 126,379 125,709 86,634 85,815 75,903
Less: Allowance for credit losses 3,508 3,921 2,420 2,912 3,373
- -----------------------------------------------------------------------------------------------------------------------------
$122,871 $121,788 $84,214 $82,903 $72,530
=============================================================================================================================
</TABLE>
/a/ During 1993, in-substance repossessions (ISR) were reclassified to the
loan portfolio as a result of regulatory clarification of the definition
of an ISR. This clarification also resulted in the reclassification of
corresponding prior-period amounts. ISRs reclassified to loans during 1993
were as follows: secured by first mortgages on residential properties of
$2 million, loans secured by real estate of $148 million, construction and
development loans secured by real estate of $411 million, and other
foreign of $7 million. Loans previously reported as ISRs that were
reclassified to loans were as follows: secured by first mortgages on
residential properties of $14 million at December 31, 1992; loans secured
by real estate of $211 million, $57 million, $28 million, and $32 million
at December 31, 1992, 1991, 1990, and 1989, respectively; construction and
development loans secured by real estate of $944 million, $209 million,
$22 million, and $10 million at December 31, 1992, 1991, 1990, and 1989,
respectively; and other foreign of $17 million at December 31, 1992.
/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: $12,847 million at December
31, 1993, $13,870 million at December 31, 1992, $9,281 million at December
31, 1991, $7,857 million at December 31, 1990, and $5,600 million at
December 31, 1989.
27
<PAGE>
estate loans at December 31, 1993, $1.6 billion, or 5 percent, were covered by
credit enhancements, which insure the corporation for the first 10 percent of
losses incurred related to these loans. These credit enhancements are
concentrated on loans secured by properties in Southern California and, in
particular, in Los Angeles county.
During 1993, individual lines of credit increased $139 million, or 2
percent, consumer installment loans decreased $1,331 million, or 8 percent,
and credit card loans decreased $832 million, or 10 percent. During 1992,
these categories of consumer loans increased $2,801 million, $5,702 million,
and $594 million, respectively. The increases in consumer installment loans
and individual lines of credit during 1992, and individual lines of credit
during 1993, were primarily in home equity lines of credit, which are
collateralized by junior mortgages on residential real estate.
The corporation's consumer loan delinquency ratio (the percentage of loan
outstandings in each portfolio that are past due 60 days or more) for first
mortgages on residential properties rose during 1993, increasing to 2.26 percent
at December 31, 1993 from 1.93 percent at year-end 1992. However, the
corporation's delinquency ratios for credit card loans declined 80 basis points
during 1993 to 2.39 percent at year-end 1993.
DOMESTIC COMMERCIAL LOANS
Domestic commercial loan outstandings decreased $2.3 billion during 1993,
primarily due to a continued low demand for loans among qualified borrowers,
reflecting the weakened U.S. economy. This decline consisted of decreases in
most categories of commercial loans, partially offset by an increase in loans
for purchasing or carrying securities. Between December 31, 1991 and 1992,
domestic commercial loan outstandings increased $19.3 billion, largely due to
loans acquired in connection with the Merger and, to a lesser extent, other 1992
acquisitions. This 1992 increase consisted of growth in all sectors of the
commercial portfolio.
Commercial and industrial loans, which consist of loans made to large
corporate and middle market customers, are the largest component of the
corporation's domestic commercial loan portfolio. The commercial and industrial
loan portfolio decreased during 1993 both in terms of outstandings, which were
down $1.1 billion from the end of 1992, and as a percentage of total loans,
which was 16 percent at December 31, 1993, down from 17 percent at the previous
year end. This decline was mainly due to decreased originations reflecting a
lower demand for credit among qualified borrowers, combined with paydowns on
loan outstandings of large corporate customers. During 1992, commercial and
industrial loans increased $7.8 billion from the amount reported at the end of
1991, primarily due to the Merger.
The corporation's portfolio of commercial loans secured by real estate
decreased $0.9 billion, or 9 percent, during 1993. At December 31, 1993, this
category of loans accounted for 7 percent of total loans, down from 8 percent at
the end of 1992. The 1993 decline in commercial loans secured by real estate was
primarily due to higher paydowns during the year, reflecting the declining
interest rate environment and, to a lesser extent, to charge-offs and transfers
to real estate acquired in satisfaction of debt. During 1992, commercial loans
secured by real estate increased $4.8 billion from the
<TABLE>
<CAPTION>
Total Loan Outstandings by Type (Pie charts in non-EDGAR version)
12/31/93 12/31/92
---------- ----------
<S> <C> <C>
Domestic Consumer 49.0% 49.4%
Domestic Commercial 35.0% 37.0%
Foreign 16.0% 13.6%
---------- ----------
Total 100.0% 100.0%
========== ==========
</TABLE>
28
<PAGE>
amount reported at the end of 1991, which was 6 percent of total loans. The
increases in both the dollar amount of out-standings and the relative size of
this portfolio during 1992 were primarily due to the Merger.
Construction and development loans secured by real estate (construction
and development loans) decreased $2.4 billion, or 35 percent, during 1993, and
represented 3 percent of total loans at the end of the year, down from 5
percent of total loans at the end of 1992. This decrease was primarily due to
higher paydowns during the year, reflecting the declining interest rate
environment and to a lesser extent, transfers of loans to real estate acquired
in satisfaction of debt upon foreclosure. During 1992, construction and
development loans increased $2.8 billion from the amount reported at year-end
1991, which was 5 percent of total loans. The increase in construction and
development loans during 1992 was primarily due to the Merger.
<TABLE>
<CAPTION>
DOMESTIC CONSTRUCTION AND DEVELOPMENT LOANS BY GEOGRAPHIC AREA AND PROJECT TYPE
- -------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 Apartment & Light
(in millions) Office Subdivision Retail Condominium Industry Hotel Other Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $ 689 $ 822 $ 388 $204 $111 $128 $162 $2,504/a/
Washington 231 192 236 96 48 27 37 867
Pennsylvania 200 -- -- 3 -- -- -- 203
Arizona 4 57 66 6 1 2 7 143
Oregon 17 1 36 34 3 -- 15 106
Nevada 26 11 17 34 1 -- 1 90
Other/b/ 137 57 104 58 11 10 128 505
- --------------------------------------------------------------------------------------------------------------------------------
$1,304 $1,140 $ 847 $435 $175 $167 $350 $4,418
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1992 Apartment & Light
(in millions) Office Subdivision Retail Condominium Industry Hotel Other Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $1,041 $1,458 $ 498 $271 $268 $171 $390 $4,097/a/
Washington 219 222 251 154 65 39 93 1,043
Pennsylvania 189 -- -- 3 -- -- -- 192
Arizona 5 87 85 19 2 32 5 235
Oregon 38 51 23 14 8 2 20 156
Nevada 43 57 31 39 12 -- 10 192
Other/b/ 90 132 193 59 29 40 323 866
- --------------------------------------------------------------------------------------------------------------------------------
$1,625 $2,007 $1,081 $559 $384 $284 $841 $6,781
================================================================================================================================
</TABLE>
/a/ Approximately 70 percent and 65 percent of domestic construction and
development loans in California at December 31, 1993 and 1992, respectively,
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 construction and development loans.
<TABLE>
<CAPTION>
Domestic Commercial Loans by Type (Pie charts in non-EDGAR version)
12/31/93 12/31/92
---------- ----------
<S> <C> <C>
Commercial and Industrial 46.4% 46.5%
Loans Secured by Real Estate 20.9% 21.8%
Construction and Development
Loans Secured by Real Estate 10.0% 14.6%
Other Domestic Commercial Loans 22.7% 17.1%
---------- ----------
Total 100.0% 100.0%
========== ==========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC COMMERCIAL LOANS SECURED BY REAL ESTATE BY GEOGRAPHIC AREA
- --------------------------------------------------------------------------------
December 31
-----------------
(in millions) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
California/a/ $5,117 $ 5,707
Washington 2,061 2,123
Nevada 394 469
Arizona 334 389
Oregon 281 286
Other/b/ 1,064 1,149
- --------------------------------------------------------------------------------
$9,251 $10,123
================================================================================
</TABLE>
/a/ Approximately 55 percent and 50 percent of domestic commercial loans secured
by real estate in California at December 31, 1993 and 1992, respectively,
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.
For information on credit losses and nonaccrual assets in the
commercial and construction and development real estate loan portfolios, as well
as on real estate acquired in satisfaction of debt, refer to pages 31-36.
FOREIGN LOANS
Foreign loans increased $3.1 billion during 1993, and represented 16 percent of
total loans at the end of the year, up from 14 percent of total loans at
December 31, 1992. The increases in both the dollar amount of outstandings and
the relative size of the foreign loan portfolio during 1993 were primarily due
to the consolidation of SPABL, as discussed earlier. During 1992, foreign loans
increased $1.0 billion, but declined as a percentage of total loans from 19
percent at December 31, 1991. The increase in the dollar amount of the
corporation's foreign loan outstandings during 1992 was primarily due to the
Merger, while the decline in foreign loans as a percentage of total loans during
1992 was due to a larger relative increase in the domestic segment of the loan
portfolio as a result of the Merger. The Merger-related increase in foreign
loans during 1992 was partially offset by sales of certain loans related to
borrowers in restructuring countries.
RESTRUCTURING COUNTRY DEBT
At December 31, 1993, total public and private sector cross-border outstandings
owed to the corporation by borrowers in restructuring countries amounted to $758
million. Of this amount, $218 million was medium- and long-term debt and $2
million was local currency outstandings which were neither hedged nor funded by
local currency borrowings. These amounts excluded $1,096 million in par bonds
and other loans that were 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 loans. These
collateralized par bonds and other loans were included in total foreign loans at
year-end 1993.
Since year-end 1992, the corporation has reduced its portfolio of medium-
and long-term cross-border outstandings with restructuring countries by $352
million. This reduction was primarily due to the reclassification of $310
million of nonaccrual assets to assets pending disposition upon their
identification for accelerated disposition. At December 31, 1993, restructuring-
country-related assets that were recorded in assets pending disposition at the
lower of cost or fair value amounted to $196 million.
At December 31, 1993, cross-border outstandings owed to the corporation by
borrowers in Brazil totaled $497 million, or 66 percent, of the corporation's
total cross-border outstandings with restructuring countries. No other
restructuring country had cross-border outstandings representing more than 13
percent of the corporation's total cross-border outstandings at December 31,
1993. At the end of 1993, Brazilian medium- and long-term public and private
sector obligations were $71 million, of which $29 million was on nonaccrual
status.
The plan to restructure Brazil's medium- and long-term debt was signed
during the fourth quarter of 1993. As a result, Brazil made partial payments of
past due interest. During 1993, the corporation received $30 million of cash
payments from the government of Brazil on its medium- and long-term
outstandings. The majority of these payments were recorded in interest income,
since the recorded investment of the related debt is considered to be
realizable.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses at December 31, 1993 was $3,508 million,
representing 2.78 percent of loan outstandings, compared with $3,921 million,
or 3.12 percent, at December 31, 1992 and $2,420 million, or 2.79 percent, at
December 31, 1991.
Although the allowance is general in nature and available for the credit
portfolio in its entirety, management develops the allowance using a "building
block" approach for various portfolio segments. The table on page 32 shows the
allocation of the allowance for credit losses by loan type.
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 eight 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
30
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR CREDIT LOSSES
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $3,921 $2,420 $2,912 $3,373 $3,602
Credit Losses/a/
Domestic consumer:
Secured by first mortgages on residential properties 23 15 3 2 2
Credit card 488 538 429 244 188
Other consumer 404 359 191 138 118
Domestic commercial:
Commercial and industrial 230 197 179 84 72
Loans secured by real estate 91 60 32 29 17
Construction and development loans secured by real estate 291 376 86 24 44
Loans for purchasing or carrying securities 2 9 -- -- --
Financial institutions 18 41 6 5 27
Lease financing 9 12 3 1 5
Agricultural 7 10 2 2 16
Other commercial -- 2 1 5 --
Foreign 36 126 375 548 295
- -----------------------------------------------------------------------------------------------------------------------------------
Total credit losses 1,599 1,745 1,307 1,082 784
Credit Loss Recoveries/a/
Domestic consumer:
Secured by first mortgages on residential properties 1 1 -- 2 --
Credit card 53 48 36 33 34
Other consumer 114 92 51 49 47
Domestic commercial:
Commercial and industrial 111 77 56 115 118
Loans secured by real estate 34 10 5 5 18
Construction and development loans secured by real estate 87 19 3 6 25
Loans for purchasing or carrying securities -- -- -- -- --
Financial institutions 2 1 1 1 1
Lease financing 6 9 4 3 6
Agricultural 10 6 7 18 18
Other commercial -- 4 1 -- --
Foreign 66 174 54 96 92
- -----------------------------------------------------------------------------------------------------------------------------------
Total credit loss recoveries 484 441 218 328 359
- -----------------------------------------------------------------------------------------------------------------------------------
Total net credit losses 1,115 1,304 1,089 754 425
Net losses on the sale or swap of loans to restructuring countries (3) (72) (207) (620) (584)
Other net deductions (110)/b/c/ (914)/b/ (1) -- --
Provision for credit losses/a/ 803 1,009 805 905 770
Allowance related to the Merger and acquisitions/d/ 12 2,782 -- -- --
Other net additions -- -- -- 8 10
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, End of Year/e/ $3,508 $3,921 $2,420 $2,912 $3,373
===================================================================================================================================
</TABLE>
/a/ During 1993, in-substance repossessions (ISR) were reclassified to the loan
portfolio as a result of regulatory clarification of the definition of an
ISR. The related fair value adjustments net of recoveries received in final
settlement were reclassified to credit losses and recoveries, with
corresponding adjustments to the provision for credit losses. Amounts
reclassified to credit losses and recoveries during 1993 were as follows:
loans secured by real estate of $17 million and $4 million, respectively,
construction and development loans secured by real estate of $78 million and
$34 million, respectively, and foreign of $1 million and $1 million,
respectively. Credit losses and recoveries that were previously reported as
other noninterest expense in 1992 were as follows: loans secured by real
estate of $2 million and $1 million, respectively, construction and
development loans secured by real estate of $20 million and $5 million,
respectively, and foreign credit losses of $3 million. The years 1989
through 1991 were not restated as amounts were not significant.
/b/ Due to the transfer of certain assets net of their related allowance to
assets pending disposition, the allowance for credit losses was reduced by
$128 million and $685 million during 1993 and 1992, respectively. The 1993
amount included $88 million of regulatory-related allocated transfer risk
reserve. In addition, the allowance for credit losses related to loans of
subsidiaries and operations pending disposition totaling $220 million was
reclassified to assets pending disposition during 1992.
/c/ Includes $36 million related to the consolidation of subsidiaries and
operations that were held for disposition at December 31, 1992 and $16
million related to the sale of commercial real estate loans net of their
allowance to a partnership controlled by Goldman Sachs & Co.
/d/ Represents the addition of consummation date allowances for credit losses of
First Gibraltar in 1993 and SPC, Valley Capital Corporation, and HFH of
$2,701 million, $63 million, and $18 million, respectively, in 1992.
/e/ Includes regulatory-related allocated transfer risk reserve of $67 million
at December 31, 1992, $145 million at December 31, 1991, $165 million at
December 31, 1990, and $202 million at December 31, 1989. Due to the
transfer of certain assets net of their related allowance to assets pending
disposition during 1993, the allowance for credit losses did not include any
regulatory-related allocated transfer risk reserve at December 31, 1993.
31
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES BY LOAN TYPE
- ---------------------------------------------------------------------------------------------------------------------------
December 31
-------------------------------------------------------------------------------
1993 1992 1991
----------------------- ----------------------- -----------------------
Percent Percent Percent
of Loan of Loan of Loan
(dollar amounts in millions) Allowance/a/ Category Allowance/a/ Category Allowance/a/ Category
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic consumer:
Secured by first mortgages
on residential properties $ 55 0.18% $ 62 0.22% $ 31 0.16%
Other consumer 1,017 3.21 1,038 3.08 486 1.99
Domestic commercial:
Commercial and industrial/b/ 368 1.47 636 2.65 321 2.21
Loans secured by real estate 165 1.78 232 2.29 48 0.90
Construction and development
loans secured by real estate 611 13.83 884 13.04 367 9.17
Financial institutions 8 0.38 14 0.70 23 1.62
Lease financing 48 2.81 55 2.90 8 1.09
Agricultural 39 2.30 37 2.19 28 2.46
Foreign 322 1.59 559 3.26 808 5.02
Unallocated 875 -- 404 -- 300 --
- ---------------------------------------------------------------------------------------------------------------------------
$3,508 2.78% $3,921 3.12% $2,420 2.79%
===========================================================================================================================
<CAPTION>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES BY LOAN TYPE
- -----------------------------------------------------------------------------------------------
December 31
---------------------------------------------------
1990 1989
----------------------- -----------------------
Percent Percent
of Loan of Loan
(dollar amounts in millions) Allowance/a/ Category Allowance/a/ Category
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic consumer:
Secured by first mortgages
on residential properties $ 18 0.11% $ 10 0.09%
Other consumer 364 1.59 298 1.57
Domestic commercial:
Commercial and industrial/b/ 308 1.96 209 1.34
Loans secured by real estate 58 1.01 44 0.78
Construction and development
loans secured by real estate 237 5.56 113 3.23
Financial institutions 16 1.15 25 2.18
Lease financing 5 0.59 6 0.70
Agricultural 25 2.16 15 1.29
Foreign 1,665 9.53 2,473 14.29
Unallocated 216 -- 180 --
- -----------------------------------------------------------------------------------------------
$2,912 3.39% $3,373 4.44%
===============================================================================================
</TABLE>
/a/ The allocation of the allowance for credit losses is based on management's
judgment of potential losses in the respective portfolios. While management
has allocated reserves to various portfolio segments for purposes of this
table, the allowance is general in nature and is available for the portfolio
in its entirety.
/b/ Includes the allowance for credit losses for commercial and industrial
loans, loans for purchasing or carrying securities, and other commercial
loans.
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 on this page 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, industry concerns, trends in portfolio
growth, new business volume, and the level of the allowance in relation to total
loans and nonaccrual loans.
Over the past two years, the corporation's reserve coverage of nonaccrual
assets has steadily increased. At December 31, 1993, the corporation's ratio of
the allowance for credit losses to total nonaccrual assets was 122 percent, up
from 75 percent at December 31, 1992 and 72 percent at December 31, 1991.
<TABLE>
<CAPTION>
COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES
- ------------------------------------------------------------------------------------------------------------------
December 31
---------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special mention and classified:/a/
Historical loss experience component $ 475 $1,273 $ 718 $ 498 $ 291
Credit management allocated component 770 601 172 234 138
- ------------------------------------------------------------------------------------------------------------------
Total special mention and classified 1,245 1,874 890 732 429
- ------------------------------------------------------------------------------------------------------------------
Domestic consumer 1,072 1,100 517 382 308
Domestic commercial/c/ 151 215 74 81 84
Foreign/c/ 165 328 639 1,501 2,372
- ------------------------------------------------------------------------------------------------------------------
2,633 3,517 2,120 2,696 3,193
Unallocated 875 404 300 216 180
- ------------------------------------------------------------------------------------------------------------------
$3,508 $3,921/b/ $2,420 $2,912 $3,373
==================================================================================================================
</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 years
presented for "special mention," "substandard," and "doubtful" loans of
approximately 2 percent, 6 percent, and 37 percent, respectively.
/b/ Includes the addition of consummation date allowances for credit losses of
SPC, Valley Capital Corporation, and HFH in 1992.
/c/ Excludes "special mention" and "classified."
During 1993 and 1992, the corporation's total net credit losses included
net credit recoveries related to restructuring countries of $28 million and $137
million, respectively, primarily related to the sale of restructuring country
debt and the corresponding recovery of amounts previously charged off. During
1991, total net credit losses included net credit losses related to
restructuring countries of $305 million, primarily due to charge-offs of
Brazilian medium- and long-term debt.
32
<PAGE>
<TABLE>
<CAPTION>
NET CREDIT LOSSES (RECOVERIES) AS A PERCENTAGE OF AVERAGE LOAN OUTSTANDINGS
- --------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------
1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic consumer:
Secured by first mortgages on residential properties 0.07 0.06 0.02 -- 0.02
Credit card 5.81 6.16 5.41 3.30 2.96
Other consumer 1.18 1.15 0.87 0.62 0.60
Domestic commercial:
Commercial and industrial 0.58 0.61 0.89 (0.21) (0.33)
Loans secured by real estate 0.59 0.57 0.49 0.43 (0.01)
Construction and development loans
secured by real estate 3.57 5.32 2.08 0.44 0.57
Loans for purchasing or carrying securities 0.11 0.86 -- -- --
Financial institutions 0.80 2.18 0.30 0.35 2.27
Lease financing 0.20 0.14 (0.15) (0.38) (0.13)
Agricultural (0.23) 0.29 (0.46) (1.50) (0.12)
Other commercial -- (0.15) -- 1.02 --
Total domestic 1.09 1.37 1.13 0.48 0.42
Foreign (0.16) (0.28) 1.97 2.53 1.12
Total loans 0.89 1.12 1.29 0.93 0.60
- --------------------------------------------------------------------------------------------------------
</TABLE>
Excluding amounts related to restructuring countries, the corporation's net
credit losses were $1,143 million in 1993, $1,441 million in 1992, and $784
million in 1991. Net credit losses in all three years reflected the effects of
weakness in the U.S. economy, which contributed to the level of charge-offs in
the corporation's domestic consumer and commercial portfolios. In addition, net
credit losses for 1993 and 1992 reflected higher outstandings in the loan
portfolio subsequent to the Merger. However, in 1993, net credit losses began to
decline, reflecting improvement in the credit portfolio. For information on net
credit losses and recoveries as a percentage of average loan outstandings, refer
to the table above.
Net credit losses in the domestic consumer loan portfolio, the largest
component of the corporation's net credit losses, amounted to $747 million in
1993, compared with $771 million in 1992 and $536 million in 1991. Consumer net
credit losses for 1993 were lower than the amount reported in 1992 primarily due
to lower net credit losses on credit card outstandings. The increase in consumer
net credit losses for 1992 over 1991 resulted primarily from higher net credit
losses on other consumer loans and credit card outstandings, which increased
$127 million and $97 million, respectively.
Total domestic commercial net credit losses were $398 million in 1993, down
$183 million from the amount reported in 1992, which was $349 million higher
than the amount reported in 1991. The decrease in net credit losses for 1993
compared with 1992 was primarily due to lower net credit losses on construction
and development loans. The most significant factor in the increase in domestic
commercial net credit losses for 1992 over 1991 was a $274 million increase in
net credit losses in the construction and development loan sector.
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE AND
STILL ACCRUING INTEREST
At December 31, 1993, nonaccrual assets were $2,886 million, down $2,349
million, or 45 percent, from year-end 1992. The balance of nonaccrual assets at
December 31, 1992 was up $1,886 million from year-end 1991, largely due to the
Merger.
<TABLE>
<CAPTION>
NONACCRUAL ASSETS
- --------------------------------------------------------------------------------------------------------------------
December 31
------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic Loans
Consumer:
Secured by first mortgages on residential properties/a/ $ 406 $ 267 $ 93 $ 30 $ 22
Other consumer 53 85 4 4 6
Commercial:
Commercial and industrial 457 898 675 326 355
Loans secured by real estate/a/ 570 721 286 198 141
Construction and development loans secured by real estate/a/ 1,037 2,430 960 431 280
Financial institutions 64 49 97 69 67
Lease financing 18 3 2 -- 1
Agricultural 49 94 43 39 45
- --------------------------------------------------------------------------------------------------------------------
2,654 4,547 2,160 1,097 917
Foreign Loans
Commercial and industrial 139 314 536 792 898
Governments and official institutions 42 175 387 663 895
Banks and other financial institutions 11 78 145 192 545
Other/a/ 40 116 75 51 11
- --------------------------------------------------------------------------------------------------------------------
232 683 1,143 1,698 2,349
Other interest-bearing assets -- 5 46 371 754
- --------------------------------------------------------------------------------------------------------------------
2,886/b/ 5,235/b/ $3,349 $3,166 $4,020
====================================================================================================================
</TABLE>
/a/ During 1993, in-substance repossessions (ISR) were reclassified to the loan
portfolio as a result of regulatory clarification of the definition of an
ISR. This clarification also resulted in the reclassification of
corresponding prior-period amounts. ISRs reclassified to nonaccrual loans
during 1993 were as follows: secured by first mortgages on residential
properties of $2 million, loans secured by real estate of $148 million,
construction and development loans secured by real estate of $411 million,
and other foreign of $7 million. Loans previously reported as ISRs that were
reclassified to loans were as follows: secured by first mortgages on
residential properties of $14 million at December 31, 1992; loans secured by
real estate of $211 million, $57 million, $28 million, and $32 million at
December 31, 1992, 1991, 1990, and 1989, respectively; construction and
development loans secured by real estate of $944 million, $209 million, $22
million, and $10 million at December 31, 1992, 1991, 1990, and 1989,
respectively; and other foreign of $17 million at December 31, 1992.
/b/ Excludes nonaccrual assets that had aggregate carrying values prior to
reclassification to assets pending disposition of $0.6 billion and $2.6
billion at December 31, 1993 and 1992, respectively. These nonaccrual assets
are recorded in assets pending disposition at the lower of cost or estimated
NRV. The balance at December 31, 1992 primarily consisted of nonaccrual
assets that were acquired in the Merger and identified for accelerated
disposition at the Merger date.
33
<PAGE>
<TABLE>
<CAPTION>
CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1993
-----------------------------------------------------------------------------------
Contractual Cumulative Cash Nonaccrual Book as a
Principal Cumulative Interest Applied Book Percentage of
(in millions) Balance Charge-offs to Principal Balance/a/ Contractual
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic
Consumer:
Secured by first mortgages on
residential properties $ 406 $ -- $ -- $ 406 100%
Other consumer 73 20 -- 53 73
Commercial:
Commercial and industrial 633 129 47 457 72
Loans secured by real estate 694 101 23 570 82
Construction and development loans
secured by real estate 1,527 432 58 1,037 68
Financial institutions 85 17 4 64 75
Lease financing 24 4 2 18 75
Agricultural 67 15 3 49 73
- --------------------------------------------------------------------------------------------------------------------------
3,509 718 137 2,654 76
Foreign, Excluding Restructuring-
Country-Related Assets
Commercial and industrial 220 60 23 137 62
Governments and official institutions 16 -- -- 16 100
Banks and other financial institutions 4 -- -- 4 100
Other 65 23 2 40 62
- --------------------------------------------------------------------------------------------------------------------------
305 83 25 197 65
- --------------------------------------------------------------------------------------------------------------------------
Total, excluding restructuring-
country-related assets 3,814 801 162 2,851 75
Restructuring-Country-Related Assets 93 50 8 35 38
- --------------------------------------------------------------------------------------------------------------------------
$3,907 $851 $170 $2,886 74%
==========================================================================================================================
Cash yield on total nonaccrual assets
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE
- -------------------------------------------------------------------------------
Year Ended
December 31, 1993
----------------------------------------
Cash Interest
Payments Applied
----------------------------------------
As Interest As Reduction
(in millions) Income of Principal Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic
Consumer:
Secured by first mortgages on
residential properties $ 5 $ 1 $ 6
Other consumer -- -- --
Commercial:
Commercial and industrial 9 32 41
Loans secured by real estate 19 13 32
Construction and development loans
secured by real estate 17 28 45
Financial institutions 1 2 3
Lease financing -- 3 3
Agricultural 4 1 5
- -------------------------------------------------------------------------------
55 80 135
Foreign, Excluding Restructuring-
Country-Related Assets
Commercial and industrial 1 5 6
Governments and official institutions -- -- --
Banks and other financial institutions -- -- --
Other -- 1 1
- -------------------------------------------------------------------------------
1 6 7
- -------------------------------------------------------------------------------
Total, excluding restructuring-
country-related assets 56 86 142
Restructuring-Country-Related Assets 6 1 7
- -------------------------------------------------------------------------------
$62 $87 $ 149
===============================================================================
Cash yield on total nonaccrual assets 5.16%
- -------------------------------------------------------------------------------
</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.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGE IN NONACCRUAL ASSETS
- -------------------------------------------------------------------------------
(in millions)/a/
- -------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1992 $ 5,235
Additions:
Loans placed on nonaccrual status 1,440
Deductions:
Restored to accrual status (988)
Transfers to real estate acquired in satisfaction of debt (689)
Charge-offs (433)
Restructuring-county-related assets transferred to assets
pending disposition (310)
Other, primarily payments (1,369)
- -------------------------------------------------------------------------------
Balance, December 31, 1993 $ 2,886
===============================================================================
</TABLE>
/a/ During 1993, in-substance repossessions (ISR) were reclassified to the loan
portfolio as a result of regulatory clarification of the definition of an
ISR. The analysis of change in nonaccrual assets has been adjusted to
reflect the effects of this reclassification.
Nonaccrual assets related to restructuring countries were $35 million at
December 31, 1993, compared with $375 million at December 31, 1992 and $917
million at December 31, 1991. The decrease in nonaccrual assets related to
restructuring countries during 1993 was largely due to the transfer of certain
restructuring-country-related assets to assets pending disposition upon their
identification for accelerated disposition. The 1992 decrease in nonaccrual
assets related to restructuring countries resulted primarily from sales of
loans.
Nonaccrual assets other than those relating to restructuring countries
(other nonaccrual assets) totaled $2,851 million at December 31, 1993, compared
with $4,860 million and $2,432 million at December 31, 1992 and 1991,
respectively. Other nonaccrual assets declined $2,009 million during 1993
primarily due to paydowns, as well as to improvements in
34
<PAGE>
<TABLE>
<CAPTION>
INTEREST INCOME FOREGONE ON NONACCRUAL ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-----------------------------
(in millions) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic
Interest income that would have been recognized had the assets performed in
accordance with their original terms $ 208 $ 234 $ 172
Less: Interest income included in the results of operations/a/ 55 74 57
- -------------------------------------------------------------------------------------------------------------------------------
Domestic interest income foregone 153 160 115
Foreign
Interest income that would have been recognized had the assets performed in
accordance with their original terms 18 55 109
Less: Interest income included in the results of operations/b/ 7 46 12
- -------------------------------------------------------------------------------------------------------------------------------
Foreign interest income foregone 11 9 97
- -------------------------------------------------------------------------------------------------------------------------------
$ 164 $ 169 $ 212
===============================================================================================================================
</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 $879 million, $1,442
million, and $1,022 million at December 31, 1993, 1992, and 1991,
respectively. Not included in interest income for 1993, 1992, and 1991 were
interest payments of $80 million, $213 million, and $67 million,
respectively, which, for accounting purposes, were used to offset the
principal balance of domestic nonaccrual assets with carrying values
totaling $1,098 million, $1,755 million, and $747 million at December 31,
1993, 1992, and 1991, respectively.
/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 $71 million, $348 million,
and $157 million at December 31, 1993, 1992, and 1991, respectively. Not
included in interest income for 1993, 1992, and 1991 were interest payments
of $7 million, $185 million, and $140 million, respectively, which, for
accounting purposes, were used to offset the principal balance of foreign
nonaccrual assets with carrying values totaling $124 million, $450 million,
and $1,665 million at December 31, 1993, 1992, and 1991, respectively.
credit quality in most segments of the credit portfolio, particularly in the
construction and development, commercial and industrial, and loans secured by
real estate portfolios. Decreases due to improvements in credit quality were
partially offset by an increase in nonaccrual consumer loans reflecting
continued weakness in the residential real estate market. The increase in other
nonaccrual assets in 1992 over their 1991 level was largely due to the Merger
and weakened commercial and construction and development real estate markets,
especially in Southern California.
Loans past due 90 days or more and still accruing interest, which are
generally secured and in the process of collection, decreased $55 million during
1993. During 1992, loans past due 90 days or more and still accruing interest
increased $265 million, largely due to the Merger.
<TABLE>
<CAPTION>
RESTRUCTURED LOANS
- -------------------------------------------------------------------------------------------------------------------------------
December 31
------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic
Commercial and industrial $ 66 $ 69 $ 41 $ 21 $ 4
Commercial loans secured by real estate 21 12 6 37 --
Construction and development loans secured by real estate 10 34 20 -- 18
Financial institutions -- 1 2 2 1
Lease financing 1 -- -- 3 4
Agricultural -- 20 -- 3 6
- -------------------------------------------------------------------------------------------------------------------------------
98 136 69 66 33
Foreign 36 40 10 -- --
- -------------------------------------------------------------------------------------------------------------------------------
$134/a/ $176/a/ $79/a/ $66/a/ $33
===============================================================================================================================
</TABLE>
/a/ Not included in restructured loans at December 31, 1993, 1992, 1991, and
1990 were $2,351 million, $2,317 million, $2,190 million, and $2,052
million, respectively, of debt restructurings with countries that have
experienced liquidity problems. For further information on these
restructurings, refer to Note 9 of the Notes to Consolidated Financial
Statements on pages 58-59.
<TABLE>
<CAPTION>
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
- -------------------------------------------------------------------------------------------------------------------------------
December 31
------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic
Consumer:
Secured by first mortgages on residential properties $ 153 $ 181 $ 96 $ 38 $ 19
Other consumer 175 289 186 120 81
Commercial:
Commercial and industrial 20 19 26 11 11
Loans secured by real estate 138 22 23 7 11
Construction and development loans secured by real estate 86 117 28 14 2
Financial institutions -- -- -- -- 2
Lease financing -- 1 1 -- --
Agricultural -- 4 -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
572 633 360 190 126
Foreign 6 -- 8 1 23
- -------------------------------------------------------------------------------------------------------------------------------
$ 578 $ 633 $ 368 $ 191 $ 149
===============================================================================================================================
</TABLE>
REAL ESTATE ACQUIRED IN SATISFACTION OF DEBT
Real estate acquired in satisfaction of debt decreased $135 million, or 21
percent, between year-end 1992 and year-end 1993. At December 31, 1993, the
aggregate appraised value of properties included in real estate acquired in
satisfaction of debt represented approximately 120 percent of their aggregate
book value. The decline in real estate acquired in satisfaction of debt resulted
primarily from sales and the reclassification of net tax effects to deferred
income taxes in connection with the corporation's previously discussed first-
quarter adoption of SFAS No. 109, as well as from writedowns due to subsequent
declines in the fair values of certain properties. These reductions were
partially offset by transfers from loans upon foreclosure.
35
<PAGE>
During 1992, real estate acquired in satisfaction of debt increased from
$176 million to $652 million (including $196 million of Merger-related tax
effects), primarily due to the Merger. This increase was also partially due to
foreclosures on construction and development real estate and other commercial
real estate properties, reflecting the weakened economy.
<TABLE>
<CAPTION>
ANALYSIS OF CHANGE IN REAL ESTATE ACQUIRED IN SATISFACTION OF DEBT
- --------------------------------------------------------------------------------
(in millions)
- --------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1992/a/ $ 652
Transfers from loans, net of fair value adjustments 670
Sales (486)
Reclassification of SFAS No. 109 deferred income tax
asset (refer to Note 19 on pages 64-65 of the Notes
to Consolidated Financial Statements) (196)
Subsequent declines in fair values (124)
Principal payments (49)
Other 50
- --------------------------------------------------------------------------------
Balance, December 31, 1993/a/ $ 517
- --------------------------------------------------------------------------------
</TABLE>
/a/ Excludes certain properties that had aggregate carrying values prior to
reclassification to assets pending disposition of $0.2 billion and $0.4
billion at December 31, 1993 and December 31, 1992, respectively. These
properties, which were primarily acquired in the Merger and identified for
accelerated disposition at the Merger date, are recorded in assets pending
disposition at their estimated NRVs.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the corporation enters into various types of
transactions that involve credit-related financial instruments and derivative
and foreign exchange products with off-balance-sheet risk. Credit-related
financial instruments are primarily customer-driven, while derivative and
foreign exchange transactions are entered into both on behalf of customers and
for the corporation's own account in conducting trading activities and managing
market risk, including interest rate and foreign exchange risk. Credit-related
financial instruments include commitments to extend credit, standby letters of
credit, financial guarantees, and commercial letters of credit. Derivative and
foreign exchange products include futures, forwards, swaps, and options
contracts, and are principally linked to interest rates, foreign exchange rates,
or the prices of securities.
The contractual or notional amounts associated with these credit-related
financial instruments and derivative and foreign exchange products are not
recorded as assets or liabilities on the balance sheet. This reporting is
considered appropriate where exchange of the underlying asset or liability has
not occurred or is not assured, or where notional amounts are used solely as a
means to determine cash flows to be exchanged.
Off-balance-sheet financial instruments are subject to varying degrees of
credit and market risk. However, regardless of the type of product, all off-
balance-sheet financial instruments must meet criteria of acceptable risk
established for the corporation's lending, financing, hedging, and trading
activities. For a detailed discussion of the risks associated with off-balance-
sheet financial instruments and how they are managed, refer to the Risk
Management section on pages 37-38. Additional information about off-balance-
sheet financial instruments, including their respective contractual or notional
amounts and credit risk amounts, is provided in Note 22 of the Notes to
Consolidated Financial Statements on pages 69-71.
CREDIT-RELATED FINANCIAL INSTRUMENTS
On an ongoing basis, the corporation makes commitments to extend credit to a
wide range of customers. Additionally, the corporation issues financial
guarantees and letters of credit to insure performance of customer financial
obligations. Generally, these agreements are entered into for two purposes: to
offer a means of short-term financing for various clients and to facilitate
foreign and domestic trade transactions for customers. Fees earned by the
corporation in connection with credit-related financial instruments are recorded
as other fees and commissions in noninterest income.
DERIVATIVES AND FOREIGN EXCHANGE
The corporation's use of derivative and foreign exchange products has grown
substantially in recent years, primarily due to the Merger and to rapid
development in global financial markets. The corporation conducts derivative and
foreign exchange transactions with various types of counterparties, including
U.S. and foreign banks, nonbank financial institutions, corporations, and middle
market customers. Certain derivative and foreign exchange transactions are
negotiated over-the-counter (OTC), with the terms tailored to meet the needs of
the corporation and its clients, while other derivative and foreign exchange
transactions are standardized contracts executed on organized exchanges. OTC
derivative and foreign exchange products include, among other instruments,
forwards, swaps, forward rate agreements, and options, including caps and
floors. Exchange-traded derivative and foreign exchange products include futures
and options.
The corporation utilizes derivative and foreign exchange products both as a
risk management tool and as a source of trading income. Derivatives and foreign
exchange products may be used to facilitate the management of risk in the
corporation's positions by limiting exposure to fluctuations in interest rates,
foreign exchange rates, and securities prices. The corporation generates trading
income from bid-offer spreads, transaction fees, and its own trading positions.
Transaction fees on derivative and foreign exchange transactions that do not
qualify as hedges are generally recognized in trading income at the inception of
the transaction. For information regarding the corporation's trading income,
refer to pages 20-21 in the Noninterest Income section.
36
<PAGE>
Derivative and foreign exchange products that do not qualify as hedges are
marked to market, and the unrealized gains and unrealized losses are recorded on
the consolidated balance sheet on a net basis for most products. The accounting
for gains and losses on derivative and foreign exchange contracts that qualify
as hedges differs based on the type of contract. For information regarding the
accounting for gains and losses on derivative and foreign exchange contracts
that qualify as hedges, refer to page 51 of Note 1 in the Notes to Consolidated
Financial Statements. With respect to derivative and foreign exchange
contracts that qualify as hedges, neither deferred gains and losses recorded
on the corporation's consolidated balance sheet at December 31, 1993 nor the
amortization of such amounts for the year ended December 31, 1993 were
significant.
RISK MANAGEMENT
The active management of risk is an integral part of the corporation's
operations and a key determinant in its overall financial performance. The
corporation employs various strategies to diversify and mitigate the major risks
to which it is exposed, namely credit and market risk. In addition to managing
and limiting these risks, which are discussed in the following sections, the
corporation strives to actively manage other types of risk, such as settlement
risk, operating risk, and market liquidity risk.
CREDIT RISK
Credit risk, which is the risk of loss in the event that a borrower or other
counterparty fails to perform under the terms of a contract, arises from the
corporation's lending activities, as well as from certain transactions involving
off-balance-sheet instruments. Credit risk associated with the corporation's
cross-border lending activities includes risks inherent in doing business
outside the United States. Such activities often involve lending funds to
borrowers in currencies other than the borrower's own, most commonly U.S.
dollars. In addition to credit risk, the corporation is also exposed to transfer
risk with regard to cross-border lending. Transfer risk represents the
possibility that a country's foreign exchange reserves may be insufficient to
permit borrowers domiciled in that country to make repayment in the loaned
currency, even if the borrowers possess a sufficient equivalent of local
currency to do so.
The Credit Policy Committee (CPC), which oversees all of the corporation's
credit-related activities, is responsible for establishing credit standards and
guidelines to define, quantify, and monitor the credit risk that stems from the
corporation's business activities. To mitigate individual counterparty credit
risk and manage the corporation's overall credit exposure, the CPC establishes
maximum credit limits and conducts reviews of industry, geographic region or
country, product, and individual borrower exposures, together with reviews of
problem credits and credit losses. The adherence of line officers to the CPC's
established limits and exposure levels is monitored, on an ongoing basis, by the
corporation's credit examination officers and is ultimately overseen by senior
credit management. Line officers receive support in making credit decisions from
credit specialists within the corporation who have expertise in specific areas,
including specialized industries, geographic regions, or types of products.
In addition to establishing procedures and guidelines, the CPC strives to
anticipate problems by reviewing industries and countries in light of certain
economic, political, and social factors; for example, sensitivity to changes in
interest rates, fluctuations in energy prices, and governmental actions, such as
spending cutbacks. Moreover, senior management is continually refining the
corporation's credit policies and procedures in an effort to address the risks
of the current economic environment and to reflect the corporation's overall
strategic focus.
In its effort to manage credit risk, the corporation strives to maintain
diversification of its total on- and off-balance-sheet portfolios, both in terms
of asset type and industry concentration. In addition, policies are in place to
help ensure that sufficient collateral is obtained when appropriate, and that
the ratios of outstanding exposures to the value of the associated collateral
are adequately controlled. Furthermore, the primary focus in managing risk when
extending credit is to evaluate the borrower's ability to meet obligations from
its expected cash flows.
For off-balance-sheet credit-related financial instruments, the
corporation's credit exposure is represented by the contractual amount of the
instrument. With respect to derivative and foreign exchange products, the
corporation's off-balance-sheet credit exposure arises from the potential for a
counterparty to be unable to perform under the terms of a contract in which the
corporation has an unrealized gain, which is typically a small fraction of the
contractual principal or notional amount.
To mitigate off-balance-sheet credit exposures, the corporation deals with
counterparties that are deemed creditworthy and increasingly requires the use of
legally enforceable master netting agreements, which provide for the net
settlement of conditional or exchange contracts with the same counterparty in
the event of default. For interest rate futures and exchange-traded option
contracts, the corporation's exposure to off-balance-sheet credit risk is
limited, as these transactions are standardized contracts executed on organized
exchanges that assume the obligations of counterparties and generally require
security deposits and daily settlement of variation margins. Historically,
losses associated with counterparty nonperformance on derivative and foreign
exchange contracts have been immaterial.
37
<PAGE>
The following table is a summary of the contractual or notional amounts,
credit exposure amounts, and fair value amounts associated with the
corporation's off-balance-sheet trading and asset and liability management
activities.
<TABLE>
<CAPTION>
DERIVATIVE AND FOREIGN EXCHANGE TRANSACTIONS
- --------------------------------------------------------------------------------
December 31, 1993
------------------------------------
Contractual Credit Fair
or Notional Exposure Value
(in billions) Amount Amount Amount/a/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Trading:
Derivatives $432.5 $5.1/b/ $ 0.3
Foreign exchange
contracts 423.7 3.0/b/ (0.2)
Other/c/ 19.6 0.1/b/ --
Asset and liability
management derivatives 46.2 0.2/d/ 1.2
- --------------------------------------------------------------------------------
</TABLE>
/a/ Fair value amounts consist of net unrealized gains and losses, accrued
interest receivable or payable, and premiums paid or received.
/b/ Amounts represent net unrealized gains on contracts with counterparties
for whom legally enforceable master netting agreements were in place and
effective at December 31, 1993 and gross unrealized gains on contracts with
other counterparties.
/c/ Includes amounts related to foreign currency options purchased and sold.
/d/ Represents the maximum potential accounting loss related to contracts
outstanding at December 31, 1993.
For additional information concerning off-balance-sheet transactions and
their associated credit risk amounts, refer to Note 22 of the Notes to
Consolidated Financial Statements on pages 69-71.
MARKET RISK
Market risk is the risk that the corporation will suffer losses as a result of
adverse price or rate movements in its on- and off-balance-sheet positions.
Market risk arises in many areas of the corporation's operations, including
lending and borrowing, as well as its trading activities in the derivatives,
foreign exchange, and debt securities markets.
The corporation strives to limit aggregate market risk to an acceptable
level in the context of both risk-return and cost-benefit trade-offs. To manage
market risk, the corporation's Market Risk Committee monitors certain market
exposures and analyzes the effects of actual and projected changes in rates,
prices, indices, and market liquidity on the corporation's on-and off-balance-
sheet positions. The corporation further mitigates the inherent risks of market
volatility (primarily interest rate and currency related) by entering into
offsetting, or counterbalancing, transactions. For example, the corporation may
arrange interest rate swaps to limit its exposure to interest rate movements.
With regard to nontrading-related foreign exchange risk, foreign currency
exposures may be naturally hedged through existing on- or off-balance sheet
transactions or they may be specifically hedged with foreign exchange contracts.
FUNDING AND CAPITAL
ASSET AND LIABILITY MANAGEMENT
The Asset, Liability, and Financial Management Committee (ALFI) determines the
nature and extent of the corporation's on- and off-balance-sheet activities and
products. In managing the corporation's overall asset and liability portfolio,
the ALFI seeks to optimize profitability while balancing the corporation's
sources and uses of funds and minimizing market exposure. In this capacity, the
ALFI places limits on the level of investments in various assets and off-
balance-sheet instruments, as well as on funding levels for wholesale and other
deposits. Moreover, the ALFI monitors the corporation's domestic and foreign
treasury activities and global trading activities in all financial products to
assure that authorization and limit controls are maintained.
LIQUIDITY
A key role of asset and liability management is the management of liquidity, a
measure of the corporation's ability to fulfill its cash requirements on a
timely and cost-effective basis. The corporation manages its liquidity through
the coordination of the relative maturities of its assets and liabilities. The
corporation's liquidity is enhanced by its ability to raise additional funds in
money and capital markets. Management of the corporation's liquidity profile is
also structured to ensure that the capital needs of the parent and its banking
subsidiaries are met.
The corporation's 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 securities available for
sale. Funding sources include core deposits, capital market funds, and purchased
money market liabilities. Core deposits primarily include domestic interest- and
noninterest-bearing retail deposits, which are a relatively stable source of
funds. Capital market funds include long-term debt, subordinated capital notes,
and common and preferred equity, while purchased money market liabilities
primarily include overseas time deposits, federal funds purchased, securities
sold under repurchase agreements, and other short-term borrowings. The cost and
availability of these funding sources are affected by credit ratings of the
parent and its subsidiaries.
The corporation's liquidity is managed at both the parent and banking
subsidiary levels. The parent is funded primarily by the issuance of debt and
equity, as well as by dividend and interest income from its subsidiaries. The
parent's direct and indirect banking subsidiaries are funded primarily by their
domestic retail deposits. Lines of credit between banking subsidiaries and the
bank, and between nonbanking subsidiaries and the parent, are structured to
provide additional funding support. In addition to significant liquid assets,
the parent and the bank have considerable unused borrowing capacity in capital
and money markets. The corporation may issue preferred
38
<PAGE>
stock and senior and subordinated debt from time to time when market conditions
are judged appropriate in light of funding and capital needs.
In connection with the pending Continental acquisition, the corporation
will pay an estimated $939 million in cash, in addition to stock consideration.
Also, the corporation intends to repurchase $500 million of the parent's
outstanding common stock. The aggregate impact of these cash outflows is not
expected to have a significant effect on the corporation's liquidity.
For further information on long-term debt and subordinated capital notes,
refer to Notes 14 and 15 of the Notes to Consolidated Financial Statements on
pages 61-62.
At December 31, 1993, the corporation's liquid assets totaled $29.2
billion, up from $24.8 billion at year-end 1992, and $14.9 billion at year-end
1991. The increase during 1993 was largely due to increases in trading account
assets and federal funds sold of $3.4 billion and $1.0 billion, respectively.
The 1992 increase was primarily due to the impact of the Merger and, to a lesser
extent, to the net cash provided by the corporation's 1992 acquisitions. At
December 31, 1993, liquid assets accounted for 16 percent of the corporation's
total assets, compared with 14 percent at year-end 1992 and 13 percent at year-
end 1991.
Various factors affected the corporation's liquidity during 1993 and 1992.
During 1993, total loan originations and purchases exceeded principal repayments
by $2.5 billion and total purchases of securities held for investment exceeded
sales and maturities by $1.8 billion, resulting in a net cash outflow of $4.3
billion. In 1992, however, a net cash inflow of $1.7 billion resulted from these
investing activities, as principal repayments on loans exceeded loan
originations and purchases by $4.8 billion, while purchases of securities held
for investment exceeded sales and maturities by $3.1 billion. Also, in 1992,
proceeds from the issuances of long-term debt and subordinated capital notes
exceeded principal payments and retirements by $2.9 billion, and proceeds from
the issuance of preferred stock, net of redemptions, totaled $1.3 billion.
However in 1993, principal payments and retirements of long-term debt and
subordinated capital notes exceeded proceeds from such issuances by $2.2
billion.
During both 1993 and 1992, the corporation's liquidity was also enhanced by
proceeds from sales of loans totaling $2.3 billion and $4.7 billion,
respectively, and proceeds from sales of assets pending disposition totaling
$1.8 billion and $1.1 billion. The loan sales were primarily of loans that were
not originated or acquired with the intent to sell, but were generally
identified and sold within the same reporting period. These loans were sold
prior to maturity due to economic factors, including significant movements in
interest rates, changes in the maturity mix of the corporation's assets and
liabilities, or liquidity demands.
In addition, in 1993 and 1992, the parent paid dividends of $738 million
and $578 million, respectively, to its preferred and common stockholders. For
information concerning dividend and loan restrictions, refer to Note 25 of the
Notes to Consolidated Financial Statements on pages 74-75.
CAPITAL
Since December 31, 1991, the corporation's common stockholders' equity has
increased $7.4 billion to $14.2 billion at year-end 1993. The increase in common
stockholders' equity during the past two years primarily resulted from the
issuances of common stock in connection with the Merger, the acquisition of
Valley Capital Corporation (Valley), and the First Gibraltar transaction, as
well as from earnings net of preferred and common stock dividends. The common
stock issued during the past two years in connection with the Merger, the
acquisition of Valley, and the First Gibraltar transaction totaled 125,513,484
shares and increased common stockholders' equity by $4.8 billion. In addition to
the growth in common stockholders' equity during 1992, the corporation's total
stockholders' equity was increased through the issuance of preferred stock of
$1,653 million, of which $300 million was issued in connection with the Merger.
In connection with the pending Continental acquisition, the parent will
issue an estimated 21.25 million shares of common stock, subject to adjustment
in certain circumstances, including movements in the parent's average stock
price beyond certain levels. In addition, Continental's preferred stock will be
converted into approximately $400 million of the parent's preferred stock having
substantially the same terms. Furthermore, the parent has announced that, prior
to the completion of the transaction, it intends to repurchase $500 million of
its common stock.
<TABLE>
<CAPTION>
Ratios of Stockholders' Equity to Total Assets (Plot point graph in non-EDGAR version)
1992 1993
First Second Third Fourth First Second Third Fourth
Quarter/a/ Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of total stockholders'
equity to total assets 7.6% 7.3% 8.0% 8.6% 8.7% 8.9% 9.0% 9.2%
Ratio of common stockholders'
equity to total assets 6.2% 6.3% 6.5% 6.9% 7.1% 7.3% 7.4% 7.6%
</TABLE>
/a/ BankAmerica Corporation's pre-Merger financial position does not reflect
the effects of the merger with Security Pacific Corporation on
April 22, 1992.
39
<PAGE>
Supported by the growth of the corporation's capital base, on February 1,
April 26, August 2, and November 1, 1993, the parent's Board of Directors
declared quarterly dividends of $0.35 per share to common stockholders of record
at February 23, May 21, August 20, and November 23, 1993. In addition, on
February 7, 1994, the Board of Directors declared a quarterly dividend of $0.40
per share to be paid in the first quarter of 1994 to common stockholders of
record at February 22, 1994.
The parent and its domestic banking subsidiaries are subject to risk-based
capital regulations. These guidelines are used to evaluate capital adequacy, and
are based on an institution's asset risk profile and off-balance-sheet
exposures, such as unused loan commitments, standby letters of credit, and
derivative and foreign exchange products. The rules require that a portion of
total capital be Tier 1 capital consisting of common stockholders' equity and
perpetual preferred stock, less goodwill and certain other deductions, with the
remaining, or Tier 2, capital consisting of other elements, primarily
subordinated debt, mandatory convertible debt, and grandfathered senior debt,
plus the allowance for credit losses, subject to certain limitations.
The Federal Reserve Board has established guidelines that all banking
organizations are required to maintain a minimum 8 percent total risk-based
capital ratio (the ratio of total capital divided by risk-weighted assets),
including a Tier 1 capital ratio of 4 percent. The risk-based capital rules have
been further supplemented by a leverage ratio, defined as Tier 1 capital divided
by total average assets, after certain adjustments. The minimum leverage ratio
is 3 percent for banking organizations that do not anticipate significant growth
and have well-diversified risk (including no undue interest rate risk exposure),
excellent asset quality, high liquidity, and good earnings. Other banking
organizations not in this category are expected to have ratios well above the
minimums, depending on their particular condition and growth plans. Higher
capital ratios could be required if warranted by the particular circumstances or
risk profile of a given banking organization. In the current regulatory
environment, banking companies must stay well capitalized to receive favorable
regulatory treatment on acquisition and other expansion activities and favorable
risk-based deposit insurance assessments. It is the corporation's policy to
maintain capital ratios above the regulatory well-capitalized levels, which are
10 percent for total risk-based capital ratio, 6 percent for the Tier 1 capital
ratio, and 5 percent for the Tier 1 leverage ratio.
Beginning in 1993, bank holding companies that acquired CDI and certain
other identifiable intangibles subsequent to February 19, 1992 were required to
deduct such intangibles from Tier 1 capital. For information regarding the
effect of the Corporation's adoption of SFAS No. 109 on its risk-based capital,
refer to the table on this page.
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires
all federal banking agencies to incorporate interest rate risk into their risk-
based capital framework. Until all final interest rate risk regulations have
been issued, the corporation will be unable to determine the effect of such
regulations on its regulatory capital ratios or those of its subsidiary banks.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL AND RISK-BASED CAPITAL RATIOS
- ----------------------------------------------------------------------------------------------------------------------------------
December 31
-----------------------------------
(dollar amounts in millions) 1993/a/ 1992/b/ 1991/b/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-Based Capital
Common stockholders' equity $14,165 $12,509 $ 6,737
Perpetual preferred stock 2,979 2,979 1,326
Less: Goodwill, nongrandfathered core deposit and other identifiable intangibles,
and other deductions (5,125)/c/ (4,179) (150)
- ----------------------------------------------------------------------------------------------------------------------------------
Tier 1 capital 12,019 11,309 7,913
Eligible portion of the allowance for credit losses (exclusive of allocated transfer
risk reserve)/d/ 1,995 2,096 1,378
Hybrid capital instruments/e/ 568 1,762 1,165
Subordinated notes and debentures/f/ 4,422 4,122 1,377
Less: Other deductions (37) (250) (6)
- ----------------------------------------------------------------------------------------------------------------------------------
Tier 2 capital 6,948 7,730 3,914
- ----------------------------------------------------------------------------------------------------------------------------------
Total Risk-Based Capital $18,967 $19,039 $11,827
==================================================================================================================================
Risk-Based Capital Ratios
Tier 1 capital 7.61% 6.82% 7.25%
Tier 2 capital 4.39 4.66 3.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total Risk-Based Capital Ratio 12.00% 11.48% 10.83%
==================================================================================================================================
Tier 1 Leverage Ratio/g/ 6.64% 6.37% 6.80%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ This risk-based capital information is calculated in accordance with the
guidelines of the federal banking regulators as they apply to the
corporation beginning in 1993. Due to the adoption of SFAS No. 109 in the
first quarter of 1993, CDI and other identifiable intangibles that are
normally deducted from Tier 1 capital under the current guidelines were $510
million higher at December 31, 1993, with a corresponding increase 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 December 31, 1993 capital ratios shown above.
/b/ Risk-based capital and risk-based capital ratios under guidelines effective
December 31, 1992.
/c/ Includes nongrandfathered CDI and other identifiable intangibles acquired
after February 19, 1992 of $1,008 million and $71 million, respectively,
excluding gross-ups due to the adoption of SFAS No. 109. Also, includes $35
million 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 $37 million, $250
million, and $6 million at December 31, 1993, 1992, and 1991, respectively.
40
<PAGE>
At December 31, 1993, the corporation's total and Tier 1 risk-based capital
ratios increased 52 basis points and 79 basis points, respectively, from the
amounts reported at year-end 1992. However, the Tier 2 risk-based capital ratio
at year-end 1993 was down 27 basis points from the amount reported at year-end
1992, primarily due to the redemption of a portion of the corporation's
subordinated capital notes.
The corporation evaluates and modifies its mix of capital sources,
including debt, equity, and off-balance-sheet financing arrangements, on an
ongoing basis, taking into consideration various factors. Such factors include
regulatory capital targets, as well as the costs of capital sources, which are
influenced by prevailing interest rates and credit-risk spreads. The
corporation's capital mix may vary from time to time in response to changes in
these factors.
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 loss exposure, the corporation strives to match the
repricing characteristics of its assets and liabilities accounted for on an
accrual basis. 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 at the end of 1993 is shown below
in the Accrual Book Risk Positions table at December 31, 1993.
The table shows that, at December 31, 1993, in the one-year-or-less
categories, U.S. dollar-denominated repricing gaps were essentially matched.
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 December 31, 1993, U.S. dollar-
denominated repricing gaps were also essentially matched. 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. For
information regarding the corporation's securities portfolio, as well as off-
balance-sheet instruments and their associated credit exposures, refer to Notes
7 and 22 of the Notes to Consolidated Financial Statements on pages 56-57 and
69-71, respectively. Selected off-balance-sheet instruments, including futures,
forward rate agreements, and swaps, are designated as hedges by the corporation
to manage repricing mismatches. None of the off-balance-sheet instruments
acquired for hedging purposes contain a short embedded option component. At
December 31, 1993, the corporation held interest rate swap contracts with a
gross notional value of $26 billion in support of these accrual book risk
management activities.
At December 31, 1993, an imbalance in customer business, primarily more
deposit balances than loan assets, caused liabilities and equity to exceed
customer-related assets by $18 billion. This structural imbalance and its
related repricing mismatch effects were mitigated by the corporation's risk
management activities. As shown below, at December 31, 1993, under-one-year
securities and off-balance-sheet risk management positions neutralized a
structural gap mismatch exposure of $(3) billion. Similarly, over-one-year risk
management positions neutralized the structural gap mismatch of $(15) billion.
While the Accrual Book Risk Positions table below 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 order to manage the magnitude of potential
gains or losses from changes in interest rates.
<TABLE>
<CAPTION>
ACCRUAL BOOK RISK POSITIONS AT DECEMBER 31, 1993/a/
- -------------------------------------------------------------------------------------------------------------------------
0-3 >3-6 >6-12 >1-5 Over 5
(in billions) months months months years years Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Structural gap position/b/ $ 8 $ -- $ (11) $ (1) $(14) $(18)
Risk management activities:/c/
Securities/d/ 1 2 4 6 5 18
Off-balance-sheet hedging instruments (18) 5 9 (6) 10 --
- -------------------------------------------------------------------------------------------------------------------------
Total risk management positions (17) 7 13 -- 15 18
- -------------------------------------------------------------------------------------------------------------------------
Consolidated gap position $ (9) $ 7 $ 2 $ (1) $ 1 $ --
=========================================================================================================================
</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 securities available for sale and securities held for investment.
41
<PAGE>
REPORT OF MANAGEMENT
The management of BankAmerica Corporation and its subsidiaries has
responsibility for the preparation, integrity, and reliability of the financial
statements and related financial information contained in this annual report.
The financial statements were prepared in accordance with generally accepted
accounting principles and prevailing practices of the banking industry and
include necessary judgments and estimates by management.
Management has established and is responsible for maintaining an internal
control environment designed to provide reasonable assurance as to the integrity
and reliability of the financial statements, the protection of assets, and the
prevention and detection of fraudulent financial reporting. The internal control
environment includes: an effective financial accounting structure; a
comprehensive internal audit function; an independent auditing and examining
committee (the committee) of the Board of Directors; and extensive financial
and operating policies and procedures. The corporation's management also fosters
an ethical climate supported by a code of conduct, appropriate levels of
management authority and responsibility, an effective corporate organizational
structure, and appropriate selection and training of personnel.
The Board of Directors, primarily through the committee, oversees the
adequacy of the corporation's control environment. The committee, whose members
are neither officers nor employees of the corporation, meets periodically with
management, internal auditors, credit examination officers, and the independent
auditors to review the functioning of each and to ensure that each is properly
discharging its responsibilities.
The corporation's financial statements are audited by Ernst & Young, the
corporation's independent auditors, whose audit is made in accordance with
generally accepted auditing standards and includes such audit procedures as they
consider necessary to express the opinion in their report that follows. In
addition, Ernst & Young reviews the corporation's quarterly financial
information. A review is substantially less in scope than an audit in accordance
with generally accepted auditing standards and, accordingly, Ernst & Young does
not express an opinion on the quarterly financial information. Ernst & Young
meets regularly with management as well as the committee to discuss its audit
and its findings as to the integrity of the financial statements and the
adequacy of the internal controls.
Management recognizes that there are inherent limitations in the
effectiveness of any internal control environment. However, management believes
that, as of December 31, 1993, the corporation's internal control environment,
as described above, provided reasonable assurance as to the integrity and
reliability of the financial statements and related financial information.
/s/ Richard M. Rosenberg
- -------------------------
Richard M. Rosenberg
Chairman and Chief Executive Officer
/s/ Lewis W. Coleman
- -------------------------
Lewis W. Coleman
Vice Chairman of the Board and Chief Financial Officer
/s/ Joseph B. Tharp
- -------------------------
Joseph B. Tharp
Executive Vice President and Financial Controller
January 18, 1994
42
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
BankAmerica Corporation
We have audited the accompanying consolidated balance sheet of BankAmerica
Corporation and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of BankAmerica Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of BankAmerica
Corporation and subsidiaries as of December 31, 1993 and 1992 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
In 1993, BankAmerica Corporation adopted Financial Accounting Standards
Board Statement No. 106, "Employers' Accounting for Postretirement Benefits,"
and Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes." These changes are discussed in Notes 19 and 20 of the Notes to
Consolidated Financial Statements.
/s/ Ernst & Young
- ------------------
Ernst & Young
San Francisco, California
January 18, 1994,
except for Note 2, as to which the date is
January 27, 1994
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS BANKAMERICA CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
----------------------------------------
(dollar amounts in millions, except per share data) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans, including fees $ 9,463 $ 9,729 $ 8,349
Interest-bearing deposits in banks 194 283 341
Federal funds sold 35 61 120
Securities purchased under resale agreements 174 163 107
Trading account assets 372 297 277
Securities available for sale and securities held for investment 1,389 1,080 666
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 11,627 11,613 9,860
Interest Expense
Deposits 2,971 3,769 4,645
Federal funds purchased 16 20 23
Securities sold under repurchase agreements 158 108 132
Other short-term borrowings 201 270 236
Long-term debt 727 614 255
Subordinated capital notes 113 114 97
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 4,186 4,895 5,388
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 7,441 6,718 4,472
Provision for credit losses 803 1,009 805
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 6,638 5,709 3,667
Noninterest Income
Deposit account fees 1,198 1,049 645
Credit card fees 354 350 308
Trust fees 294 222 68
Other fees and commissions 1,083 922 686
Trading income 569 463 326
Net securities gains 61 11 33
Net gain on sales of subsidiaries and operations -- 155 3
Net gain on sales of assets 106 117 135
Other income 608 360 204
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 4,273 3,649 2,408
Noninterest Expense
Salaries 2,886 2,557 1,847
Employee benefits 573 491 339
Occupancy 684 561 465
Equipment 610 523 372
Amortization of intangibles 421 248 48
Communications 330 305 215
Regulatory fees and related expenses 309 265 160
Professional services 268 201 135
Merger-related restructuring expense 9 449 --
Other expense 1,393 1,076 621
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 7,483 6,676 4,202
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,428 2,682 1,873
Provision for income taxes 1,474 1,190 749
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,954 $ 1,492 $ 1,124
====================================================================================================================================
Net income applicable to common stock $ 1,713 $ 1,323 $ 1,063
Average number of common shares outstanding (number of shares in thousands) 355,107 308,191 215,846
Earnings per common and common equivalent share $4.79 $4.24 $4.81
Earnings per common share -- assuming full dilution 4.76 4.21 4.78
Dividends declared per common share 1.40 1.30 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET BANKAMERICA CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
December 31
-----------------------
(dollar amounts in millions) 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 10,482 $ 11,848
Interest-bearing deposits in banks 2,988 2,866
Federal funds sold 2,050 1,070
Securities purchased under resale agreements 3,549 2,840
Trading account assets 6,866 3,474
Securities available for sale (market value: 1993 -- $3,405; 1992 -- $2,831) 3,282 2,661
Securities held for investment (market value: 1993 -- $16,802; 1992 -- $12,937) 16,415 12,593
Loans 126,379 $125,709
Less: Allowance for credit losses 3,508 3,921
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans 122,871 121,788
Premises and equipment, net 3,631 3,310
Customers' acceptance liability 851 1,443
Accrued interest receivable 982 992
Real estate acquired in satisfaction of debt 517 652
Assets pending disposition 1,345 4,240
Goodwill, net 3,973 3,929
Identifiable intangibles, net 2,191 1,640
Other assets 4,940 5,300
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets $186,933 $180,646
===================================================================================================================================
Liabilities and Stockholders' Equity
Deposits in domestic offices:
Interest-bearing $ 89,134 $ 91,571
Noninterest-bearing 31,578 32,139
Deposits in foreign offices:
Interest-bearing 19,608 12,443
Noninterest-bearing 1,298 1,730
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 141,618 137,883
Federal funds purchased 220 417
Securities sold under repurchase agreements 4,229 926
Other short-term borrowings 3,523 2,092
Acceptances outstanding 851 1,443
Accrued interest payable 505 498
Other liabilities 4,728 5,504
Long-term debt 13,508 14,326
Subordinated capital notes 607 2,069
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 169,789 165,158
Stockholders' Equity
Preferred stock 2,979 2,979
Common stock, par value $1.5625 (authorized: 1993 and 1992 -- 700,000,000 shares;
issued: 1993 -- 358,498,930 shares; 1992 -- 349,054,862 shares) 560 545
Additional paid-in capital 7,118 6,690
Retained earnings 6,502 5,283
Common stock in treasury, at cost (1993 -- 586,760 shares; 1992 -- 451,886 shares) (15) (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,144 15,488
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $186,933 $180,646
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
45
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS BANKAMERICA CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------
(in millions) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 1,954 $ 1,492 $ 1,124
Adjustments to net income to arrive at net cash provided by operating activities:
Provision for credit losses 803 1,009 805
Net gain on sales of assets and subsidiaries and operations (106) (272) (138)
Net amortization of loan fees and discounts (132) (210) (296)
Depreciation and amortization of premises and equipment 461 395 302
Amortization of intangibles 421 248 48
Provision for deferred income taxes 964 44 513
Change in accrued Merger-related restructuring expense (155) 208 --
Change in assets and liabilities net of effects from acquisitions, consolidations,
divestitures, and pending dispositions:
Decrease in accrued interest receivable 45 417 77
Decrease in accrued interest payable (18) (236) (177)
(Increase) decrease in trading account assets (3,888) 337 (1,966)
Net activity in securities available for sale 3,850 273 --
Increase (decrease) in current income taxes payable 436 515 (19)
Deferred fees received from lending activities 176 282 119
Other, net (539) (175) (150)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,272 4,327 242
Cash Flows from Investing Activities
Activity in securities held for investment:
Sales proceeds -- 453 950
Maturities 5,296 4,816 1,202
Purchases (7,052) (8,389) (2,427)
Proceeds from sales of loans 2,327 4,665 4,201
Purchases of loans (705) (625) (2,248)
Proceeds from sales of premises and equipment 54 62 16
Purchases of premises and equipment (791) (746) (363)
Proceeds from sales of real estate acquired in satisfaction of debt 552 308 85
Net cash provided (used) by:
Loan originations and principal collections (1,839) 5,431 (3,742)
Interest-bearing deposits in banks (806) 1,063 240
Federal funds sold (562) 4,122 (700)
Securities purchased under resale agreements (723) 291 524
Cash used by acquisitions (25) (256) (73)
Cash provided by acquisitions 131 5,631 3,668
Proceeds from sales of subsidiaries and operations -- 174 67
Proceeds from sales of assets pending disposition 1,750 1,076 --
Increase (decrease) in cash due to deconsolidations and divestitures 20 (2,017) --
Other, net 209 216 (50)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (2,164) 16,275 1,350
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 3,150 5,285 967
Principal payments and retirements of long-term debt and subordinated capital notes (5,387) (2,388) (586)
Proceeds from issuance of common stock 268 156 112
Proceeds from issuance of preferred stock -- 1,311 693
Common stock dividends (497) (409) (260)
Preferred stock dividends (241) (169) (61)
Net cash provided (used) by:
Deposits (4,588) (8,212) (3,593)
Federal funds purchased (197) (328) (17)
Securities sold under repurchase agreements 3,303 (1,451) 476
Other short-term borrowings 1,435 (4,633) 329
Cash used by divestitures of deposits -- (4,750) --
Cash used by disposition of liabilities of deconsolidated subsidiaries and operations (197) (776) --
Other, net (509) 316 (140)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (3,460) (16,048) (2,080)
Effect of exchange rate changes on cash and due from banks (14) (32) (31)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks (1,366) 4,522 (519)
Cash and due from banks at beginning of year 11,848 7,326 7,845
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at End of Year $10,482 $ 11,848 $ 7,326
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY BANKAMERICA CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------
(in millions) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance, beginning of year $ 2,979 $ 1,326 $ 613
Preferred stock issued -- 1,653 713
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 2,979 2,979 1,326
Common Stock
Balance, beginning of year 545 342 334
Common stock issued 15 203 8
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 560 545 342
Additional Paid-In Capital
Balance, beginning of year 6,690 2,024 1,931
Common stock issued 428 4,682 113
Preferred stock issued -- (16) (20)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 7,118 6,690 2,024
Retained Earnings
Balance, beginning of year 5,283 4,380 3,575
Net income 1,954 1,492 1,124
Common stock dividends (497) (409) (260)
Preferred stock dividends (241) (169) (61)
Foreign currency translation adjustments, net of related income taxes 3 (11) 2
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 6,502 5,283 4,380
Net Unrealized Loss on Marketable Equity Securities
Balance, beginning of year -- (2) (28)
Valuation adjustments, net of related income taxes -- 2 26
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year -- -- (2)
Common Stock in Treasury, at Cost
Balance, beginning of year (9) (7) (6)
Treasury stock transactions (6) (2) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year (15) (9) (7)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $17,144 $15,488 $8,063
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of BankAmerica Corporation and
subsidiaries (the corporation) are prepared in conformity with generally
accepted accounting principles and prevailing practices of the banking industry.
The statements also reflect specialized industry accounting practices of certain
nonbanking subsidiaries that may differ from those used by banking subsidiaries.
The following is a summary of the significant accounting and reporting policies
used in preparing the consolidated financial statements.
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the corporation include the accounts of
BankAmerica Corporation (the parent) and companies in which more than 50 percent
of the voting stock is owned directly or indirectly by the parent, including
Bank of America NT&SA (the bank), Seafirst Corporation (Seafirst), and other
banking and nonbanking subsidiaries. The revenues, expenses, assets, and
liabilities of the subsidiaries are included in the respective line items in the
consolidated financial statements after elimination of intercompany accounts and
transactions.
The consolidated statement of cash flows explains the change in cash and
due from banks as disclosed in the consolidated balance sheet. The cash flows
from hedging transactions are classified in the same category as the cash flows
from the items being hedged.
The corporation's 1993 and 1992 results of operations reflect the effects
of the merger (the Merger) with Security Pacific Corporation (SPC) from April
22, 1992 forward. Accordingly, the corporation's results of operations for 1993
are not comparable to the corresponding information for 1992, nor is the
information for either 1993 or 1992 comparable to the corresponding information
for any of the preceding years. Furthermore, information pertaining to the
corporation's financial position at December 31, 1993 and 1992 is not comparable
to the corresponding information for any preceding year end.
Certain amounts in prior periods have been reclassified to conform to the
current presentation, including the fourth quarter 1993 reclassification of in-
substance repossessions (ISR) that were reclassified to the loan portfolio as a
result of regulatory clarification of the definition of an ISR. The fair value
adjustments net of recoveries received in final settlement, which were related
to the reclassified ISRs and were previously recorded in other expense in the
consolidated statement of operations, have been included in credit losses and
recoveries, with corresponding adjustments to the provision for credit losses.
Corresponding amounts in prior periods have been similarly reclassified.
TRADING ACCOUNT ASSETS
Trading account assets, which are generally held for the short term in
anticipation of market gains and for resale, are carried at market value.
Realized and unrealized gains and losses on trading account assets are included
in trading income. Trading account assets also include amounts representing the
net unrealized gains or losses on certain off-balance-sheet instruments carried
at fair value.
SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD FOR INVESTMENT
The corporation modified its accounting policies beginning in the third quarter
of 1992 to classify a portion of its securities portfolio as being available for
sale.
The corporation's securities portfolios include U.S. Treasury, U.S. federal
agency, state, county, municipal, and foreign government securities, and other
securities, which primarily consist of corporate debt securities. Securities are
classified as available for sale when the corporation intends to hold the
securities for an indefinite period of time but not necessarily to maturity. Any
decision to sell a security classified as available for sale would be based on
various factors, including significant movements in interest rates, changes in
the maturity mix of the corporation's assets and liabilities, liquidity demands,
regulatory capital considerations, and other similar factors. Securities
available for sale are carried at the lower of cost or market value. Cost is
generally adjusted for amortization of premiums and accretion of discounts to
maturity or, in the case of mortgage-backed securities, over the estimated life
of the security. Realized gains and losses and unrealized net valuation
adjustments on securities available for sale are included in net securities
gains. The cost of securities sold is based on the specific identification
method.
Securities are classified as held for investment when the corporation has
the ability to hold the securities to maturity and the intent to hold them on a
long-term basis. Securities held for investment are carried at cost, adjusted
for amortization of premiums and accretion of discounts to maturity or, in the
case of mortgage-backed securities, over the estimated life of the security.
Realized gains and losses on sales of securities held for investment, while
infrequent, are included in net securities gains. The cost of securities sold is
based on the specific identification method.
In 1993, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that debt
securities that the corporation intends and has the ability to hold to maturity
be classified as held-to-maturity and reported at amortized cost. Debt and
equity securities that are bought and held principally for the purpose of
selling them in the near
48
<PAGE>
term will continue to be classified as trading securities and reported at their
fair value with unrealized gains and losses included in earnings. Other debt and
equity securities for which the corporation does not have the positive intent or
ability to hold to maturity and are not considered to be part of trading are
required to be classified as available for sale 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. SFAS No. 115 is effective for fiscal
years beginning after December 15, 1993, and will be adopted by the corporation
effective January 1, 1994. The corporation does not expect that, at adoption,
SFAS No. 115 will have a material effect on its financial position or results of
operations. Refer to Note 7 of the Notes to Consolidated Financial Statements on
pages 56-57 for information on the repositioning of the securities portfolio
relating to the adoption of SFAS No. 115.
LOANS
Loans are generally carried at the principal amount outstanding net of unearned
discounts. Interest income on discounted loans is generally recognized based on
methods that approximate the interest method.
Certain loans that are not originated or acquired with the intent to sell
may be sold prior to maturity due to various economic factors, including
significant movements in interest rates, changes in the maturity mix of the
corporation's assets and liabilities, or liquidity demands. These loans are
recorded at the lower of cost or fair value when they are identified as being
held for sale. The fair value of loans being held for sale represents the cash
price anticipated to be received in a current sale.
Loans include outstandings secured by various types of real estate, which
were previously classified as ISRs, that meet certain criteria, including the
following: the determination that proceeds for repayment can be expected to come
only from the operation or sale of the collateral, the borrower has little or no
equity in the underlying collateral, and, either the borrower is not expected to
be able to rebuild equity or otherwise repay the loan in the foreseeable future
or has abandoned control over the collateral. These loans are carried at the
lower of fair value, net of estimated selling and disposal costs, or cost. Fair
value adjustments are treated as credit losses. Estimated selling and disposal
costs are included in other expense. Prior to 1993, estimated selling and
disposal costs were treated as credit losses. These loans are reclassified to
real estate acquired in satisfaction of debt upon foreclosure or where the
corporation has obtained physical possession of the related collateral.
Loans are generally placed on nonaccrual status when they are past due 90
days as to either principal or interest, or earlier when payment in full of
principal or interest is not expected, except for residential real estate loans
and certain consumer loans that are collateralized by junior mortgages on
residential real estate, for which the period is 180 days. Senior management may
grant a waiver from nonaccrual status if a past due loan is well secured and in
the process of collection. A nonaccrual loan may be restored to an accrual basis
when all principal and interest amounts contractually due, including arrearages,
are reasonably assured of repayment within a reasonable period, and there is a
sustained period of repayment performance by the borrower in accordance with the
contractual terms of the loan.
When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. If management determines that
ultimate collectibility of principal is in doubt, cash receipts on nonaccrual
loans are applied to reduce the book balance.
The corporation provides equipment financing to its customers through a
variety of lease arrangements. Direct financing leases are carried at the
aggregate of lease payments receivable plus estimated residual value less
unearned income. Unearned income on direct financing leases is amortized over
the lease terms by methods producing level rates of return on net lease assets.
Leveraged leases, which are a form of financing lease, are carried net of
nonrecourse debt. Unearned income on leveraged leases is amortized over the
lease terms by methods producing level rates of return on the net investments in
the leases.
In 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 requires that the carrying value of certain
loans be measured based on the present value of their expected future cash
flows, or as a practical expedient, the loans' observable market price, or at
the fair value of the collateral if the loan is collateral dependent. When
foreclosure is probable, the carrying value of the loan must be measured at the
fair value of the collateral. SFAS No. 114 is effective for fiscal years
beginning after December 15, 1994 and is expected to be adopted by the
corporation beginning in 1995. The corporation does not expect that, at
adoption, SFAS No. 114 will have a material effect on its financial position or
results of operations.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is a reserve for estimated credit losses and
other credit-related charges. Credit losses arise primarily from the loan
portfolio, but may also be derived from other credit-related sources, including
commitments to extend credit, guarantees, and standby letters of credit.
49
<PAGE>
Actual credit losses and other charges, net of recoveries, are deducted
from the allowance for credit losses. Other charges to the allowance include
amounts related to loans and loans of subsidiaries and operations that have been
transferred to assets pending disposition, as well as the difference between the
carrying value of restructuring country assets sold or swapped and the fair
value of assets received. A provision for credit losses, which is a charge
against earnings, is added to the allowance based on a quarterly assessment of
certain factors, including, but not necessarily limited to, estimated losses
from loan and other credit arrangements; general economic conditions;
deterioration in credit concentrations or pledged collateral; historical loss
experience; international lending risk; and trends in portfolio volume,
maturity, composition, delinquencies, and nonaccruals. While management has
attributed reserves to various portfolio segments, the allowance is general in
nature and is available for the credit portfolio in its entirety.
PREMISES AND EQUIPMENT
Premises, equipment, and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed on a straight-line basis over
the estimated useful lives of the assets or the terms of the leases. Net gains
and losses on disposal or retirement of premises and equipment are included in
net gain on sales of assets.
REAL ESTATE ACQUIRED IN SATISFACTION OF DEBT
Real estate acquired in satisfaction of debt includes properties acquired
through foreclosure or through full or partial satisfaction of loans, as well as
properties that are nonperforming acquisition, development, and construction
arrangements. Real estate acquired in satisfaction of debt also includes loans
where the corporation has obtained physical possession of the related
collateral.
Real estate acquired in satisfaction of debt is carried at the lower of
fair value, net of estimated selling and disposal costs, or cost. Fair value
adjustments are made when real estate is acquired through foreclosure or through
full or partial satisfaction of loans. These fair value adjustments are treated
as credit losses. Estimated selling and disposal costs are charged to other
expense at the time a loan is reclassified to real estate acquired in
satisfaction of debt. Changes in estimated selling and disposal costs, routine
holding costs, subsequent declines in fair values, and net gains or losses on
disposal of properties classified as real estate acquired in satisfaction of
debt are included in other expense as incurred.
ASSETS PENDING DISPOSITION
Assets pending disposition includes Merger-related assets pending disposition,
which consists primarily of SPC assets, including loans, real estate acquired in
satisfaction of debt, and other assets that were identified for accelerated
disposition as they were not deemed essential to the operating goals of the
corporation.
These Merger-related assets pending disposition are recorded at the lower
of cost or fair value. Cost is equivalent to the asset's net realizable value
(NRV) at the Merger date, which is equal to estimated sales proceeds, less
estimated direct costs of sale, discounted where appropriate. The fair value of
assets represents the cash price anticipated to be received in a current sale.
In addition, estimated operating profits or losses for the first year following
the consummation date of the Merger were considered in the estimated NRV
calculation of former SPC subsidiaries and operations, real estate acquired in
satisfaction of debt, and certain other assets. Prior to January 1, 1993, the
estimated NRVs related to former SPC assets included the net tax effects
resulting from purchase accounting. In connection with the corporation's
adoption of SFAS No. 109, "Accounting for Income Taxes," in the first quarter of
1993, these net tax effects were reclassified to deferred income taxes.
Merger-related assets pending disposition also includes certain pre-Merger
BankAmerica Corporation and subsidiaries (BAC) loans that were reclassified in
connection with the restructuring brought about as a result of the Merger. These
BAC loans were recorded at the lower of cost or fair value.
Also included in assets pending disposition are certain nonaccrual
restructuring-country-related assets that have been identified for accelerated
disposition and loans held for sale in the normal course of business. These
assets are recorded at the lower of cost or fair value.
Interest receipts on loans that are classified as assets pending
disposition are primarily recognized as other noninterest income.
GOODWILL AND IDENTIFIABLE INTANGIBLES
Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets associated with the corporation's merger and
acquisition transactions. Goodwill recorded in connection with the Merger is
being amortized on a straight-line basis over 25 years.
Core deposit intangibles (CDI) represent the intangible value of depositor
relationships resulting from deposit liabilities assumed and are amortized using
an accelerated method based on the expected runoff of the related deposits.
Other identifiable intangibles consist primarily of credit card intangibles
(CCI) and purchased mortgage servicing rights (PMSR). CCI represents the
intangible value of credit card customer relationships resulting from customer
balances acquired and PMSR represents the intangible value of purchased rights
to service loans. Other identifiable intangibles are being amortized using
accelerated methods over their estimated periods of benefit.
50
<PAGE>
Goodwill and identifiable intangibles are evaluated quarterly for other-
than-temporary impairment. If the net book value of identifiable intangibles
exceeds their respective undiscounted future net cash flows, identifiable
intangibles are written down to their respective undiscounted future net cash
flows. If circumstances suggest that the value of goodwill may be impaired and
the writedown would be material, an assessment of recoverability is performed
prior to any writedown of the asset.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES, AFFILIATES, JOINT VENTURES, AND
OTHER ENTITIES
Investments in marketable equity securities, affiliates, joint ventures, and
other entities are recorded in other assets. Marketable equity securities are
generally carried at the lower of cost or aggregate market value. Realized gains
and losses, declines in value judged to be other than temporary, and dividends
on these investments are recorded in other income. Unrealized losses from
temporary declines in the value of these investments are reported as a separate
component of stockholders' equity on a net-of-tax basis.
Investments in affiliates, which are generally 20-to-50-percent-owned
companies, and joint ventures are generally accounted for by the equity method.
The corporation's share of net income or loss from these investments is recorded
in other income. Gains or losses resulting from issuances of stock by an equity
affiliate that change the corporation's percentage of ownership are recognized
at the issue date and are recorded in other income. Investments in other
entities (less-than-20-percent-owned companies) are generally carried at cost
less writedowns for declines in value judged to be other than temporary. These
valuation losses are recorded in other income when incurred. Dividends are
recorded in other income when received.
In 1993, the FASB issued SFAS No. 115, which requires investments in
marketable equity securities that are not considered trading assets be
classified as available for sale 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. SFAS No. 115 is effective for fiscal years
beginning after December 15, 1993, and will be adopted by the corporation
effective January 1, 1994. The corporation does not expect that, at adoption,
SFAS No. 115 will have a material effect on its financial position or results of
operations.
OFFSETTING OF AMOUNTS RELATED TO CERTAIN CONTRACTS
In 1992, the FASB issued FASB Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts," which will be adopted by the corporation
effective January 1, 1994 in accordance with the requirements of the
interpretation. FASB Interpretation No. 39 requires unrealized gains on forward,
swap, and other conditional or exchange contracts to be recorded as assets and
unrealized losses on these contracts to be recorded as liabilities, unless right
of set-off criteria are met or contracts are executed under legally enforceable
master netting agreements with counterparties. Through December 31, 1993, such
unrealized gains and losses were recorded on the consolidated balance sheet on a
net basis for most products. The corporation does not expect the adoption of
this interpretation to have a significant effect on its future financial
position.
DERIVATIVE AND FOREIGN EXCHANGE PRODUCTS
The corporation enters into interest rate and currency swap agreements in its
trading activities and in the management of its interest rate exposure. Interest
rate and currency swap agreements are carried at market value with the resulting
unrealized gains and losses recognized in noninterest income as trading income.
Net interest income or expense associated with interest rate and currency swaps
entered into as part of the corporation's asset and liability management
activities are accounted for on the accrual basis and recognized as an
adjustment to interest income or interest expense.
The corporation uses interest rate futures, forward, and option contracts
in its trading account activities and in overall interest rate risk management,
except for written options, which do not qualify as accounting hedges. Gains and
losses on contracts used in trading activities are recognized currently using
the mark-to-market method and are included in noninterest income as trading
income. Gains and losses on contracts that qualify as hedges are generally
deferred and amortized over the lives of the hedged assets or liabilities as
adjustments to interest income or interest expense.
The corporation also enters into foreign exchange contracts, which
generally represent currency purchase and sale agreements or options. Foreign
exchange trading positions, including spot, futures, forward, swap, and option
positions are reported at fair value. Realized and unrealized gains and losses
related to these positions are included in noninterest income as trading income.
Gains and losses on foreign exchange contracts that qualify as accounting hedges
are offset against the corresponding foreign exchange gains and losses of the
hedged assets, liabilities, or firm commitments. The corporation does not
designate anticipated transactions as the items being hedged with foreign
exchange contracts. Premiums and discounts related to contracts designated as
hedges are deferred and amortized over the life of the contract as adjustments
to interest income or interest expense.
51
<PAGE>
FOREIGN CURRENCY TRANSLATION
Assets, liabilities, and operations of foreign branches and subsidiaries are
recorded based on the functional currency of each entity. For the majority of
the foreign operations, the functional currency is the local currency, in which
case the assets, liabilities, and operations are translated, for consolidation
purposes, at current exchange rates from the local currency to the reporting
currency, the U.S. dollar. The resulting gains or losses are reported as a
component of retained earnings within stockholders' equity on a net-of-tax
basis. In certain other instances, the functional currency of a foreign entity
is the U.S. dollar. In these instances, the resulting gains and losses are
included in trading income, except for units in hyperinflationary economies,
which are included in other income. The financial statements of foreign entities
in highly inflationary economies are also measured as if the functional currency
were the U.S. dollar.
PROVISION FOR INCOME TAXES
A consolidated U.S. federal income tax return is filed by the parent, which
includes earnings of all domestic and Canadian subsidiaries and their foreign
branches, as well as certain earnings of other foreign subsidiaries and
affiliates. State, local, and foreign income tax returns are filed according to
the taxable activity of each unit. Consolidated or combined returns are also
filed as required by certain states, including California.
Generally, the consolidated and combined tax liabilities are settled
between companies as if each company had filed a separate return. Payments are
made by those companies with net tax liabilities on a separate return basis.
Companies with losses or excess tax credits on a separate return basis receive
payment for these benefits when they would be utilized in their separate returns
or in the consolidated or combined returns.
The corporation prospectively adopted SFAS No. 109 on January 1, 1993. SFAS
No. 109 mandates the use of the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of existing differences between
financial reporting and tax reporting bases of assets and liabilities, as well
as for operating losses and tax credit carryforwards, using enacted tax laws and
rates. Deferred tax expense represents the net change in the deferred tax asset
or liability balance during the year. This amount, together with income taxes
currently payable or refundable for the current year, represent the total income
tax expense for the year. Prior to the adoption of SFAS No. 109, income tax
expense was determined using the deferred method. Deferred tax expense was based
on items of income and expense that were reported in different years in the
financial statements and tax returns and were measured at the tax rate in effect
in the year the difference originated.
2. ACQUISITION OF CONTINENTAL BANK CORPORATION
Pursuant to an 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 21.25 million shares of the parent's common stock and $939 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. The parent has announced that
prior to the completion of the transaction, it intends to repurchase
approximately $500 million of its common stock.
In addition, each share of Continental's Adjustable Rate Preferred Stock,
Series 1 and 2 that is outstanding immediately prior to the effective time of
the Continental Acquisition (excluding shares held by holders of the Series 2
stock, if any, exercising appraisal rights), will be converted, respectively,
into one share of Adjustable Preferred Stock, Series 1 and 2 of the parent,
having substantially the same terms. The value of the parent's preferred stock
to be issued in connection with the Continental Acquisition is approximately
$400 million.
The parent also entered into a stock option agreement dated as of January
27, 1994 with Continental whereby the parent was granted an option to purchase
up to 10,169,000 shares of Continental common stock (approximately 19.9 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 within eighteen months after the
termination of the Agreement. Under such circumstances, Continental would be
obligated to pay the parent the greater of $60 million or 3 percent of the
transaction value.
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. Continental's principal subsidiary is Continental Bank N.A. Continental
provides an extensive range of commercial banking services, primarily in the
Midwest as well as 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.
52
<PAGE>
<TABLE>
<CAPTION>
CONTINENTAL CONDENSED CONSOLIDATED SUMMARY OF OPERATIONS
(UNAUDITED)
- ------------------------------------------------------------------------------
Year Ended December 31
----------------------
(in millions) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
Interest income $1,121 $ 1,301
Interest expense 657 812
- ------------------------------------------------------------------------------
Net interest income 464 489
Provision for credit losses 181 125
- ------------------------------------------------------------------------------
Net interest income after
provision for credit losses 283 364
Noninterest income 640 475
Noninterest expense 683 597
- ------------------------------------------------------------------------------
Income before income taxes 240 242
Income tax expense
(benefit) (18) 20
- ------------------------------------------------------------------------------
Income before cumulative
effect of accounting
change for income taxes 258 222
Cumulative effect of
accounting change
for income taxes 80 --
- ------------------------------------------------------------------------------
Net Income $ 338 $ 222
==============================================================================
Earnings per common and
common equivalent share
before cumulative effect
of accounting change for
income taxes $ 4.12 $ 3.44
Earnings per common and
common equivalent share 5.59 3.44
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
CONTINENTAL CONSOLIDATED BALANCE SHEET DATA (UNAUDITED)
AT DECEMBER 31, 1993
- ------------------------------------------------------------------------------
(in millions)
- ------------------------------------------------------------------------------
<S> <C>
Loans $11,729
Allowance for credit losses 328
Total assets 22,601
Deposits 13,542
Total stockholders' equity 1,923
- ------------------------------------------------------------------------------
</TABLE>
The historical financial information of Continental presented above is for
informational purposes only. This unaudited financial information was reported
by Continental in its press release dated January 18, 1994.
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" (APB No. 16). 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 conditioned
upon approval by Continental's shareholders and certain other conditions,
including regulatory approvals and the completion of a due diligence review of
Continental by the parent. While the precise date of the Acquisition closing
cannot be determined with certainty, the parties presently anticipate that
(assuming the normal approval process is not impeded) the closing will take
place in the third quarter of 1994.
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1993, 1992, and 1991, the corporation made
interest payments on deposits and other interest-bearing liabilities of $4,185
million, $5,132 million, and $5,500 million, respectively, and net income tax
payments of $156 million, $631 million, and $206 million, respectively.
During the year ended December 31, 1993, the corporation securitized
residential real estate loans of $132 million and reclassified them to
securities available for sale. During the years ended December 31, 1992 and
1991, the corporation securitized residential real estate loans of $364 million
and $722 million, respectively, and reclassified them to securities held for
investment.
Transfers of loans to real estate acquired in satisfaction of debt totaled
$752 million, $558 million, and $156 million for the years ended December 31,
1993, 1992, and 1991, respectively. Loans made to facilitate the sale of real
estate acquired in satisfaction of debt totaled $27 million, $67 million, and
$19 million during the years ended December 31, 1993, 1992, and 1991,
respectively.
During the year ended December 31, 1993, $310 million of restructuring-
country-related assets, primarily loans, were transferred to assets pending
disposition. During the year ended December 31, 1992, assets that were primarily
acquired in the Merger and identified for accelerated disposition at the Merger
date with the following aggregate carrying values prior to reclassification were
transferred to assets pending disposition: $5,745 million of loans and $132
million of real estate acquired in satisfaction of debt. In addition, deposits
related to deconsolidated subsidiaries and operations of $2,121 million were
netted against the related assets and were included in assets pending
disposition. These amounts do not include balances that were recorded directly
to assets pending disposition at the consummation of the Merger. Refer to Note
12 of the Notes to Consolidated Financial Statements on page 60 for further
information on assets pending disposition.
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. (SPABL), a
former subsidiary of SPC, would not be sold. Accordingly, assets and liabilities
of these subsidiaries, including $329 million of securities available for sale,
$1,950 million of loans, and $1,249 million of deposits, were consolidated in
the corporation's financial statements effective January 1, 1993.
53
<PAGE>
4. MERGER WITH SECURITY PACIFIC CORPORATION
On April 22, 1992, the Merger was consummated in accordance with the Agreement
and Plan of Merger (Merger Agreement). Each outstanding share of SPC's common
stock was converted into 0.88 of a share of the parent's common stock. In total,
113,118,334 shares of the parent's common stock, valued at $4.2 billion, were
issued. In addition, each outstanding share of SPC's 11% Preferred Stock, Series
I and 11% Preferred Stock, Series J, was converted upon consummation of the
Merger into an equal number of shares of the parent's preferred stock having
substantially the same terms. The parent also purchased for $22 million all
shares of SPC restricted common stock issued under the SPC Stock-Based Incentive
Award Plan.
SPC was registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended, and provided banking and financial services throughout
the United States and in selected overseas markets to consumers and business
customers, including corporations, governments, and other institutions. SPC's
principal subsidiary, Security Pacific National Bank, which provided an
extensive range of commercial and consumer banking and trust services, primarily
in California, was merged with and into the bank.
The Merger was recorded during the second quarter of 1992 by the parent
using the purchase method of accounting in accordance with APB No. 16. Also
refer to Note 19 of the Notes to Consolidated Financial Statements on pages 64-
65 for further information on the effect of SFAS No. 109 on purchase
accounting. At December 31, 1993, goodwill (net of accumulated amortization)
recorded in connection with the Merger, which represents the excess of the
purchase price over the estimated fair value of identifiable net assets,
amounted to $3.6 billion. CDI and other identifiable intangibles, which are
related to the Merger and are net of accumulated amortization, totaled $1.4
billion at December 31, 1993, including the effects of the adoption of SFAS
No. 109.
The regulatory approvals of the Merger necessitated divestitures of certain
assets and liabilities of BAC and SPC. During 1992, branches in California,
Washington, Oregon, and Nevada with total deposits of $4.7 billion were
divested. In connection with these divestitures, loans of approximately $1.8
billion were sold. In addition, on April 21, 1993, the corporation divested
certain assets and liabilities in Arizona, including aggregate deposits of $1.6
billion. The estimated NRV of these assets and liabilities was included in a
deconsolidated subsidiary within assets pending disposition at December 31,
1992.
Restructuring expense totaling $449 million was recorded during 1992 to
reflect management's estimate of the costs to restructure the operations and
human resources of BAC associated with the Merger. Such costs include separation
and benefits costs related to BAC employees, employment assistance costs for
separated BAC employees, costs related to the closure of certain BAC branches
and other facilities, vacant space costs, systems conversions costs, and other
restructuring expenses of BAC.
The results of operations and financial position of the former SPC and its
subsidiaries have been included in the corporation's consolidated financial
statements since the consummation of the Merger.
UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
The following table presents a pro forma combined summary of operations of the
corporation and SPC and its subsidiaries for the years ended December 31, 1992
and 1991. The Unaudited Pro Forma Combined Summary of Operations is presented as
if the Merger had been effective on January 1, 1991.
The Unaudited Pro Forma Combined Summary of Operations data is intended for
informational purposes only and is not necessarily indicative of the future
results of operations of the corporation, or of the results of operations that
would have actually occurred had the Merger been in effect for the full periods
presented.
54
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
- -----------------------------------------------------------------------------
Year Ended December 31
----------------------
(dollar amounts in millions, except per share data) 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C>
Summary of Operations/a/b/c/
Interest income $12,860 $15,575
Interest expense 5,529 8,679
- -----------------------------------------------------------------------------
Net interest income 7,331 6,896
Provision for credit losses 2,305 3,173
- -----------------------------------------------------------------------------
Net interest income after provision
for credit losses 5,026 3,723
Noninterest income 4,082 4,456
Noninterest expense 7,558/d/ 7,277
- -----------------------------------------------------------------------------
Income before income taxes 1,550 902
Provision for income taxes 1,062 515
- -----------------------------------------------------------------------------
Net Income $ 488 $ 387
=============================================================================
Earnings per common and common equivalent share $ 0.88/e/ $ 0.87/e/
Earnings per common share -- assuming full dilution $ 0.88/e/ $ 0.87/e/
- -----------------------------------------------------------------------------
</TABLE>
/a/ This information combines the historical results of operations of the
corporation and SPC after giving effect to amortization of purchase
accounting adjustments (see note b) and the elimination of the estimated
revenues and expenses of subsidiaries and operations sold or pending
disposition (see note c). In addition, certain amounts in SPC's historical
results of operations were reclassified to conform to the corporation's
financial statement presentation.
For the year ended December 31, 1992, the unaudited pro forma combined
summary of operations was based on the corporation's historical results of
operations for the year ended December 31, 1992 and SPC's historical
results of operations for the period January 1, 1992 through April 21,
1992. The corporation's results of operations for the year ended December
31, 1992 included amounts resulting from combined operations from the
consummation of the Merger on April 22, 1992 forward. Accordingly, the
corporation's earnings for the period April 22, 1992 through December 31,
1992 included revenues and expenses related to former SPC operations, as
well as the amortization of purchase accounting adjustments, such as fair
value adjustments, goodwill, and identifiable intangibles.
/b/ The combined historical results of operations of the corporation and SPC
were adjusted to reflect the amortization of the final estimated fair
value adjustments and other purchase accounting adjustments recorded in
connection with the Merger, including those related to securities
available for sale, securities held for investment, loans, premises and
equipment, goodwill, identifiable intangibles, deposits, other short-term
borrowings, long-term debt, and subordinated capital notes. Amortization
was calculated based on the final methods and estimated periods of benefit
determined appropriate by management. The corporation's historical results
of operations for the year ended December 31, 1992 included amortization
of purchase accounting adjustments from the consummation of the Merger
forward. Accordingly, for the purposes of this Unaudited Pro Forma
Combined Summary of Operations, historical results for 1992 were adjusted
to bring the actual amortization of purchase accounting adjustments to the
amounts that would have been recorded if the Merger had been consummated
on January 1, 1991. The historical income statement information for the
year ended December 31, 1991 was adjusted to include amortization for the
full period.
/c/ The historical income statement information for both periods presented was
adjusted to eliminate the estimated income statement impact of
subsidiaries and operations sold or pending disposition. The pro forma
income statement impact of these planned dispositions represents, in most
cases, the actual pre-Merger results of operations of the related
subsidiaries and operations, and, in the remaining cases, a calculation
based on actual results of operations of the related subsidiaries and
operations.
/d/ Restructuring expense, as described on page 54, of $449 million has been
eliminated from the combined historical results of operations for the year
ended December 31, 1992, as these expenses do not represent ongoing
expenses of the corporation.
/e/ Primary and fully diluted pro forma combined earnings per common share for
the years ended December 31, 1992 and 1991 were calculated based on pro
forma combined net income, less the sum of actual preferred dividends paid
by the corporation and SPC during each of the years. For the year ended
December 31, 1992, actual average common and common equivalent shares
outstanding and average common shares outstanding assuming full dilution
for the fourth quarter of 1992 were used to approximate the average common
and common equivalent shares outstanding and the average common shares
outstanding assuming full dilution for the full year 1992 as if the Merger
had taken place on January 1, 1991. However, due to the antidilutive
effect of the parent's 6 1/2% Cumulative Convertible Preferred Stock,
Series G (Convertible Preferred Stock) on 1992 fully diluted pro forma
combined earnings per common share, the average common shares outstanding
assuming full dilution for the fourth quarter of 1992 were adjusted to
eliminate 5,482,456 hypothetical shares related to the Convertible
Preferred Stock. The share amounts used to calculate primary and fully
diluted pro forma combined earnings per common share for 1991 were
determined as follows:
<TABLE>
<CAPTION>
(in thousands) Primary Fully Diluted
- ---------------------------------------------------------------------------
<S> <C> <C>
Actual average number of common
and common equivalent shares
outstanding for BAC for 1991 220,749 224,318
Common shares issued in connection
with the Merger 113,118 113,118
SPC common stock equivalents for 1991 175 175
Less: Antidilutive effect
of Convertible Preferred Stock -- (3,223)
- ---------------------------------------------------------------------------
334,042 334,388
===========================================================================
</TABLE>
5. COMPLETED ACQUISITIONS
On February 1, 1993, the parent, through its subsidiary, Bank of America Texas,
N.A. (Bank of America Texas), acquired certain branches and assets and assumed
certain liabilities of First Gibraltar Bank, FSB, (First Gibraltar) of Irving,
Texas. The total purchase price consisted of 2,400,000 shares of the parent's
common stock, valued at $125 million, and $25 million in cash.
The fair values of assets acquired in this transaction included $0.7
billion of consumer loans, $0.2 billion of domestic commercial loans, and $5.9
billion of U.S. government securities and other liquid assets. Bank of America
Texas also assumed deposits with a fair value of $7.1 billion. In addition,
the parent and the sellers have agreed to indemnify each other from losses
resulting from certain events subsequent to the closing date.
On March 13, 1992, the parent completed the acquisition of Valley Capital
Corporation (Valley) and its subsidiaries, including Valley Bank of Nevada,
headquartered in Nevada, and Caliber Bank, headquartered in Arizona. During
1992, Valley Bank of Nevada was renamed Bank of America Nevada. All of the
outstanding shares of Valley's common stock were exchanged for 9,995,150 shares
of common stock of the parent valued at $436 million. The acquisition was
recorded under the purchase method of accounting in accordance with APB No. 16.
Subsequent to its acquisition date, the results of operations and financial
position of the former Valley and its subsidiaries excluding a former subsidiary
held for disposition have been included in the corporation's consolidated
financial statements.
55
<PAGE>
On April 10, 1992, the parent, through its subsidiary, Bank of America
Texas, completed a cash acquisition transaction with the Resolution Trust
Corporation (RTC). Through this transaction, Bank of America Texas acquired
certain assets and assumed certain liabilities of a federal savings bank,
headquartered in Irving, Texas, for a cash premium of $103 million. The assets
acquired of $3.4 billion primarily consisted of cash. The liabilities assumed
of $3.4 billion primarily consisted of customer deposits. Under the terms of
this transaction, the RTC agreed to indemnify Bank of America Texas from
losses resulting from certain events that occurred prior to the acquisition
date and from certain liabilities not assumed. As part of this transaction,
Bank of America Texas received rights (purchase options) to acquire certain
assets from the RTC at terms set forth in the purchase agreement. These
purchase options primarily related to premises and equipment and had all been
exercised or had expired by December 31, 1992.
On July 31, 1992, the parent completed the acquisition of H.F. Holdings,
Inc. (HFH) and its subsidiary, HonFed Bank (HonFed), a federal savings bank
with thirty branches located in Hawaii. Under the terms of the agreement, as
amended, the parent purchased all of the outstanding common and preferred
shares of HFH and all of the outstanding preferred shares of HonFed for cash.
The purchase price of $150 million included $50 million related to the
purchase of HFH's and HonFed's preferred stock and $4 million of direct
acquisition costs. Honfed was subsequently merged into Bank of America, FSB.
The results of operations and financial position of the former HFH and its
subsidiaries subsequent to its acquisition date have been included in the
corporation's consolidated financial statements.
6. RESTRICTIONS ON CASH AND DUE FROM BANKS
The corporation's banking subsidiaries are required to maintain reserves with
the Federal Reserve Bank. Reserve requirements are based on a percentage of
deposit liabilities. The average reserves required for 1993 and 1992 were $3,950
million and $3,209 million, respectively.
7. SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD FOR INVESTMENT
The following is a summary of securities available for sale and securities held
for investment:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Securities Available for Sale
------------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
(in millions) Value Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1993
U.S. Treasury securities $ 748 $ 69 $-- $ 817
U.S. federal agency
securities/a/ 1,744 48 1 1,791
Foreign governments/b/ 353 6 -- 359
Other securities/b/ 437 2 1 438
- -------------------------------------------------------------------------------
$ 3,282 $125 $ 2 $ 3,405
===============================================================================
December 31, 1992
U.S. Treasury securities $ 735 $ 62 $-- $ 797
U.S. federal agency
securities/a/ 1,242 108 -- 1,350
Foreign governments/b/ 503 2 4 501
Other securities/b/ 181 4 2 183
- -------------------------------------------------------------------------------
$ 2,661 $176 $ 6 $ 2,831
===============================================================================
<CAPTION>
Securities Held for Investment
------------------------------------------------
Gross Gross
Book Unrealized Unrealized Market
(in millions) Value Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1993
U.S. Treasury securities $ 3,449 $ 63 $18 $ 3,494
U.S. federal agency
securities/a/ 11,317 305 8 11,614
State, county, and
municipal securities 516 27 4 539
Foreign governments/b/ 554 5 -- 559
Other securities/b/ 579 18 1 596
- -------------------------------------------------------------------------------
$16,415 $418 $31 $16,802
===============================================================================
December 31, 1992
U.S. Treasury securities $ 2,774 $ 67 $-- $ 2,841
U.S. federal agency
securities/a/ 8,283 269 25 8,527
State, county, and
municipal securities 598 19 13 604
Foreign governments/b/ 51 2 -- 53
Other securities/b/ 887 26 1 912
- -------------------------------------------------------------------------------
$12,593 $383 $39 $12,937
===============================================================================
</TABLE>
/a/ Represents mortgage-backed securities of U.S. federal agencies.
/b/ Securities for which no market values were available are stated at equity,
cost, or appraised value as deemed appropriate by management.
56
<PAGE>
Refer to Note 1 of the Notes to Consolidated Financial Statements on pages
48-52 for further information on the modification of the corporation's
accounting policy effective July 1, 1992 to classify a portion of its securities
as being available for sale.
During the year ended December 31, 1993, the corporation sold securities
available for sale for aggregate proceeds of $2,018 million, resulting in gross
realized gains of $61 million and no gross realized losses. There were no sales
of securities held for investment during the year ended December 31, 1993.
During the six months ended December 31, 1992, the corporation sold
securities available for sale for aggregate proceeds of $410 million, resulting
in gross realized gains of $2 million and no gross realized losses. During the
six months ended June 30, 1992, the corporation sold securities held for
investment for aggregate proceeds of $431 million, resulting in gross realized
gains of $9 million and no gross realized losses. During the fourth quarter of
1992, the corporation sold securities held for investment totaling $22 million,
resulting in no gross realized gains or losses. These securities held for
investment were acquired in connection with the third quarter 1992 HFH
acquisition. The analysis of these securities for purposes of determining if
they would be held for investment or sold prior to maturity was finalized during
the fourth quarter of 1992. Upon completion of this analysis, it was determined
that these securities did not meet the corporation's criteria for holding them
as securities held for investment. Refer to Note 5 of Notes to Consolidated
Financial Statements on pages 55-56 for further information on the
HFH acquisition. Other than the sale of securities held for investment related
to the HFH acquisition, there were no sales of securities held for investment
subsequent to the modification of the corporation's accounting policy, effective
July 1, 1992, to classify a portion of its securities portfolio as being
available for sale.
During 1991, the corporation sold securities held for investment for
aggregate proceeds of $950 million, resulting in gross realized gains of $38
million and no gross realized losses.
The following is a summary of the contractual maturities of securities
available for sale at December 31, 1993:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Book Market
(in millions) Value Value
- ------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 634 $ 636
Due after one year through five years 701 754
Due after five years through ten years 180 199
Due after ten years 1,767 1,816
- ------------------------------------------------------------------------
$3,282 $3,405
========================================================================
</TABLE>
The following is a summary of the contractual maturities of securities held
for investment at December 31, 1993:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Book Market
(in millions) Value Value
- -------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 2,347 $ 2,368
Due after one year through five years 1,588 1,647
Due after five years through ten years 789 815
Due after ten years 11,691 11,972
- -------------------------------------------------------------------------
$16,415 $16,802
=========================================================================
</TABLE>
Issuers may have the right to call or prepay obligations with or without
call or prepayment penalties. This right may cause actual maturities to differ
from the contractual maturities summarized above.
During 1987, the parent sold its subsidiary, The Charles Schwab
Corporation, to CL Acquisition Corporation (CL). This transaction included the
right for the parent to receive 15 percent of the appreciation in the fair value
of the common equity of CL in one-third increments beginning in 1987. The final
one-third of the right, which became exercisable in September 1989, was
exercised during May 1991, resulting in a gain of $11 million. This gain was
included in net securities gains for the year ended December 31, 1991.
Assets, primarily securities held for investment, with carrying values of
$9,812 million and $9,814 million at December 31, 1993 and 1992, respectively,
were pledged to collateralize U.S. government and public deposits, trust and
other deposits, and repurchase agreements.
Upon adoption of SFAS No. 115, $5.6 billion of securities that were
included in securities held for investment at December 31, 1993 with a market
value of $5.7 billion will be reclassified to securities available for sale. In
addition, certain par bonds and other securities issued by the governments of
certain countries, most notably Mexico and Venezuela, that were included in
loans at December 31, 1993 will be reclassified to securities upon adoption of
SFAS No. 115. Par bonds and other securities with a carrying value of $1.3
billion and a market value of $1.1 billion at December 31, 1993 will be
reclassified to securities held for investment and par bonds and other
securities with a carrying value of $1.3 billion and a market value of $1.0
billion at December 31, 1993 will be reclassified to securities available for
sale. For further information on SFAS No. 115, refer to Note 1 on pages 48-52 of
the Notes to Consolidated Financial Statements.
57
<PAGE>
8. LOANS
Loans are presented net of unearned income of $428 million and $538 million at
December 31, 1993 and 1992, respectively.
The following is a summary of loans:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
December 31
------------------
(in millions) 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C>
Domestic
Consumer:
Secured by first mortgages
on residential properties/a/ $ 30,306 $ 28,404
Installment/b/ 15,332 16,663
Credit card 7,474 8,306
Individual lines of credit/b/ 8,486 8,347
Other/b/ 382 354
- ----------------------------------------------------------------------------
61,980 62,074
Commercial:
Commercial and industrial 20,486 21,632
Loans secured by real estate/a/ 9,251 10,123
Construction and development loans
secured by real estate/a/ 4,418 6,781
Loans for purchasing or carrying securities 3,090 987
Financial institutions 2,170 2,017
Lease financing 1,715 1,889
Agricultural 1,679 1,704
Other 1,370 1,360
- ----------------------------------------------------------------------------
44,179 46,493
- ----------------------------------------------------------------------------
106,159 108,567
Foreign
Commercial and industrial 11,448 10,338
Governments and official institutions 3,429 3,513
Banks and other financial institutions 2,279 1,855
Other/a/ 3,064 1,436
- ----------------------------------------------------------------------------
20,220 17,142
- ----------------------------------------------------------------------------
$126,379 $125,709
============================================================================
</TABLE>
/a/ During 1993, ISRs were reclassified to the loan portfolio as a result of
regulatory clarification of the definition of an ISR. This clarification
also resulted in the reclassification of corresponding prior-period amounts.
ISRs reclassified to loans during 1993 were as follows: secured by first
mortgages on residential properties of $2 million, loans secured by real
estate of $148 million, construction and development loans secured by real
estate of $411 million, and other foreign of $7 million. Loans previously
reported as ISRs at December 31, 1992 that were reclassified to loans were
as follows: secured by first mortgages on residential properties of $14
million, loans secured by real estate of $211 million, construction and
development loans secured by real estate of $944 million, and other foreign
of $17 million.
/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: $12,847 million and $13,870 million at
December 31, 1993 and 1992, respectively.
Restructured loans, excluding other debt restructurings described in Note 9
of the Notes to Consolidated Financial Statements below, were $134 million and
$176 million at December 31, 1993 and 1992, respectively. The following is a
summary of interest foregone on these loans:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year Ended December 31
----------------------
(in millions) 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C>
Interest income that would have been recognized
had the loans performed in accordance
with their original terms $ 8 $ 11
Less: Interest income included in the results
of operations 7 9
- -----------------------------------------------------------------------------
$ 1 $ 2
=============================================================================
</TABLE>
Previously restructured loans of $58 million and $32 million were on
nonaccrual status at December 31, 1993 and 1992, respectively.
9. OTHER DEBT RESTRUCTURINGS
Not included in restructured loans as described in Note 8 of the Notes to
Consolidated Financial Statements above were debt restructurings totaling $2,351
million and $2,317 million at December 31, 1993 and 1992, respectively, with
countries experiencing liquidity problems. These restructurings primarily
consisted of Mexican and Venezuelan par bonds issued by the governments of those
countries in 1990 and par bonds issued by the government of Uruguay in 1991. At
December 31, 1993 and 1992, these restructurings were classified as loans.
At December 31, 1993 and 1992, the corporation held $2,243 million and
$2,244 million, respectively, of the above described par bonds. The face values
of these par bonds at each date were $2,289 million. The majority of the Mexican
par bonds have a fixed annual interest rate of 6.25%, and the Venezuelan and
Uruguayan par bonds each have fixed annual interest rates of 6.75%. The
principal of all of the above-mentioned par bonds is collateralized by zero-
coupon U.S. Treasury securities which, at maturity, will have redemption values
equal to the face value of the par bonds. The market value of the par bonds
totaled $1,837 million and $1,454 million at December 31, 1993 and 1992,
respectively. The fair value of the U.S. Treasury securities collateralizing the
principal of the par bonds totaled $404 million and $300 million at December 31,
1993 and 1992, respectively.
Included in the aggregate restructurings discussed above were $108 million
and $73 million at December 31, 1993 and 1992, respectively, related to other
restructuring transactions with borrowers in Mexico, Venezuela, and the
Philippines.
58
<PAGE>
The following is a summary of interest recognized on these restructurings:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Year Ended December 31
----------------------
(in millions) 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Interest income that would have been recognized
had the assets performed in accordance
with their original terms $ 102 $ 111
Less: Interest income included in the results
of operations 151 148
- ---------------------------------------------------------------------------
$ (49) $ (37)
===========================================================================
</TABLE>
10. ALLOWANCE FOR CREDIT LOSSES
The following is a summary of changes in the allowance for credit losses:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------
(in millions)/a/ 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $3,921 $2,420 $2,912
Credit losses 1,599 1,745 1,307
Credit loss recoveries 484 441 218
Net credit losses 1,115 1,304 1,089
Losses on the sale or swap of loans to restructuring countries (3) (72) (207)
Provision for credit losses 803 1009 805
Allowance related to the Merger and acquisitions/b/ 12 2,782 --
Other net deductions (110)/c/d/ (914)/c/ (1)
Balance, End of Year/e/ $3,508 $3,921 $2,420
================================================================================================================
</TABLE>
/a/ During 1993, ISRs were reclassified to the loan portfolio as a result of
regulatory clarification of the definition of an ISR. The related fair value
adjustments net of recoveries received in final settlement were reclassified
to credit losses and recoveries, with corresponding adjustments to the
provision for credit losses. Amounts reclassified to credit losses and
recoveries during 1993 were $96 million and $39 million, respectively.
Credit losses and recoveries that were previously reported as other
noninterest expense in 1992 were $25 million and $6 million, respectively.
The year 1991 was not restated as amounts were not significant.
/b/ Represents the addition of consummation-date allowances for credit losses of
First Gibraltar in 1993, and SPC, Valley, and HFH of $2,701 million, $63
million, and $18 million, respectively, in 1992.
/c/ Due to the transfer of certain assets net of their related allowance to
assets pending disposition, the allowance for credit losses was reduced by
$128 million and $685 million during 1993 and 1992, respectively. The 1993
amount included $88 million of regulatory-related allocated transfer risk
reserve. In addition, the allowance for credit losses related to loans of
subsidiaries and operations pending disposition totaling $220 million was
reclassified to assets pending disposition during 1992.
/d/ Includes $36 million related to the consolidation of subsidiaries and
operations that were held for disposition at December 31, 1992 and $16
million related to the sale of commercial real estate loans, net of their
allowance, to a partnership controlled by Goldman Sachs & Co.
/e/ Includes regulatory-related allocated transfer risk reserve of $67 million
and $145 million at December 31, 1992 and 1991, respectively. Due to the
transfer of certain assets net of their related allowance to assets pending
disposition during 1993, the allowance for credit losses did not include any
regulatory-related allocated transfer risk reserve at December 31, 1993.
11. PREMISES AND EQUIPMENT
The following is a summary of premises and equipment:
<TABLE>
<CAPTION>
- --------------------------------------------------------
December 31
--------------
(in millions) 1993 1992
- --------------------------------------------------------
<S> <C> <C>
Premises, including capitalized leases $2,378 $2,163
Equipment and furniture,
including capitalized leases 2,490 2,271
Leasehold improvements 741 651
Land 455 454
- --------------------------------------------------------
6,064 5,539
Less: Accumulated depreciation
and amortization 2,433 2,229
- --------------------------------------------------------
$3,631 $3,310
========================================================
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1993, 1992, and 1991 was $461 million, $395 million, and $302 million,
respectively.
59
<PAGE>
12. ASSETS PENDING DISPOSITION
Refer to Note 1 of Notes to Consolidated Financial Statements on pages 48-52 for
further information on assets pending disposition.
The following is a summary of assets pending disposition:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
----------------------
(in millions) 1993/a/ 1992/a/
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Merger-Related Assets Pending Disposition
Loans held pending disposition:
Domestic commercial:
Commercial and industrial/b/ $ 3 $ 306
Loans secured by real estate 28 357
Construction and development loans secured by real estate 32 959
Other -- 17
- -------------------------------------------------------------------------------------------------------
63 1,639
Foreign 77 309
- -------------------------------------------------------------------------------------------------------
140/c/ 1,948/c/
- -------------------------------------------------------------------------------------------------------
Real estate acquired in satisfaction of debt 35 258
Other assets/d/ 243 1,049
- -------------------------------------------------------------------------------------------------------
Total Merger-related assets pending disposition 418 3,255
Restructuring-Country-Related Assets/e/ 196 --
Loans Held For Sale in the Normal
Course of Business
Domestic:
Consumer-secured by first mortgages on residential properties 177 902
Commercial and industrial 554 83
- -------------------------------------------------------------------------------------------------------
731 985
- -------------------------------------------------------------------------------------------------------
$1,345 $4,240
=======================================================================================================
</TABLE>
/a/ In the first quarter of 1993, the corporation adopted SFAS No. 109, which
requires that the tax effects recorded in connection with purchase
accounting be recorded as part of deferred income taxes rather than as part
of the carrying values of individual assets and liabilities. Therefore,
assets pending disposition balances at December 31, 1993 do not include net
tax effects.
At December 31, 1992, net tax effects of $526 million included in assets
pending disposition related to the following categories of assets:
commercial and industrial loans of $41 million, loans secured by real estate
of $116 million, construction and development loans secured by real estate
of $290 million, other loans of $5 million, foreign loans of $75 million,
real estate acquired in satisfaction of debt of $73 million, and other
assets of $(74) million.
/b/ Includes highly leveraged transactions with aggregate estimated NRVs of $1
million and $132 million at December 31, 1993 and 1992, respectively.
/c/ Includes loans with aggregate estimated NRVs of $123 million and $1,572
million at December 31, 1993 and 1992, respectively, which would have been
on nonaccrual status if they had been included in the corporation's loan
outstandings.
/d/ Includes subsidiaries and operations pending disposition of $137 million and
$770 million at December 31, 1993 and 1992, respectively.
/e/ Represents assets that would have been on nonaccrual status if they had been
included in the corporation's loan outstandings and interest-bearing
deposits in banks.
On June 30, 1993, subsidiaries of the parent sold $707 million of Merger-
related assets pending disposition to a partnership controlled by The Morgan
Stanley Real Estate Fund, L.P. (MSREF) in accordance with an amended agreement
between MSREF and the parent. The NRVs of these assets immediately prior to the
sale were as follows: commercial and industrial loans of $14 million, loans
secured by real estate of $196 million, construction and development loans
secured by real estate of $388 million, real estate acquired in satisfaction of
debt of $105 million, and other assets of $4 million. Substantially all of the
assets purchased by the partnership were acquired in connection with the Merger.
The corporation recognized and will receive approximately $300 million in tax
benefits from this transaction.
On December 9, 1993, subsidiaries of the parent sold certain commercial
loans secured by real estate to a partnership controlled by Goldman Sachs & Co.
Substantially all of the assets purchased by the partnership were acquired in
connection with the Merger. The corporation recognized a gain of $64 million
from this transaction.
The estimated NRV of $287 million for SPABL was included in Merger-related
assets pending disposition at December 31, 1992. In the first quarter of 1993,
management decided to retain SPABL and accordingly, effective January 1, 1993,
this subsidiary was consolidated in the corporation's financial statements.
Other noninterest income for the year ended December 31, 1993 included $38
million of previously unrecognized post-Merger 1992 earnings of SPABL.
60
<PAGE>
13. SHORT-TERM BORROWINGS
The corporation had unused short-term lines of credit of $15 million and $234
million at December 31, 1993 and 1992, respectively. The December 31, 1992
amount included $150 million in support of commercial paper borrowing
arrangements.
14. LONG-TERM DEBT
The corporation's fixed-rate long-term debt of $8,290 million at December 31,
1993 matures through 2017. At December 31, 1993 and 1992, the interest rates on
fixed-rate long-term debt ranged from 4.55% to 14.25% and from 5.875% to 14.25%,
respectively. These obligations were denominated primarily in U.S. dollars. The
corporation has entered into interest rate swaps relating to certain of these
obligations to change its interest rate exposure from fixed rate to floating
rate. At December 31, 1993 and 1992, the weighted average interest rates on
fixed-rate long-term debt, including the effect of interest rate swaps, were
6.50% and 6.95%, respectively.
The corporation's floating-rate long-term debt of $5,218 million at
December 31, 1993 matures through 2003. The majority of the floating rates are
based on the London InterBank Offered Rate (LIBOR). At December 31, 1993 and
1992, the interest rates on floating-rate long-term debt ranged from 3.23% to
5.50% and from 3.45% to 8.15%, respectively. These obligations were denominated
primarily in U.S. dollars. At December 31, 1993 and 1992, the weighted average
interest rates on floating-rate long-term debt were 3.85% and 4.19%,
respectively.
The following is a summary of long-term debt (original maturities of more
than one year)/a/:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
December 31
------------------------------------------
1993 1992
--------------------------------- ------
Various Various
Fixed-Rate Floating-Rate
Debt Debt
(in millions) Obligations Obligations Total Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
The parent
Senior Debt:
Due in 1993 $ -- $ -- $ -- $ 2,802
Due in 1994 1,560 736 2,296 2,521
Due in 1995 665 1,315 1,980 2,104
Due in 1996 645 974 1,619 617
Due in 1997 1,016 544 1,560 1,681
Due in 1998 269 900 1,169 207
Thereafter 78 92 170 547
- ---------------------------------------------------------------------
4,233 4,561 8,794 10,479
Subordinated Debt:
Due in 1998 53 70 123 53
Thereafter 3,888 377 4,265 3,306
- ---------------------------------------------------------------------
3,941 447 4,388 3,359
Total parent 8,174 5,008 13,182 13,838
Subsidiaries
Senior Debt:
Due in 1993 -- -- -- 277
Due in 1994 61 64 125 105
Due in 1995 5 74 79 42
Due in 1996 3 72 75 --
Due in 1997 14 -- 14 --
Due in 1999 and
thereafter 33 -- 33 64
- ---------------------------------------------------------------------
Total subsidiaries 116 210 326 488
- ---------------------------------------------------------------------
$8,290 $5,218 $13,508 $14,326
=====================================================================
</TABLE>
/a/ Maturity distribution is based upon contractual maturities or earlier dates
due to required mandatory sinking-fund payments or due to call notices
issued.
At December 31, 1993 and 1992, $116 million and $181 million, respectively,
of subsidiary long-term debt was guaranteed by the parent.
Certain notes can be redeemed at par at the option of the parent at
specified dates. Certain other notes are subject to repayment at par at the
option of the holder.
At December 31, 1993, the corporation had an unused long-term line of
credit of $1.2 billion that expires in 1996.
61
<PAGE>
15. SUBORDINATED CAPITAL NOTES
The following is a summary of subordinated capital notes recorded by the
parent/a/:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
December 31
------------------
(in millions) 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C>
Floating Rate Notes due 1996 $ 245 $ 900
Floating Rate Notes due 1997 -- 508
Floating Rate Notes due 1999 -- 302
9.75% Note Due 1999 264 261
Auction Rate Notes due 1999 98 98
- ----------------------------------------------------------------------------
$ 607 $2,069
============================================================================
</TABLE>
/a/ These notes are subordinate to senior indebtedness of the parent and
qualify as Tier 2 risk-based capital under Federal Reserve Board guidelines
for assessing capital adequacy.
At the option of the parent, the Floating Rate Notes, the 9.75% Note, and
the Auction Rate Notes may be exchanged for common stock, perpetual preferred
stock, or other capital securities acceptable to the Federal Reserve Board
having a market price equal to the principal amount of the notes or, under
certain circumstances, may be redeemed in whole or in part for cash.
The Floating Rate Notes due 1996 have interest rates that approximate LIBOR
and are subject to a minimum interest rate of 5.25%.
The Floating Rate Notes due 1999 were issued with detachable warrants to
purchase shares of common stock of the parent at a price of $17.50 per share,
subject to adjustment in certain events, until expiration on October 22, 1997.
At December 31, 1993 and 1992, warrants outstanding totaled 629,677 and 951,150,
respectively.
The Auction Rate Notes had an annual interest rate of 9.73% through May 17,
1993. This interest rate was adjusted effective May 18, 1993 as follows: $67
million bears interest at a fixed rate of 4.99% while the remaining $31 million
bears interest at a floating rate of 0.50% over LIBOR through May 17, 1996.
Thereafter, the Auction Rate Notes bear interest, at the election of the
holders, as to the final three-year period at either a fixed rate determined by
auction or a floating rate of 0.50% over LIBOR.
As of December 31, 1993, issuances of common and preferred stock have been
dedicated to retire or redeem subordinated capital notes with a face value of
$415 million, thereby eliminating the need for issuance of capital securities to
the extent of such dedications. The parent intends to dedicate an additional
$185 million to retire or redeem the remainder of these notes prior to their
respective maturities.
16. PREFERRED SHARE PURCHASE RIGHTS
On April 11, 1988, the Board of Directors of the parent declared a dividend of
one preferred share purchase right (a Right) for each outstanding share of the
parent's common stock as of April 22, 1988 (the Rights Agreement). Each Right
entitles the holder to buy from the parent, until the earlier of April 22, 1998
or the redemption of the Rights, one one-hundredth of a share of Cumulative
Participating Preferred Stock, Series E, at an exercise price of $50.00 per
Right (subject to adjustment). The Rights will not be exercisable or
transferable apart from the parent's common stock until certain events occur
pertaining to a person or group acquiring or announcing the intention to acquire
20 percent or more of the parent's outstanding common stock. Under specified
circumstances, all of which relate to a potential acquisition of the parent, a
Right may: (i) become a right to purchase shares of an acquiring company at half
of the then-market price, (ii) become a right to purchase the parent's common
stock at half of the then-market price or (iii) be exchanged by the parent for
one share of common stock or one one-hundredth of a share of Preferred Stock,
Series E, or an equivalent preferred share. The Board of Directors may redeem
the Rights at a price of $0.001 per Right (rounded as to each holder to the
nearest $0.01) at any time prior to the acquisition by a person or group of 20
percent or more of the outstanding common stock of the parent. Under other
specified conditions, the Rights may be automatically redeemed. The Rights are
excluded from the computation of earnings per common share.
62
<PAGE>
17. PREFERRED STOCK
The parent is authorized to issue, in one or more series, 70,000,000 shares of
preferred stock. The parent's outstanding preferred shares are nonvoting, while
dividends are cumulative and are payable quarterly on February 28, May 31,
August 31, and November 30, except for the 11% Preferred Stock, Series I, and
the 11% Preferred Stock, Series J, which are payable quarterly on March 31, June
30, September 30, and December 31. The shares are redeemable at the option of
the parent during the redemption period and at the redemption price per share
noted below plus accrued and unpaid dividends to the redemption date. Holders of
the preferred shares have dividend and liquidation preferences senior to those
of holders of the parent's common stock.
The following is a summary of preferred stock at December 31, 1993:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Dividend Redemption Price
Shares Issued Stated Value Per Share Per Share During
Preferred Stock Series and Outstanding Per Share Per Annum Redemption Period Redemption Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Adjustable:
Series A 5,178,000 $ 50.00 $ 3.25/a/ On or after 11/30/87 $ 50.00
Series B 3,546,100 100.00 6.00/b/ On or after 2/28/88 100.00
Cumulative Fixed:
9 5/8% Series F 7,250,000 25.00 2.41 On or after 4/15/96 25.00
9% Series H 11,250,000 25.00 2.25 On or after 1/15/97 25.00
11% Series I 200,000/c/ 500.00 55.00 On or after 9/30/95/d/ /d/
11% Series J 400,000/c/ 500.00 55.00 On or after 3/31/96/e/ /e/
8 3/8% Series K 14,600,000 25.00 2.09 On or after 2/15/97 25.00
8.16% Series L 800,000/c/ 500.00 40.80 On or after 7/13/97 500.00
7 7/8% Series M 700,000/c/ 500.00 39.38 On or after 9/30/97 500.00
8 1/2% Series N 475,000/c/ 500.00 42.50 On or after 12/15/97 500.00
Cumulative Convertible Fixed:
6 1/2% Series G/f/ 4,998,357 50.00 3.25 On or after 5/31/95/g/ /g/
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ For the Cumulative Adjustable Preferred Stock, Series A, the dividend is
adjusted quarterly, and is 2.0% lower than the highest of three U.S.
Treasury rates, but is no lower than 6.5% and no greater than 14.5% per
annum.
/b/ For the Cumulative Adjustable Preferred Stock, Series B, the dividend is
adjusted quarterly, and is 4.0% lower than the highest of three U.S.
Treasury rates, but is no lower than 6.0% and no greater than 12.0% per
annum.
/c/ Represented by depositary shares, each corresponding to a one-twentieth
interest in a share of Preferred Stock.
/d/ The preferred shares may be redeemed on or after September 30, 1995 and
prior to September 30, 1996 at $527.50 per share (equivalent to $26.375 per
depositary share), and thereafter at prices declining to $500.00 per share
(equivalent to $25.00 per depositary share) on September 30, 2000 and
thereafter.
/e/ The preferred shares may be redeemed on or after March 31, 1996 and prior to
March 31, 1997 at $527.50 per share (equivalent to $26.375 per depositary
share), and thereafter at prices declining to $500.00 per share (equivalent
to $25.00 per depositary share) on March 31, 2001 and thereafter.
/f/ At the option of the parent, the shares are convertible into common stock at
any time, unless previously redeemed, at a conversion price of $45.60 per
common share, subject to adjustment under certain conditions.
/g/ The preferred shares may be redeemed on or after May 31, 1995 at a price of
$51.95 per share during the twelve months beginning May 31, 1995, at
decreasing prices thereafter through May 30, 2001, and at $50.00 per share
thereafter.
63
<PAGE>
18. LEASE COMMITMENTS
The corporation leases certain premises and equipment under noncancelable
agreements expiring between the years 1994 and 2119.
The following is a summary of future minimum rental commitments for
noncancelable leases at December 31, 1993, which have not been reduced by
minimum sublease rental income of $3 million for capital leases and $127 million
for operating leases:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Capital Operating
(in millions) Leases Leases
- -------------------------------------------------------------------
<S> <C> <C>
1994 $ 9 $ 380
1995 7 338
1996 7 268
1997 7 225
1998 7 200
Thereafter 64 1,428
- -------------------------------------------------------------------
Total minimum lease payments 101 $2,839
===================================================================
Amount representing interest (52)
- -------------------------------------------------------
Present Value of Net Minimum Lease Payments $ 49
=======================================================
</TABLE>
Total rental expense was $336 million in 1993, $286 million in 1992, and
$246 million in 1991.
19. INCOME TAXES
The significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Year Ended December 31
-----------------------------
(in millions) 1993/a/ 1992/b/ 1991/b/
- ---------------------------------------------------------------
<S> <C> <C> <C>
Provision for (Benefit from)
Income Taxes
Current:
Federal $ 269 $ 870 $ 80
State and local 93 153 60
Foreign 148 123 96
- ---------------------------------------------------------------
510 1,146 236
Deferred:
Federal 754 (44) 415
State and local 212 88 92
Foreign (2) -- 6
- ---------------------------------------------------------------
964 44 513
- ---------------------------------------------------------------
$1,474 $1,190 $749
===============================================================
</TABLE>
/a/ Liability method
/b/ Deferred method
Effective January 1, 1993, the corporation changed its method of accounting
for income taxes from the deferred method to the liability method required by
SFAS No. 109. Prior years' financial statements have not been restated for the
adoption.
There was no cumulative effect on net income related to the adoption of
SFAS No. 109. In addition, the application of this new accounting standard did
not have a significant effect on the corporation's net income for 1993.
The deferred tax liability of the corporation of $605 million at December
31, 1992 was adjusted for the adoption of SFAS No. 109 effective January 1,
1993, resulting in a net deferred tax asset of $1,037 million at that date. This
change is primarily due to the change in accounting for the Merger from the net-
of-tax method prescribed by APB No. 11, "Accounting for Income Taxes," and APB
No. 16 to the gross method prescribed by SFAS No. 109. Under the gross method,
the tax effects for the differences between the fair values and the tax bases of
assets acquired and liabilities assumed are recorded as part of deferred income
taxes, instead of as part of the carrying values of acquired assets and
liabilities.
The significant components of deferred income tax assets and liabilities at
December 31, 1993 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
(in millions)
- ----------------------------------------------------------------------
<S> <C>
Deferred Income Tax Assets
Allowance for credit losses $ 1,596
Accrued expenses 640
Foreign subsidiaries pending disposition 160
Real estate acquired in satisfaction of debt 142
Tax carryovers/a/ 76
Other 141
Valuation allowance for deferred income tax assets/a/ (37)
- ----------------------------------------------------------------------
Total deferred income tax assets 2,718
- ----------------------------------------------------------------------
Deferred Income Tax Liabilities
Lease financing (1,039)
Identifiable intangible assets (626)
Loan restructurings (473)
Employee benefit plans (146)
Accumulated tax depreciation in excess of book depreciation (199)
Deferred gains and installment sales (139)
Other (106)
- ----------------------------------------------------------------------
Total deferred income tax liabilities (2,728)
- ----------------------------------------------------------------------
Net Deferred Income Tax Liabilities $ (10)
======================================================================
</TABLE>
/a/ The valuation allowance for deferred income tax assets relates primarily to
net operating loss carryovers of foreign subsidiaries and pre-acquisition
tax carryovers associated with the Merger, which are subject to certain
limitations under the tax code. This valuation allowance was established
since the corporation may not realize all of these tax benefits in the
future. If the corporation determines that it will realize the pre-
acquisition carryover tax benefits in the future, the corresponding
reduction in the valuation allowance will decrease goodwill instead of tax
expense.
Management believes that the corporation will fully realize its total
deferred income tax assets as of December 31, 1993 based upon the corporation's
recoverable taxes from prior carryback years, its total deferred income tax
liabilities, and its current level of operating income.
64
<PAGE>
The components of the provision for deferred income taxes for the years
ended December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Year Ended December 31
----------------------
(in millions) 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C>
Loss on debt restructurings with countries
experiencing liquidity problems $ (66) $ 12
Change in the allowance for credit losses 18 93
Lease financing income 204 20
Accrued expenses (155) 36
Tax benefit carryover, net -- 186
Real estate valuation 56 --
Foreign exchange gains and losses (25) (42)
Disposal of foreign investments -- 88
Other, net 12 120
- -----------------------------------------------------------------------------
$ 44 $ 513
=============================================================================
</TABLE>
Reclassifications have been made among the components of tax expense for
prior years to conform to the tax returns as filed.
The reconciliation of the provision for income taxes computed at the U.S.
statutory income tax rate to pre-tax income is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------
1993/a/ 1992/b/ 1991/b/
--------------------- --------- ---------
Effective Effective Effective
(dollar amounts in millions) Provision Tax Rate Tax Rate Tax Rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory income tax $1,200 35% 34% 34%
State and local income taxes,
net of federal tax effect 197 6 6 5
Effect of purchase accounting
for the Merger 92 3 4 --
Other, net (15) (1) -- 1
- ------------------------------------------------------------------------------
$1,474 43% 44% 40%
==============================================================================
</TABLE>
/a/ Liability method
/b/ Deferred method
The decrease in the corporation's effective income tax rate during 1993 was
primarily due to the adoption of SFAS No. 109 and was partially offset by the
effects of tax legislation signed into law in August 1993, which included a one
percent increase in the federal corporate tax rate. The remeasurement of
deferred income taxes caused by the rate increase did not have a significant
effect on the corporation's deferred taxes.
The valuation allowance for deferred income tax assets decreased by $97
million in 1993 due primarily to a determination that the corporation will
utilize all of its capital losses based on current and expected levels of
capital gains. Of this decrease, $93 million was associated with Merger-related
capital losses and, therefore, reduced goodwill.
At December 31, 1993, federal income taxes had not been provided on $436
million of undistributed earnings of foreign subsidiaries earned prior to 1987
that are reinvested for an indefinite period. If the undistributed earnings were
distributed, credits for foreign taxes paid on such earnings, and for the
related foreign withholding taxes payable upon remittance, would be available to
offset $84 million of the $189 million of the resulting tax expense. Subsequent
to 1986, federal taxes are provided on earnings of foreign subsidiaries as a
result of a tax law change.
The corporation provided tax expense of $25 million, $4 million, and $13
million on net securities gains in 1993, 1992, and 1991, respectively.
20. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The majority of salaried, U.S. employees within the corporation are covered
under the BankAmeraccount Plan or the Seafirst Corporation Retirement Plan.
These plans are noncontributory defined benefit pension plans and are separately
administered by the employers. Benefits are based on length of service and level
of compensation. Contributions are made by the employers based on actuarial
computations of the amount sufficient to fund the current service cost plus
amortization of the unfunded actuarial accrued liability, determined in
accordance with Internal Revenue Service funding requirements. Contributions are
invested in diversified portfolios, including fixed income and equity
investments. In the BankAmeraccount Plan, each employee's accrued benefit can be
expressed as an account that is credited with amounts based on the employee's
pay, length of service, and a specified interest rate. The Trusteed Retirement
Income Plan (TRIP), which was SPC's defined benefit plan, was merged into the
BankAmeraccount Plan effective January 1, 1993.
The corporation maintains certain nonqualified employee defined benefit
retirement plans. The related retirement benefits are paid from the
corporation's assets rather than from retirement plan assets. In addition,
certain non-U.S. employees of the corporation are covered by noncontributory
defined benefit pension plans. The employers fund these plans based primarily on
local laws. The assumptions used in computing the present value of the
accumulated benefit obligation, the projected benefit obligation, and net
pension expense for the non-U.S. plans are substantially consistent with those
assumptions used for the U.S. plans, given local conditions.
65
<PAGE>
The following is a reconciliation between the funded status of all defined
benefit plans and amounts included in the corporation's consolidated balance
sheet:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
December 31
-------------------
(in millions) 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prepaid Pension Cost
Actuarial present value of projected benefit obligation $2,388 $2,042
Less: Plan assets at fair value, primarily listed stocks and bonds 2,388 2,249
- -------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation/a/ -- 207
Unrecognized net loss 310 35
Unrecognized prior service cost 57 62
Unrecognized net transition obligation 30 29
Tax effect of acquired pension liability/b/ -- 22
Additional minimum liability (5) (2)
- -------------------------------------------------------------------------------------------------------
Prepaid Pension Cost $ 392 $ 353
=======================================================================================================
Actuarial Present Value of Benefit Obligations
Vested benefit obligation $2,202 $1,839
Accumulated benefit obligation 2,290 1,922
- -------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Certain defined benefit plans had a projected benefit obligation in excess
of plan assets of $137 million and $89 million at December 31, 1993 and
1992, respectively.
/b/ In the first quarter of 1993, the corporation adopted SFAS No. 109, which
requires that the tax effects recorded in connection with purchase
accounting be recorded as part of deferred income taxes rather than as part
of the carrying values of individual assets and liabilities. Therefore, the
prepaid pension cost balance at December 31, 1993 does not include such net
tax effects.
The following is a summary of the components of net pension expense:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during the year $ 83 $ 70 $ 44
Interest cost on projected benefit obligation 170 133 89
Net amortization and deferral 60 (13) 142
Effect of actual return on plan assets (264) (152) (259)
- ------------------------------------------------------------------------------------------------
Net Pension Expense $ 49 $ 38 $ 16
================================================================================================
</TABLE>
The expected long-term rates of return on plan assets used in computing the
net pension expense for the U.S. plans were 9.75 percent, 9.75 percent, and
10.50 percent in 1993, 1992, and 1991, respectively. The expected long-term rate
of return on plan assets used in computing the net pension expense for 1994 will
be 8.50 percent. This change is not expected to have a material effect on the
corporation's results of operations.
The following is a summary of the assumptions used in computing the present
value of the accumulated benefit obligation and the projected benefit obligation
for the U.S. plans:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1993 1992
- -------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate 7.25% 8.75%
Compensation increases 4.00 4.00
Account growth interest rate 5.00 5.75
- -------------------------------------------------------------
</TABLE>
During the fourth quarter of 1992, the corporation recognized a curtailment
loss of $13 million. This loss was due to a reduction of participants in the
BankAmeraccount Plan as a result of the Merger and was included in Merger-
related restructuring expense for the year ended December 31, 1992.
During 1991, the corporation completed the conversion of certain overseas
employee defined benefit pension plans to defined contribution pension plans.
The resulting curtailment and settlement gain to the corporation of $15 million,
primarily attributable to these conversions, was included in other noninterest
income for the year ended December 31, 1991.
During 1992, the TRIP sold 100,000 shares of the parent's common stock for
$4 million. The remaining 780,000 shares at December 31, 1992, were merged into
the BankAmeraccount Plan effective January 1, 1993 and were sold during 1993 for
$38 million.
DEFINED CONTRIBUTION PLANS
The majority of salaried, U.S. employees within the corporation are eligible to
participate in the BankAmerishare Plan or the Seafirst Corporation Employee
Matched Savings Plan. These plans are contributory defined contribution plans
and are separately administered by the employers. These plans provide several
tax-deferred investment opportunities to salaried employees who have completed
one year of service. Employees may, up to certain prescribed limits, contribute
to the plans. A portion of these contributions is matched by the employers.
Contributions are placed in various investment funds at the option of the
participant. The Thrift Plus Plan, which was SPC's defined contribution plan,
was merged into the BankAmerishare Plan effective January 1, 1993.
The corporation maintains certain nonqualified employee defined
contribution retirement plans. The related retirement benefits are paid from the
corporation's assets rather than from retirement plan assets. In addition,
certain non-U.S. employees of the corporation are covered under defined
contribution pension plans that are separately administered in accordance with
local laws.
66
<PAGE>
The Seafirst Corporation Employee Matched Savings Plan included special
contributions made by both employees and the employers to Tax Reduction Act
Stock Ownership Programs (TRASOP) in 1992.
Aggregate contributions by the employers for all defined contribution plans
were $75 million, $73 million, and $46 million in 1993, 1992, and 1991,
respectively. Certain employer and employee contributions to the plans are used
to purchase the parent's common stock at prices that approximate market values.
Contributions to the plans were used to purchase 374,274 shares for $18 million
in 1993, 178,569 shares for $7 million in 1992, and 252,383 shares for $9
million in 1991. In addition, dividends attributed to the plans were reinvested
and used to purchase 410,070 shares for $19 million in 1993, 357,948 shares for
$16 million in 1992, and 409,662 shares for $15 million in 1991.
Sales by the plans of the parent's common stock were 637,000 shares for $29
million in 1993, 847,252 shares for $38 million in 1992, and 1,692,420 shares
for $61 million in 1991. The plans held 15,375,896 shares, 15,918,481 shares,
and 13,304,614 shares of the parent's common stock at December 31, 1993, 1992,
and 1991, respectively.
MANAGEMENT STOCK PLANS
The parent offers shares of its common stock to certain key employees under
management stock plans. Under the plans, three kinds of options are outstanding:
NonQualified Stock Options, Performance Stock Options, and Incentive Stock
Options. Under the plans, the shares under option generally become exercisable
not earlier than six months and not later than ten years after the date the
option was granted.
Options awarded before August 5, 1991 held by principal officers of the
parent, subject to certain restrictions, also constitute stock appreciation
rights equal to the number of shares covered by the options. These stock
appreciation rights are exercisable for the difference between the option price
and the current market price of the stock. The difference can be received in
shares or, under certain circumstances, cash. Stock appreciation rights are
exercisable under the same terms as the related stock options.
The following is a summary of changes in shares under option:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Year Ended December 31
-------------------------------
1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year 10,835,247 6,059,925
Issued in connection with the Merger -- 4,057,452
Granted 2,991,175 3,125,775
Exercised (2,701,923) (1,871,754)
Canceled (675,104) (536,151)
- ------------------------------------------------------------------------------
Balance, End of Year 10,449,395 10,835,247
==============================================================================
</TABLE>
Options to purchase 5,228,932 and 5,737,440 shares were exercisable at
December 31, 1993 and 1992, respectively. Expiration dates ranged from January
4, 1994 to November 1, 2003 for options outstanding at December 31, 1993.
The following is a summary of option prices per share:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Range of prices of shares under option at December 31 8.63 to $57.39 8.63 to $57.81
Weighted average price of shares under option at December 31 $37.99 $35.13
Range of prices of shares exercised during year 8.63 to $47.73 8.63 to $45.74
- ----------------------------------------------------------------------------------------------------
</TABLE>
Under the plans, the parent awarded restricted stock to certain key
employees. The restricted stock awarded under the plans is held in escrow until
the employee has completed the specified continuous service requirement,
generally five years, or upon the earlier of death or retirement. During 1993
and 1992, the parent awarded 585,502 shares and 516,370 shares, respectively,
under the plans .
Both stock options and restricted stock are granted by a committee of the
Board of Directors. Shares available for grant, as either stock options or
restricted stock, were 2,187,961 and 1,664,597 at December 31, 1993 and 1992,
respectively. Canceled options, except for those converted in connection with
the Merger, become available for future grants.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," was adopted by the corporation effective January 1, 1993. This
standard requires that employers use the accrual method of accounting for
postretirement benefits other than pensions, such as medical, dental, and life
insurance plans for retirees.
The corporation provides certain defined health care and life insurance
benefits under plans for retired U.S. employees. Retiree health care benefits
are offered under self-insured arrangements, as well as through various health
maintenance organizations. The corporation contributes a fixed dollar
67
<PAGE>
amount, which is periodically reviewed and evaluated, to the plans. The
retirees' share is the remainder of the cost for the given coverage. The
corporation's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management. Employer contributions are invested
in diversified portfolios, including fixed income and equity investments.
The weighted average of the assumed discount rates used to measure the
accumulated postretirement benefit obligation was 7.25 percent at December 31,
1993. The weighted average of the expected long-term rates of return on plan
assets used in computing the net periodic postretirement cost was 9.75 percent
for the year ended December 31, 1993. The expected long-term rate of return on
plan assets used in computing the net periodic postretirement cost for 1994 will
be 8.50 percent. This change is not expected to have a material effect on the
corporation's results of operations.
The following is a reconciliation between the funded status of all
postretirement benefit plans other than pensions and the amounts included in the
corporation's consolidated balance sheet at December 31, 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(in millions)
- --------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $487
Fully eligible active plan participants 17
Other active plan participants 114
- --------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 618
Less: Plan assets at fair value, primarily listed stocks and bonds 39
- --------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess
of plan assets 579
Unrecognized net transition obligation 504
Unrecognized net loss 66
Unrecognized prior service cost 5
- --------------------------------------------------------------------------
Accrued Postretirement Benefit Cost $ 4
==========================================================================
</TABLE>
The unrecognized net transition obligation is being amortized on a
straight-line basis over twenty years.
The following is a summary of the components of net periodic postretirement
cost:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Year Ended
(in millions) December 31, 1993
- ------------------------------------------------------------------
<S> <C>
Service cost--benefits earned during the year $ 6
Interest cost on accumulated postretirement
benefit obligation 47
Amortization of transition obligation 27
Effect of actual return on plan assets (3)
- ------------------------------------------------------------------
Net Periodic Postretirement Cost $77
==================================================================
</TABLE>
Of the net periodic postretirement cost for the year ended December 31,
1993, $41 million was attributable to the adoption of SFAS No. 106.
In 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement applies to postemployment benefits
provided to former or inactive employees, their beneficiaries, and covered
dependents after employment but before retirement. SFAS No. 112 will be adopted
by the corporation beginning January 1, 1994 in accordance with the requirements
of the statement. The accounting policies of the corporation are already
substantially in compliance with SFAS No. 112 and, accordingly, the adoption of
this statement will not have a significant effect on the corporation's future
results of operations or financial position.
21. EARNINGS PER COMMON SHARE
Earnings per common and common equivalent share are computed by dividing net
income applicable to common stock by the total of the average number of common
shares outstanding and the additional dilutive effect of stock options and
warrants outstanding during the respective period. The dilutive effect of stock
options and warrants is computed using the average market price of the parent's
common stock for the period.
Earnings per common share, assuming full dilution, are computed based on
the average number of common shares outstanding during the period, and the
additional dilutive effect of stock options and warrants outstanding during the
period. The dilutive effect of outstanding stock options and warrants is
computed using the greater of the closing market price or the average market
price of the parent's common stock for the period. Earnings per common share,
assuming full dilution, also includes the dilution which would result if the
parent's 6 1/2% Cumulative Convertible Preferred Stock, Series G, (Convertible
Preferred Stock) outstanding during the period had been converted at the
beginning of the period. Net income applicable to common stock is adjusted for
dividends declared during the period on the Convertible Preferred Stock.
Earnings per common share have been computed based on the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year Ended December 31
------------------------------------------------
(dollar amounts in millions) 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to
common stock $ 1,713 $ 1,323 $ 1,063
Average number
of common
shares outstanding 355,106,722 308,190,534 215,845,828
Average number
of common
and common equivalent
shares outstanding 357,679,670 312,218,182 220,749,152
Average number
of common
shares outstanding--
assuming full dilution 363,243,993 317,855,736 224,317,916
- -------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
22. OFF-BALANCE-SHEET TRANSACTIONS
In the ordinary course of business, the corporation enters into various types of
transactions that involve credit-related financial instruments and derivative
and foreign exchange products with off-balance-sheet risk. Credit-related
financial instruments are primarily customer-driven, while derivative and
foreign exchange transactions are entered into both on behalf of customers and
for the corporation's own account in conducting trading activities and managing
market risk, including interest rate and foreign exchange risk. Credit-related
financial instruments include commitments to extend credit, standby letters of
credit, financial guarantees, and commercial letters of credit. Derivative and
foreign exchange products include futures, forwards, swaps, and options
contracts, and are principally linked to interest rates, foreign exchange rates,
or the prices of securities.
The contractual or notional amounts associated with these credit-related
financial instruments and derivative and foreign exchange products are not
recorded as assets or liabilities on the balance sheet. This reporting is
considered appropriate either where exchange of the underlying asset or
liability has not occurred or is not assured, or where notional amounts are used
solely as a means to determine cash flows to be exchanged.
Fees received from credit-related financial instruments are recognized over
the terms of the contracts and are included in other fees and commissions in
noninterest income. Transaction fees on derivative and foreign exchange
transactions that do not qualify as hedges are generally recognized in trading
income at the inception of the transaction. Derivative and foreign exchange
products that do not qualify as hedges are marked to market, and the unrealized
gains and unrealized losses are recorded on the consolidated balance sheet on a
net basis for most products. The accounting for gains and losses on derivative
and foreign exchange contracts that qualify as hedges differs based on the type
of contract. For information regarding the accounting for gains and losses on
derivative and foreign exchange contracts that qualify as hedges, refer to page
51 of Note 1 in the Notes to Consolidated Financial Statements.
Off-balance-sheet financial instruments are subject to varying degrees of
credit and market risk. However, regardless of the type of product, all off-
balance-sheet financial instruments must meet criteria of acceptable risk
established for the corporation's lending, financing, hedging, and trading
activities.
In its effort to manage credit risk, the corporation strives to maintain
diversification of its on- and off-balance-sheet portfolios, both in terms of
asset type and industry concentration. In addition, credit risk is also managed
through the corporation's credit approval process and through customer
diversification. To further mitigate off-balance-sheet credit exposures, the
corporation deals with counterparties that are deemed creditworthy, obtains
collateral where appropriate, and increasingly requires the use of legally
enforceable master netting agreements, which provide for the net settlement of
conditional or exchange contracts with the same counterparty in the event of
default.
CREDIT-RELATED FINANCIAL INSTRUMENTS
Unfunded credit commitments at December 31, 1993 and 1992 totaled $97,111
million and $95,031 million, respectively, of which $5,788 million and $9,534
million, respectively, related to foreign-based customers and $91,323 million
and $85,497 million, respectively, related to domestic-based customers. The
unfunded credit commitments to domestic-based customers at December 31, 1993 and
1992 included $23,437 million and $24,899 million, respectively, of unutilized
credit card lines. At December 31, 1993 and 1992, no domestic or foreign
industry nor any individual foreign country comprised more than ten percent of
total unfunded noncredit-card-related commitments. For a summary of funded loan
outstandings by type at December 31, 1993 and 1992, refer to Note 8 of the Notes
to Consolidated Financial Statements on page 58.
The following table is a summary of the contractual or notional amounts of
each significant class of credit-related financial instruments 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>
- -------------------------------------------------------------------------
December 31
--------------------
1993 1992
- -------------------------------------------------------------------------
Contractual or Contractual or
Notional Notional
(in millions) Amount Amount
- -------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Unutilized credit card lines $23,437 $24,899
Other commitments to extend credit 57,227 55,408
Standby letters of credit and financial
guarantees (net of participations
sold: 1993 -- $2,076; 1992 -- $2,132) 13,323 12,577
Commercial letters of credit 3,124 2,147
- -------------------------------------------------------------------------
</TABLE>
COMMITMENTS TO EXTEND CREDIT
Unutilized credit card lines are commitments to extend credit. These lines are
not secured and may be canceled by the corporation after thirty-days written
notice to the customer. Many credit card customers are not expected to draw down
their total lines of credit and, therefore, the total contractual amount of
these lines does not necessarily represent future cash requirements.
69
<PAGE>
Other commitments to extend credit represent agreements to extend credit to
a customer for which the corporation may have received fees. These commitments
have specified interest rates and generally have fixed expiration dates and may
be terminated by the corporation if certain conditions of the contract are
violated. Although they are currently subject to drawdown, many of these
commitments are expected to expire or terminate without being funded. Of total
other commitments to extend credit at December 31, 1993, $25,097 million will
expire in less than one year, $28,191 million from one to five years, and $3,939
million after five years. Generally, other commitments are not secured, but,
when required, collateral may include cash, securities, and real estate.
STANDBY LETTERS OF CREDIT AND FINANCIAL GUARANTEES
Standby letters of credit are performance assurances made on behalf of customers
who have a contractual obligation to produce or deliver goods or services or
otherwise perform. Credit risk arises in these transactions from the possibility
that a customer may not be able to repay the corporation upon default of
performance if the standby letter of credit has been drawn upon. At December 31,
1993 and 1992, standby letters of credit totaled $6,400 million and $5,953
million, respectively. At December 31, 1993, $1,085 million will expire in less
than one year, $5,189 million from one to five years, and $126 million after
five years. These maturity amounts are net of participations.
The corporation issues financial guarantees assuring performance of
customer financial obligations under money market instruments, such as
commercial paper and state, county, and municipal securities. At December 31,
1993 and 1992, financial guarantees totaled $6,923 million and $6,624 million,
respectively. At December 31, 1993, $561 million will expire in less than one
year, $6,090 million from one to five years, and $272 million after five years.
These maturity amounts are net of participations.
Fees received for standby letters of credit and financial guarantees are
recognized over the terms of the contracts and are included in other fees and
commissions in noninterest income. Generally, standby letters of credit and
financial guarantees are not secured, but, when required, collateral may include
cash and securities.
COMMERCIAL LETTERS OF CREDIT
Through commercial letters of credit, the corporation guarantees a customer's
foreign or domestic trade transactions to a third party, generally to finance a
commercial contract for the shipment of goods. The corporation's credit risk in
these transactions is limited since the contracts are collateralized by the
merchandise being shipped and are generally of short duration.
DERIVATIVE AND FOREIGN EXCHANGE PRODUCTS
The table below is a summary of the contractual or notional amounts and credit
risk amounts of each significant class of derivative and foreign exchange
contracts outstanding. The contractual or notional amounts of these transactions
represent the extent of the corporation's involvement in these products, but do
not represent the potential for gain or loss associated with the market risk or
credit risk of such transactions. 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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31
--------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------------------
Contractual or Contractual or
Notional Credit Risk Notional Credit Risk
(in millions) Amount Amount/a/ Amount Amount/a/
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts $443,298 $4,633 $384,383 $11,033
Interest rate swaps 233,359 6,848 191,117 5,361
Currency swaps 22,866 1,841 23,700 1,390
Futures and forward contracts:
Commitments to purchase 75,413 8 64,673 22
Commitments to sell 81,986 36 65,003 49
Interest rate option contracts:
Options written 29,576 -- 22,877 --
Options purchased 35,466 358 30,270 248
- ----------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents the corporation's exposure to potential loss, exclusive of
master netting agreements, 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.
FOREIGN EXCHANGE CONTRACTS
Foreign exchange contracts represent currency purchase and sale agreements and
options. Historically, losses associated with counterparty nonperformance on
these instruments have been immaterial. Exposure to loss will increase or
decrease over the lives of the contracts as a function of maturity dates and
currency exchange rates. Generally, these instruments are not secured.
70
<PAGE>
INTEREST RATE AND CURRENCY SWAPS
Interest rate swaps represent contractual agreements between two parties to
exchange interest payments, computed on different bases, on a specified notional
amount. Most interest rate swaps involve the exchange of fixed and floating
interest payments. Currency swaps, in their simplest form, represent contractual
agreements that involve the exchange of both interest and principal amounts in
two different currencies. Historically, losses associated with counterparty
nonperformance on interest rate and currency swaps have been immaterial.
Exposure to loss will increase or decrease over the lives of the swap contracts
as a function of maturity dates, market interest rates, and timing of interest
rate payments. Generally, these instruments are not secured.
INTEREST RATE FUTURES, FORWARD, AND OPTION CONTRACTS
Interest rate futures represent commitments to purchase or sell a specified
security or money market instrument of a specified price or yield at a specified
future date. Interest rate forward agreements represent contracts on which two
parties agree on an interest rate to be paid for a specific period in the
future. Interest rate options purchased or written primarily consist of caps and
floors which determine the maximum or minimum interest rates to be paid or
received. While these instruments are not secured, historically, losses
associated with counter-party nonperformance on interest rate futures, forwards,
and option contracts have been immaterial. Exposure to loss will increase or
decrease over the lives of the contracts as a function of maturity dates and
interest rates. For interest rate futures and exchange-traded option contracts,
the corporation's exposure to off-balance-sheet credit risk is limited, as these
transactions are executed on organized exchanges that assume the obligations of
counterparties and generally require security deposits and daily settlement of
variation margins.
SECURITIES LENDING
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
default of a customer combined with a decline in the value of the associated
collateral, the corporation may be exposed to risk of loss. At December 31, 1993
and 1992, the corporation was indemnifying securities lending transactions
totaling $5,133 million and $3,402 million, respectively, and was holding
associated collateral totaling $5,185 million and $3,441 million, respectively.
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
corporation's financial instruments; however, there are inherent weaknesses in
any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates presented herein are not necessarily
indicative of the amounts the corporation could have realized in a sales
transaction at either December 31, 1993 or 1992. The estimated fair value
amounts for 1993 and 1992 have been measured as of their respective year ends,
and have not been reevaluated or updated for purposes of these consolidated
financial statements subsequent to those respective dates. As such, the
estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at each
year end.
The information provided below should not be interpreted as an estimate of
the fair value of the entire corporation since a fair value calculation is only
required for a limited portion of the corporation's assets.
This disclosure of fair value amounts does not include the fair values of
any intangibles, including CDI, PMSR, and CCI.
Due to the wide range of valuation techniques and the degree of
subjectivity used in making the estimates, comparisons between the corporation's
disclosures and those of other companies may not be meaningful.
The following methods and assumptions were used to estimate the fair value
of the corporation's financial instruments at December 31, 1993 and 1992.
FINANCIAL INSTRUMENTS VALUED AT CARRYING VALUE
The respective carrying values of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and due
from banks, interest-bearing deposits in banks, federal funds sold and
purchased, securities purchased and sold under resale and repurchase agreements,
trading account assets, customers' acceptance liability, accrued interest
receivable, certain assets pending disposition, other short-term borrowings,
acceptances outstanding, accrued interest payable, and other liabilities that
are considered financial instruments. Fair values were assumed to approximate
carrying values for these financial instruments as they are short term in nature
and the related amounts approximate fair values or are receivable or payable on
demand.
71
<PAGE>
SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD FOR INVESTMENT
The aggregate carrying value and the aggregate fair value of securities
available for sale were $3,282 million and $3,405 million, respectively, at
December 31, 1993 and $2,661 million and $2,831 million, respectively, at
December 31, 1992. The aggregate carrying value and the aggregate fair value of
securities held for investment were $16,415 million and $16,802 million,
respectively, at December 31, 1993 and $12,593 million and $12,937 million,
respectively, at December 31, 1992. These fair value amounts were based on
quoted market prices, where available. For securities available for sale and
securities held for investment where quoted market prices did not exist, fair
values were estimated using equity, cost, or appraised value as deemed
appropriate by management. For further information on securities available for
sale and securities held for investment, refer to Note 7 of the Notes to
Consolidated Financial Statements on pages 56-57.
LOANS
For purposes of these fair value calculations, the aggregate fair value of each
loan portfolio, excluding nonaccrual domestic commercial and foreign loans, was
adjusted by a related portion of the allowance for credit losses. The allowance
for credit losses represents, among other items, the credit risk associated with
loans that reprice within relatively short time frames. The fair values of
nonaccrual domestic commercial and foreign loans were computed by deducting an
estimated market discount from their carrying values to represent the
uncertainty of future cash flow amounts and timing.
At December 31, 1993 and 1992, the allowance for credit losses included
$875 million and $404 million, respectively, that was not allocated to a
specific segment of the loan portfolio. As such, these portions of the allowance
for credit losses were not included in any of the carrying values or fair values
of loans stated below at each respective year end.
The following methods and assumptions were used to calculate the fair
values of loans.
CONSUMER LOANS SECURED BY FIRST MORTGAGES ON RESIDENTIAL PROPERTIES (RESIDENTIAL
REAL ESTATE LOANS)
At December 31, 1993, the aggregate carrying value and the aggregate fair value
of residential real estate loans were $30,251 million and $31,015 million,
respectively. The aggregate carrying value and the aggregate fair value for this
portfolio at December 31, 1992 were $28,342 million and $29,089 million,
respectively. The fair values of residential real estate loans were calculated
using pricing procedures that are similar to those used when these loans are
sold in the secondary market in the normal course of business. These pricing
procedures use current market rates for similar types of loans.
CONSUMER INSTALLMENT LOANS, CREDIT CARD LOANS, INDIVIDUAL LINES OF CREDIT, AND
OTHER CONSUMER LOANS (OTHER CONSUMER LOANS)
At December 31, 1993, the aggregate carrying value and the aggregate fair value
of other consumer loans were $29,693 million and $30,408 million, respectively.
The aggregate carrying value and the aggregate fair value of other consumer
loans at December 31, 1992 were $32,632 million and $33,621 million,
respectively. The fair values of other consumer loans were calculated using
discounted cash flow models. The discount rates were based on current market
interest rates for similar types of loans.
DOMESTIC COMMERCIAL LOANS
At December 31, 1993, the aggregate carrying value and the aggregate fair value
of domestic commercial loans were $41,273 million and $40,947 million,
respectively. The aggregate carrying value and the aggregate fair value of this
portfolio at December 31, 1992 were $42,801 million and $42,821 million,
respectively.
The carrying values of loans that reprice within relatively short time
frames were assumed to approximate their fair values.
The fair values of domestic commercial loans that do not reprice or mature
within relatively short time frames were calculated using discounted cash flow
models based on the maturity of the loans. The discount rates, which were based
on market interest rates for similar types of loans, incorporated adjustments
for credit risk.
The fair values of commitments to extend credit were excluded from the fair
values of domestic commercial loans, as they were not significant at either
December 31, 1993 or 1992.
FOREIGN LOANS
At December 31, 1993, the aggregate carrying value and the aggregate fair value
of foreign loans were $19,898 million and $19,466 million, respectively. The
aggregate carrying value and the aggregate fair value of foreign loans at
December 31, 1992 were $16,115 million and $15,460 million, respectively.
Almost all of the foreign loans reprice within relatively short time
frames. As a result, the carrying values of most foreign loans were assumed to
approximate their fair values. The fair values of par bonds that are included in
foreign loans were based on quoted market prices.
72
<PAGE>
OTHER ASSETS
The aggregate carrying value and aggregate fair value of other assets that are
considered financial instruments were $1,639 million and $1,689 million,
respectively, at December 31, 1993 and $1,733 million and $1,762 million at
December 31, 1992. The fair values of exchange-traded marketable equity
securities, which are included in other assets, were calculated based on quoted
market prices. For non-exchange-traded equity securities where quoted market
prices did not exist, fair values were estimated using equity, cost, or
appraised value as deemed appropriate by management. The carrying values of all
other components of other assets that are considered financial instruments
approximated their respective fair values, as they are short term in nature or
are receivable or payable on demand.
DEPOSITS
The aggregate carrying value and aggregate fair value of deposits, which include
demand deposits, savings deposits, money market deposits, and time deposits,
were $141,618 million and $142,014 million, respectively, at December 31, 1993
and $137,883 million and $138,562 million, respectively, at December 31, 1992.
The fair values of domestic and foreign demand deposits, savings deposits, and
money market deposits without defined maturities were the amounts payable on
demand. For substantially all domestic deposits with defined maturities, the
fair value was calculated using discounted cash flow models based on market
interest rates for the state in which the deposit was held, based on product
type and maturity date. For variable-rate deposits with fixed repricing dates,
the first repricing date was considered the maturity date for purposes of the
fair value calculation. For variable rate deposits where the corporation has the
contractual right to change rates, carrying value was assumed to approximate
fair value. The fair values of domestic business negotiable certificates of
deposit and domestic business time deposits were calculated using a discounted
cash flow model. This model was based on the maturities of the related deposits
and market interest rates for similar types of deposits. The carrying values of
total foreign time deposits were assumed to approximate their fair values since
these deposits primarily had variable rates and repriced within relatively short
time frames.
Excluded from the aggregate fair values of deposits are offsets for the
aggregate fair values of off-balance-sheet financial instruments that qualify as
accounting hedges for the bank's certificates of deposit, which were $960
million and $684 million, respectively, at December 31, 1993 and 1992.
LONG-TERM DEBT
The aggregate carrying value and the aggregate fair value of the corporation's
long-term debt were $13,508 million and $14,253 million, respectively, at
December 31, 1993 and $14,326 million and $14,863 million, respectively, at
December 31, 1992. The fair value of the corporation's long-term debt was
calculated based on quoted market prices. For those long-term debt issuances
where quoted market prices were not available, a discounted cash flow model was
used. The discount rates were based on yield curves appropriate for the
remaining maturities of the instruments.
Excluded from the aggregate fair values of long-term debt are offsets for
the aggregate fair values of off-balance-sheet financial instruments that
qualify as accounting hedges for the parent's long-term debt, which were $226
million and $170 million, respectively, at December 31, 1993 and 1992.
SUBORDINATED CAPITAL NOTES
The aggregate carrying value and the aggregate fair value of the corporation's
subordinated capital notes were $607 million and $644 million, respectively, at
December 31, 1993 and $2,069 million and $2,082 million, respectively, at
December 31, 1992. These aggregate fair values were calculated based on quoted
market prices.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The following is a summary of the fair values of each significant class of off-
balance-sheet financial instrument or contract outstanding, excluding the
previously discussed fair values of off-balance-sheet financial instruments that
qualify as accounting hedges. Fair values of off-balance-sheet financial
instruments consist of net unrealized and deferred gains and losses, accrued
interest receivable or payable, and premiums paid or received. These amounts
were generally calculated using discounted cash flow models based on current
market yields for similar types of instruments and the maturity of each
instrument. These amounts are included in trading account assets, other assets,
or other liabilities, as applicable.
<TABLE>
<CAPTION>
FAIR VALUES OF OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------------
December 31
-----------
(in millions)/a/ 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
Derivative products $ 329 $ 282
Foreign exchange contracts (150) 215
Other/b/ (18) (3)
- ------------------------------------------------------------------------------
</TABLE>
/a/ Amounts primarily represent net unrealized gains (losses).
/b/ Includes amounts related to foreign currency options purchased and sold.
73
<PAGE>
24. LEGAL CONTINGENCIES
The corporation, because of the nature of its business, is subject to various
threatened or filed legal actions. Although the amount of the ultimate exposure,
if any, cannot be determined at this time, the corporation, based upon the
advice of counsel, does not expect the final outcome of threatened or filed
suits to have a material adverse effect on its financial position.
<TABLE>
<CAPTION>
25. BANKAMERICA CORPORATION (PARENT COMPANY ONLY)
STATEMENT OF OPERATIONS
- ---------------------------------------------------------------------------
Year Ended December 31
-------------------------------
(in millions) 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries:
Banking $ 1,088 $ 195 $ 353
Nonbanking 143 48 17
Interest on subordinated notes
purchased
from Bank of America NT&SA 141 146 155
Interest on advances to subsidiaries:
Banking 13 9 --
Nonbanking 223 165 43
Interest on deposits in banks:
Banking subsidiaries 31 83 97
Third parties 1 43 23
Interest on securities available for
sale
and securities held for investment 179 80 14
Interest from securities purchased
under
resale agreements:
Banking subsidiaries -- 13 49
Third parties 9 15 --
Net securities gains 7 -- --
Net gain on sales of assets -- -- 12
Other income 3 49 1
- ---------------------------------------------------------------------------
Total income 1,838 846 764
Interest on other short-term borrowings 20 39 12
Interest on long-term debt 703 587 247
Interest on subordinated capital notes 113 112 97
Amortization of goodwill 27 25 --
Other expense 103 62 72
- ---------------------------------------------------------------------------
Total expense 966 825 428
- ---------------------------------------------------------------------------
Income before income taxes and equity
in undistributed income of
subsidiaries 872 21 336
Benefit from income taxes 108 75 22
Equity in undistributed income
of subsidiaries 974 1,396 766
- ---------------------------------------------------------------------------
Net Income $ 1,954 $ 1,492 $1,124
===========================================================================
</TABLE>
See notes following the Statement of Cash Flows on page 75.
<TABLE>
<CAPTION>
BALANCE SHEET
- ------------------------------------------------------------------------
December 31
----------------------------
(in millions) 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments $ 1,524 $ 1,685
Securities available for sale 627 700
Securities held for investment 1,148 1,212
Investments in subsidiaries:
Banking 17,944 15,986
Nonbanking 1,075 1,198
Subordinated notes purchased from
Bank of America NT&SA 4,163 4,146
Advances to subsidiaries:
Banking 296 368
Nonbanking 4,228 5,844
Accrued interest receivable 63 96
Goodwill 825 903
Other assets 632 866
- ------------------------------------------------------------------------
Total Assets $32,525 $33,004
========================================================================
Liabilities and Stockholders' Equity
Borrowings from subsidiaries $ 24 $ 124
Other short-term borrowings 595 360
Accrued interest payable 191 223
Other liabilities 782 902
Long-term debt 13,182 13,838
Subordinated capital notes 607 2,069
- ------------------------------------------------------------------------
Total liabilities 15,381 17,516
Stockholders' equity 17,144 15,488
- ------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $32,525 $33,004
========================================================================
</TABLE>
See notes following the Statement of Cash Flows on page 75.
The amount of funds available to the parent from its subsidiaries is
limited by restrictions placed on them by law and various debt covenants.
Under the U.S. National Bank Act, the parent's national banking
subsidiaries are subject to prohibitions on the payment of dividends in certain
circumstances and to restrictions on the amount that each can pay without the
prior approval of the Office of the Comptroller of the Currency. Without the
Comptroller's approval, dividends for a given year cannot exceed each bank's net
profits (as defined by national banking laws) for that year and retained
earnings from the preceding two years. In addition, dividends may not be paid in
excess of each bank's undivided profits after deducting statutory bad debt in
excess of their allowance for loan losses. Based upon these regulations, the
bank could have declared dividends for 1993 of $3,125 million, while Seattle-
First could have declared dividends to its parent, Seafirst, of $437 million. At
December 31, 1993, the unutilized dividends allowed under these regulations for
the bank and Seattle-First were $2,325 million and $159 million, respectively.
Under these regulations, the other banking subsidiaries could not have declared
dividends during 1993.
74
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------
December 31
---------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 1,954 $ 1,492 $1,124
Adjustments to net income to arrive at
net cash provided by operating activities:
Benefit from deferred income taxes (216) (15) (7)
Equity in undistributed income of
subsidiaries (974) (1,396) (766)
Amortization of goodwill 27 25 --
(Increase) decrease in accrued
interest receivable 33 (81) (1)
Increase (decrease) in accrued
interest payable (32) 168 14
Increase in current income taxes payable 216 171 13
Net activity in securities available for sale 73 -- --
Other, net (73) (268) 81
- ------------------------------------------------------------------------------
Net cash provided by operating activities 1,008 96 458
Cash Flows from Investing Activities
Capital contributions to subsidiaries (935) (625) (546)
Capital returns from subsidiaries 395 374 850
Purchase of subordinated notes from
Bank of America NT&SA -- (2,900) (100)
Redemption of subordinated capital notes
from Bank of America NT&SA -- 900 --
Activity in securities held for investment:
Maturities 281 2,022 23
Purchases (92) (3,835) (7)
Cash provided by (used for) acquisitions -- 2,094 --
Collections from subsidiaries 4,224 3,350 303
Additional advances to subsidiaries (2,472) (5,304) (177)
Other, net 14 (406) --
- ------------------------------------------------------------------------------
Net cash provided (used) by
investing activities 1,415 (4,330) 346
Cash Flows from Financing Activities
Proceeds from borrowings from subsidiaries 84 154 111
Payments on borrowings from subsidiaries (188) (221) (94)
Increase (decrease) in other short-term
borrowings 235 (1,383) 315
Proceeds from issuance of long-term debt 3,026 5,110 967
Principal payments and retirements of
long-term debt and subordinated
capital notes (5,214) (2,257) (580)
Proceeds from issuance of common stock 268 156 112
Proceeds from issuance of preferred stock -- 1,311 693
Common stock dividends (497) (409) (260)
Preferred stock dividends (241) (169) (61)
Other, net (57) (117) (142)
- ------------------------------------------------------------------------------
Net cash provided (used) by
financing activities (2,584) 2,175 1,061
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
short-term investments (161) (2,059) 1,865
Cash and short-term investments at
beginning of year 1,685 3,744 1,879
- ------------------------------------------------------------------------------
Cash and Short-Term Investments
at End of Year $ 1,524 $ 1,685 $3,744
==============================================================================
</TABLE>
General For income and asset classification purposes, banking amounts include
the amounts for all of the parent's bank, bank holding company, and savings bank
subsidiaries.
Balance Sheet At December 31, 1993 and 1992, cash and short-term investments
included $1,488 million and $1,167 million, respectively, of interest-bearing
deposits with the bank. In addition, the 1992 balance included $500 million of
securities purchased under resale agreements with third parties.
Statement of Cash Flows The statement of cash flows illustrates the change in
cash and short-term investments as disclosed in the Parent Company Only balance
sheet. Short-term investments have original maturities of three months or less
and are considered to be cash equivalents. During 1993, 1992, and 1991, the
parent received net income tax payments representing reimbursements from
subsidiaries and net income tax refunds of $119 million, $231 million, and $30
million, respectively. The parent made interest payments on interest-bearing
liabilities of $868 million, $570 million, and $342 million in 1993, 1992, and
1991, respectively.
In addition, state-chartered banking subsidiaries are subject to dividend
limitations imposed by applicable state law. These state-chartered banking
subsidiaries could have declared dividends to their respective parent companies
without state approval of $83 million for 1993. At December 31, 1993, this
entire amount was unutilized.
The parent's subsidiary, Bank of America, FSB, is subject to regulatory
restrictions by the Office of Thrift Supervision on its payment of dividends.
Under these restrictions, Bank of America, FSB could have declared dividends to
its parent without regulatory approval of $40 million for 1993. At December 31,
1993, this entire amount was unutilized.
The banking subsidiaries are also subject to certain restrictions of the
Federal Reserve Act on loans each bank may extend to their respective parent
companies. Among other things, the aggregate of such loans may not exceed 10
percent of the sum of such bank's capital stock and surplus, defined by the
Comptroller of the Currency to include undivided profits and reserves for
contingencies, subject to certain adjustments. Such loans must be secured by
collateral with a value between 100 percent and 130 percent of the loan,
depending on the type of collateral. Under these restrictions, and assuming the
parent provided the collateral required, the bank, Seattle-First, and other
banking subsidiaries could have loaned to their respective parent companies a
maximum of $1,142 million, $144 million, and $317 million, respectively, at
December 31, 1993.
The net assets of subsidiaries restricted from flowing to the parent by
regulatory limitations and restrictive debt covenants were $14,051 million at
December 31, 1993.
75
<PAGE>
<TABLE>
<CAPTION>
26. PERFORMANCE BY GEOGRAPHIC AREA
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-----------------------------------------------------------------------
Net Interest
Total Assets Income and Income (Loss) Net Income
(in millions) Year at December 31 Gross Income Noninterest Income Before Income Taxes (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic 1993 $155,468 $13,053 $10,475 $2,609 $1,416
1992 155,051 12,589 9,385 1,941 1,036
1991 94,131 9,537 6,018 1,256 731
- -----------------------------------------------------------------------------------------------------------------------------------
Europe, Middle East, and Africa 1993 10,896 1,170 418 208 136
1992 8,286 1,139 369 10 8
1991 6,698 1,095 370 120 88
Asia 1993 13,392 1,096 623 303 212
1992 10,573 939 447 171 118
1991 8,308 948 375 129 84
Latin America and the Caribbean 1993 6,265 516 170 288 177
1992 5,497 525 161 580 343
1991 5,132 578 93 402 244
Canada 1993 912 65 28 20 13
1992 1,239 70 5 (20) (13)
1991 1,240 110 24 (34) (23)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Foreign 1993 31,465 2,847 1,239 819 538
1992 25,595 2,673 982 741 456
1991 21,378 2,731 862 617 393
- -----------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corporation 1993 186,933 15,900 11,714 3,428 1,954
1992 180,646 15,262 10,367 2,682 1,492
1991 115,509 12,268 6,880 1,873 1,124
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The information in the table above is presented based on reporting
assumptions in place at December 31, 1993. Certain prior-period amounts have
been reclassified to conform to the current presentation.
Since the corporation's operations are highly integrated, certain asset,
liability, income, and expense amounts must be allocated to arrive at total
assets, net interest income and noninterest income, income or loss before income
taxes, and net income or loss. The principal allocations and underlying
assumptions used in the presentation above are as follows:
The corporation's funds transfer pricing system allocates domestic sources
of funds at U.S. market rates based on the maturities of the funds. To the
extent that overseas units interact with U.S. operations, they are also included
in the funds transfer pricing system.
The allowance for credit losses is established by credit officers for each
portfolio segment. After the allowance has been established for portfolio
segments, credit management establishes an unallocated portion of the allowance
for credit losses, which is attributable to factors that cannot be associated
with a particular portfolio segment. For purposes of the table above, the
unallocated portions of the allowance and related provisions for credit losses
have been included with domestic amounts. The unallocated portion of the
allowance for credit losses at December 31, 1993, 1992, and 1991 was $875
million, $404 million, and $300 million, respectively. In 1993, 1992, and 1991,
the foreign allowance for credit losses was $322 million, $559 million, and $808
million, respectively. The reductions in the foreign allowance for credit losses
during 1993 and 1992 were primarily related to restructuring countries in Latin
America. While management has allocated reserves to various portfolio segments,
the allowance is general in nature and is available for the portfolio in its
entirety.
Equity is assigned in proportion to total assets. For 1993, 1992, and 1991,
overhead was allocated based on each geographic area's equally weighted
operating expenses.
In 1993, 1992, and 1991, each geographic area included its respective tax
liability. The corporation allocated federal and state taxes at its effective
tax rates.
Translation losses, net of hedging, totaled $4 million, $9 million, and $11
million, in 1993, 1992, and 1991, respectively. These amounts, which are
reported in other income, are included in the table above.
76
<PAGE>
<TABLE>
<CAPTION>
27. QUARTERLY RESULTS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
1993 Quarter Ended 1992 Quarter Ended
-------------------------------------- --------------------------------------
(in millions, except per share data) Dec 31 Sept 30 June 30 Mar 31 Dec 31 Sept 30 June 30 Mar 31
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Interest income $2,876 $2,945 $2,881 $2,925 $3,071 $3,203 $3,045 $2,294
Interest expense 1,011 1,064 1,029 1,082 1,140 1,322 1,370 1,063
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,865 1,881 1,852 1,843 1,931 1,881 1,675 1,231
Provision for credit losses/a/ 150 178 227 248 270 259 245 235
Noninterest income 1,119 1,007 1,058 1,089 1,012 1,032 1,009 596
Noninterest expense/a/ 1,974 1,848 1,826 1,835 1,823 1,792 1,974 1,087
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 860 862 857 849 850 862 465 505
Provision for income taxes 364 376 369 365 377 386 225 202
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income $ 496 $ 486 $ 488 $ 484 $ 473 $ 476 $ 240/b/ $ 303
=================================================================================================================================
Earnings per Common and Common
Equivalent Share $ 1.21 $ 1.19 $ 1.20 $ 1.19 $ 1.19 $ 1.22 $ 0.63/b/ $ 1.22
=================================================================================================================================
Earnings per Common Share--Assuming
Full Dilution $ 1.21 $ 1.18 $ 1.19 $ 1.19 $ 1.18 $ 1.22 $ 0.63/b/ $ 1.21
=================================================================================================================================
Stock Data
Dividends per common share $ 0.35 $ 0.35 $ 0.35 $ 0.35 $0.325 $0.325 $0.325 $0.325
Common stock price range:/c/
High 47 49 1/ 8 53 7/8 55 1/2 48 1/4 46 3/4 49 3/4 46 1/4
Low 40 5/8 43 3/ 8 40 1/2 43 40 7/8 40 1/4 38 1/8 35 3/8
Closing common stock price/c/ 46 3/8 44 45 1/4 50 1/4 46 1/2 43 1/4 44 3/8 44
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ During 1993, ISRs were reclassified to the loan portfolio as a result of
regulatory clarification of the definition of an ISR. The related fair value
adjustments net of recoveries received in final settlement, which were
previously recorded in other noninterest expense, have been reclassified to
credit losses and recoveries with corresponding adjustments to the provision
for credit losses. These amounts are as follows: $14 million, $3 million,
$27 million, and $13 million, respectively, for the quarters ended December
31, September 30, June 30, and March 31, 1993; and $10 million, $(1)
million, $5 million, and $5 million, respectively, for the quarters ended
December 31, September 30, June 30, and March 31, 1992.
/b/ Earnings and earnings per share were affected by the net effect of
nonrecurring and certain other items, including the accrual of restructuring
expenses related to the Merger and a net gain on the sale of the bank's
payroll processing business. If the nonrecurring and certain other items had
been excluded from the results of operations, net income would have been
$421 million, and both earnings per common and common equivalent share and
earnings per common share -- assuming full dilution would have been $1.19.
/c/ The principal market of the corporation's common stock is the New York
Stock Exchange; the stock is also listed on the Chicago, Pacific, London,
and Tokyo Stock Exchanges. Price information represents quotations as
reported in the New York Stock Exchange consolidated transaction reporting
system.
77
<PAGE>
Appendix Index
<TABLE>
<CAPTION>
BankAmerica Corporation
1993 Annual Report to Shareholders
page reference Description of omitted graphics
--------------------------------- -------------------------------
<S> <C>
20 Noninterest Income (Stacked block graphs in
non-EDGAR version)
22 Noninterest Expense (Stacked block graphs
in non-EDGAR version)
28 Total Loan Outstandings by Type (Pie charts
in non-EDGAR version)
29 Domestic Commercial Loans by Type (Pie
charts in non-EDGAR version)
39 Ratios of Stockholders' Equity to Total
Assets (Plot point graph in non-EDGAR
version)
</TABLE>
<PAGE>
EXHIBIT 21
As of December 31, 1993
-----------------------
BANKAMERICA CORPORATION SUBSIDIARIES
The following list sets forth information concerning the direct
subsidiaries of BankAmerica Corporation (the Parent) and indirect subsidiaries
of the Parent. Except as otherwise indicated, each subsidiary is wholly owned
and does business under its own name.
<TABLE>
<CAPTION>
Jurisdiction of
Org Subsidiaries Incorporation
- --- ------------ ---------------
<C> <S> <C>
053. Appold Equity Ventures Limited.............................. Delaware
054. Appold Holdings Limited..................................... Delaware
063. Appold (Financial Futures) Limited......................... U.K.
069. Appold (Moneybroking) Limited.............................. U.K.
080. Appold Japan Limited (dba: Hoare Govett Japan Limited) Hong Kong
623. Appold Research Limited.................................... U.K.
086. Appold Securities Limited.................................. U.K.
089. Appold Services Limited.................................... U.K.
090. Appold Sterling Bonds Limited.............................. U.K.
545. Financial Clearing and Services (UK) Limited............... U.K.
076. Hoare Govett Securities (Singapore) Pte Ltd.............Singapore
093. Hoare Octagon Limited (50%)................................ U.K.
094. Hoare Octagon Nominees Ltd............................ U.K.
095. Investat (Nominees) Ltd.................................... U.K.
052. Appold Leasing, Inc......................................... Delaware
367. BA Commercial Credit Corporation............................ Florida
368. BA Futures, Incorporated.................................... Delaware
369. BA Insurance Holding Company................................ Delaware
370. BA Insurance (Cayman) Ltd........................ Cayman Islands
371. BancAmerica Insurance Company.................... Cayman Islands
120. BA Securities, Inc.......................................... Delaware
238. BA Security Services, Inc................................... Delaware
240. BA Clearing Corp....................................... Delaware
242. BankAmerica State Trust Company...................... California
659. RAMCO Nominees Inc..................................... Delaware
246. SP Nominees Limited........................................ U.K.
245. Sequor Nominees Limited.................................... U.K.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
376. BancAmerica Commercial Corporation...................... Pennsylvania
016. Bank of America Alaska, N.A..................................... U.S.
382. Bank of America Arizona...................................... Arizona
(dba Bank of America)
---
657. Bamerilease, Inc........................................ Arizona
649. Security Pacific Southwest Equipment Leasing
Services................................... New Mexico
388. Bank of America Community Development..................... California
128. BA Software Services, Inc.............................. Delaware
127. SP StateBank Leasing, Incorporated................... California
124. Security Pacific Development Company................. California
125. Security Pacific Frost Trinen, Inc................... California
383. Bank of America, FSB............................................ U.S.
(dba Bank of America Hawaii and
---
Security Pacific Financial Services)
631. Honfed Financial Services Corp........................... Hawaii
636. First Collateral Services, Inc...................... Hawaii
641. HONFED Insurance, Inc.................................... Hawaii
644. HONOFED Ben Lomond Corp.................................. Hawaii
017. Bank of America Idaho, N.A...................................... U.S.
385. Bank of America NT&SA........................................... U.S.
(dba Security Pacific National Bank)
---
427. BA ATM Inc.................................................. Delaware
278. BA Capital Management, Inc.................................. Delaware
361. BA Credit Corporation....................................... Delaware
(dba SPFSSI-SPCC, Inc. and
---
BankAmerica Credit Corporation)
282. BA Investment Services, Inc................................. Delaware
264. BA Properties, Inc.......................................... Delaware
436. BA Properties III, Inc...................................... Delaware
535. BANAM Broadcasting, Inc..................................... Delaware
266. BancAmerica Auto Finance Corp............................... Delaware
(dba Security Pacific Auto Finance)
---
437. Banco Colombo Americano (BofA 95%; BIFC 5%)................. Colombia
526. Bank of America (Jersey) Limited....................... Channel Islds
506. Bank of America Australia Limited.......................... Australia
507. BA (Australia) Holdings Limited....................... Australia
509. BA Australia Limited.................................. Australia
510. BA Nominees Limited (Australia).................. Australia
(Nominee company)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
511. BA Investors Management Limited (Australia)........... Australia
512. BA Leasing Limited (Australia)........................ Australia
513. BA Securities Limited (Australia)..................... Australia
707. BA Staff Superannuation Limited....................... Australia
514. Bank of America Canada...................................... Canada
517. 693327 Ontario Limited (BofA Canada 11%; BofA 51%)....... Canada
515. Bank of America Canada Leasing Corporation............... Canada
516. Bank of America Canada Securities Corporation............ Canada
175. Security Pacific Leasing Canada Ltd...................... Canada
(20%-100% Voting)
050. Security Pacific Properties Ltd.......................... Canada
470. Bank of America International Limited......................... U.K.
(BA Holding Co. 60.3%; BofA 37.9%; BIFC 1.8%)
473. BA Netting Limited......................................... U.K.
476. Fenchurch Steamship Corporation............................ U.K.
440. Bank of America S.A.(BofA 50%; BI 50%)....................... Spain
441. BA Servicios, S.A. (99.6%)................................ Spain
360. BankAmerica Business Credit, Inc.......................... Delaware
438. BankAmerica International..................................... U.S.
439. BA Finance (Italy) S.P.A. (BI 1%; BIFC 99%)............... Italy
440. Bank of America S.A. (BI 50%; BofA 50%)................... Spain
441. BA Servicios, S.A. (99.6%).......................... Spain
442. Inversiones of America Corredores de Bolsa Limitada....... Chile
(BI .01%; BIFC 99.99%)
443. Societe Anonyme Immobiliere.............................. France
444. BankAmerica International Financial Corporation.............. U.S.
445. BA Asia Limited....................................... Hong Kong
446. BA Finance (Hong Kong) Ltd............................ Hong Kong
439. BA Finance (Italy) S.P.A. (BIFC 99%; BI 1%)............... Italy
448. BA Finance (Switzerland) Ltd........................ Switzerland
450. BA Holding Company S.A............................... Luxembourg
470. Bank of America International Limited................ U.K.
(BA Holding Company 60.3%; BofA 37.9%;
BIFC 1.8%)
473. BA Netting Limited............................... U.K.
476. Fenchurch Steamship Corporation.............. Liberia
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
451. BankAmerica International Trustee (B.V.I.)
Limited.............................. BR. Virgin Islds
457. BankAmerica Trust Company (Hong Kong)
Limited..................................... Hong Kong
458. BATCO Nominees Limited...................... Hong Kong
(Nominee company)
(BankAmerica Trust Company (Hong Kong)
Limited 50%) (Renfrew Services Limited 50%)
459. BA Financial Services Ltd...... BR. Virgin Islds
461. Fiduciary Services Limited............ Hong Kong
460. ITG Secretaries Limited............... Hong Kong
(Nominee company)
(BankAmerica Trust Co. (H.K.) Limited
50%; BATCO Nominees Limited 50%)
462. Renfrew Services Limited.............. Hong Kong
(Nominee company)
(BankAmerica Trust Co. (H.K.) Limited
50%; BATCO Nominees Limited 50%)
458. BATCO Nominees Limited............ Hong Kong
(Nominee Company)
BankAmerica Trust company
(Hong Kong) Limited 50%; Renfrew
Services Limited 50%)
461. Fiduciary Services Limited.................. Hong Kong
(BankAmerica Trust Co. (H.K.)
Limited 50%; BATCO Nominees Limited 50%)
460. ITG Secretaries Limited..................... Hong Kong
(Nominee company)
(BankAmerica Trust Co. (H.K.)
Limited 50%; BATCO Nominees Limited 50%)
462. Renfrew Services Limited.................... Hong Kong
(Nominee company)
(BankAmerica Trust Co. (H.K.) Limited 50%;
BATCO Nominees Limited 50%)
467. BankAmerica Trust Company (Jersey)
Limited........................... Channel Islds
468. BankAmerica Properties (Jersey)
Limited........................... Channel Islds
469. Unihouse Nominees Limited............... Channel Islds
(Nominee company)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
452. BankAmerica Trust and Banking Corporation
(Bahamas) Limited............................. Bahamas
453. Trunoms, Limited.............................. Bahamas
454. Wolnoms, Limited.............................. Bahamas
455. BankAmerica Trust and Banking Corporation
(Cayman) Limited......................... Cayman Islds
456. Harbour Nominees Ltd..................... Cayman Islds
(Nominee company)
449. BA Swallow Business Systems Limited........................ U.K.
479. BamerInvest C.A....................................... Venezuela
437. Banco Colombo Americano (BIFC 5%; BofA 95%)............ Colombia
470. Bank of America International Limited...................... U.K.
(BA Holding Company 60.3%; BofA 37.9%; BIFC 1.8%)
473. BA Netting Limited................................... U.K.
476. Fenchurch Steamship Corporation................... Liberia
481. BankAmerica Representacao e Servicos Limitada............ Brazil
1003. BankAmerica Singapore Limited....................................
628. Bunga Orkid, Ltd. ...................................... Bermuda
490. Chile Cellulose Investment Company..................... Delaware
491. Companhia Internacional de Participacoes E
Empreedimentos (COINTER)........................... Brazil
492. MultiBanco S.A. (MULTIBANCO)....................... Brazil
494. Multi-Distribuidora Internacional de Titulos
e Valores Ltda............................. Brazil
495. Multi-Leasing International Arrendamento
Mercantil S.A. ........................... Brazil
497. Hedges, S.A. ......................................... Argentina
442. Inversiones of America Corredores de Bolsa
Limitada ........................................... Chile
(BI .01%; BIFC 99.99%)
499. Inversiones y Negocios Fiduciarios S.A. .............. Argentina
668. Orion Eight, Inc. ..................................... Delaware
671. Delta FSC Eight, Inc. ................. U.S. Virgin Islds
669. Orion Nine, Inc. ...................................... Delaware
672. Delta FSC Nine, Inc.................... U.S. Virgin Islds
670. Orion Ten, Inc. ....................................... Delaware
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
673. Delta FSC Ten, Inc.................. U.S. Virgin Islds
592. PT First Indo-American Leasing.................. Indonesia
273. Security Pacific Holdings, S.A................ Switzerland
501. Titulos Rioplatenses S.A. (BIFC 98%; OAHI 2%)..... Uruguay
313. BankAmerica (Nominees) (1993)......................... Singapore
502. BankAmerica Nominees (Hong Kong) Ltd.................. Hong Kong
503. BankAmerica Nominees Limited (London)...................... U.K.
(Nominee company)
504. BankAmerica Nominees (Singapore) PTE. Ltd.
(Nominee company)............................... Singapore
316. Canton Pacific Nominees Sdn. Bdh....................... Malaysia
533. Electronic Payments Exchange, Inc. .................... Delaware
(BofA 98%; SFNB 2%)
249. Equitable Deed Company............................... California
(dba Continental Auxiliary Company)
---
250. First Small Business Investment Company of
California..................................... California
534. Golden Gate Participacoes Ltd............................ Brazil
252. Grant County Power Company............................. Delaware
253. Energy America South East, Inc................... Delaware
254. EASE/NMI, Inc. .............................. Delaware
536. Lease Holding VI, Inc. ................................ Delaware
540. NADRE II, Inc.......................................... Delaware
541. NAGSA II, Inc.......................................... Delaware
259. PNB Securities Corporation........................... California
258. Pacific Southwest Realty Company....................... Delaware
422. Seattle Capital Management Company................... Washington
265. Security Pacific Asia Limited......................... Singapore
268. Security Pacific Bank & Trust Company (Bahamas)
Limited........................................... Bahamas
347. Security Pacific Equipment Leasing, Inc. .............. Delaware
(dba SPELI)
---
428. BA Leasing & Capital Corporation................. Delaware
1324. BA FSC Holdings, Inc. ....................... Delaware
348. Aerocrane Leasing Ltd........ U.S. Virgin Islands
1323. BA Swiss FSC Holdings, Inc. ............ Delaware
551. Samedan Leasing Ltd. ..... U.S. Virgin Islds
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
349. First Executive Sands Leasing Corp. .. California
350. First Executive Leasing Ltd. .... U.S Vr.Is.
549. Marco Polo Leasing Ltd. ....... U.S. Virgin Islds
550. Raffles Leasing Ltd............ U.S. Virgin Islds
351. Raffles Sands Leasing Corporation..... California
552. Tanah Merah Leasing Ltd........ U.S. Virgin Islds
433. Transit Holding, Inc. ........................... Delaware
434. Asset Holding Co. Inc. ................. Delaware
546. Balmoral Leasing Ltd. ........................ U.S. Virgin Islds
354. SPAA Leasing Corporation............................... Delaware
356. SPCC Leasing Corporation............................... Delaware
358. Security Pacific Financial Services of California
Inc. ............................................ Delaware
269. Security Pacific Trust (Bahamas) Limited................... Bahamas
283. Security Pacific Overseas Corp................................ U.S.
293. Fundo 2000 de Conversao - Capital Estrangeiro............ Brazil
294. Inversiones Financieras S.P. Chile S.A. .................. Chile
301. InvestAmerica S.A. (99%).................................. Chile
300. SP Chile Energia S.A. .................................... Chile
302. Security Pacific Do Brazil S/C Ltda...................... Brazil
304. SP Inversiones y Servicios S.A. .......................... Chile
306. Security Pacific Overseas Investment Corporation....... Delaware
339. Appold Limited....................................... U.K.
308. Bank of America (Asia) Limited (68.97%)....... . Hong Kong
314. Canton Pacific Finance Ltd............. Hong Kong
315. Canton Pacific Fund Managers Ltd....... Hong Kong
317. Canton Pacific Systems Ltd............. Hong Kong
312. Security Pacific Asian Bank (Macau)
Limited............................... Macau
309. The Bank of Canton (Nominees) Limited.. Hong Kong
323. Security Pacific Australian Assets Limited...... Australia
324. Hatmax Securities Limited.............. Australia
326. Hatmax Nominees Pty. Limited...... Australia
564. H & M Hong Kong Nominees Limited....... Hong Kong
333. SPSAL Mortgage Limited................. Australia
331. Security Pacific Nominees Limited...... Australia
301. InvestAmerica, S.A.(1%)............................. Chile
336. Security Pacific Financing Services Ltd.............. U.K.
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
337. Security Pacific Hong Kong Holdings Limited. Hong Kong
308. Bank of America (Asia) Limited (30.93%) Hong Kong
342. Security Pacific Trade Finance, Inc. .................. Delaware
542. Special Asset Holding Co. ............................. Delaware
543. Film Asset Holding Co. .......................... Delaware
(BofA 50%; Credit Lyonnais Bank Nederland N.V.,
a nonBankAmerica entity, 50%)
537. Wilco One, Inc. ....................................... Delaware
363. Zedd Investments, Inc. ................................ Delaware
364. Zentac Productions, Inc. .............................. Delaware
044. Bank of America National Association............................ U.S.
386. Bank of America New Mexico, N.A................................. U.S.
387. Bank of America Oregon........................................ Oregon
031. OBTASCO, Inc. ........................................... Oregon
389. Bank of America Texas, N.A. .................................... U.S.
139. BankAmerica Financial, Inc. ................................ Delaware
140. BankAmerica Capital Corporation........................ Delaware
182. BankAmerica Insurance Group, Inc. ..................... Delaware
(dba SP Insurance Administrators)
---
184. General Fidelity Insurance Company............. California
185. General Fidelity Life Insurance Company........ California
186. Security Pacific Insurance Group Limited............. U.K.
187. Security Pacific Assurance Limited............... U.K.
188. Security Pacific Insurance Limited............... U.K.
189. Security Pacific Insurance Services Limited...... U.K.
043. Security Pacific Southwest Insurance Agency, Inc. . Arizona
190. BA Insurance Agency, Inc. ....................... Delaware
193. Security Pacific Automotive Financial Services Corp.... Delaware
(dba Security Pacific Auto Finance)
---
143. Security Pacific Business Credit Inc................... Delaware
144. Security Pacific Credit Corporation.................... Delaware
145. Security Pacific Finance System Incorporated........... Delaware
151. BA Financial Management Services, Inc............ Delaware
146. Dealers Credit, Inc. ............................ Delaware
(dba Dealer's Credit Insurance Agency Inc.)
---
147. First Fenwick Mortgage Corporation............... Virginia
148. Security Pacific Consumer Discount Company... Pennsylvania
(dba Security Pacific Financial Services
---
of Pennsylvania Inc.)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
149. Security Pacific Finance Credit Corp............. Delaware
152. Security Pacific Financial Services Inc.......... Delaware
(dba Security Pacific Manufacturer Funding)
---
154. Security Pacific Financial Services of Nevada
Inc. .................................... Nevada
155. Security Pacific Financial Services of New York
Inc..................................... New York
156. Security Pacific Financial Services of West Virginia
Inc. .............................. West Virginia
158. Security Pacific Realty Corp................. New York
160. SPF Advertising Agency, Inc.................... Kansas
163. Security Pacific Executive/Professional Services
Inc..................................... Colorado
164. Security Pacific E/P Assets, Inc........ Delaware
165. Security Pacific Financial Services of Minnesota
Inc. .................................. Minnesota
166. The Midwestern Agency Corporation, Inc...... Iowa
161. Security Pacific Financial Services of Des Moines Inc. Iowa
168. Security Pacific Housing Services, Inc. ............... Delaware
169. Security Pacific Acceptance Corp. ............... Delaware
170. Security Pacific Acceptance Corp. II............. Delaware
171. Security Pacific Information Services Corporation...... Delaware
172. Security Pacific Leasing Corporation................... Delaware
173. MCOG Leasing Corp.............................. California
174. Security Pacific Capital Leasing Corporation..... Delaware
175. Security Pacific Leasing Canada Ltd. (80%)......... Canada
177. White Sands Leasing Corporation.................. Delaware
178. Pasir Mas Ltd. ..................... U.S. Virgin Islds
179. Windmill Sands Leasing Corporation............... Delaware
180. Windmill Leasing, Ltd. ............. U.S. Virgin Islds
118. BankAmerica National Trust Company............................. .U.S.
379. BankAmerica Overseas Finance Corporation N.V............. Netherlands
380. BankAmerica Realty Services, Inc............................ Delaware
390. Nevada First Development Corporation.......................... Nevada
557. Bank Building Inc........................................ Nevada
554. Bank of America Nevada................................... Nevada
559. Valley Electronic Services, Inc.......................... Nevada
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
029. Orbanco Real Estate Services Co. ............................. Oregon
394. Overseas Asset Holdings Inc. ............................... Delaware
104. Argentina Investment Holdings Limited................. Argentina
106. Brazilian Copa, Inc. .................................. Delaware
107. Brazilian Copa Participacoes, Ltda. ............... Brazil
109. Brazilian Financial Services, Inc. .................... Delaware
110. BFS Participacoes, Ltda. .......................... Brazil
112. Brazilian Tourism Holdings, Inc. ..................... Delaware
397. Overseas Lending Corporation.......................... Delaware
115. South Andean Investment Holdings Limited................ Bahamas
501. Titulos Rioplatenses S.A. (OAHI 2%; BIFC 98%)........... Uruguay
400. Western America Financial, Inc. ....................... Delaware
009. Rainier Bancorporation.................................... Washington
372. Real Estate Collateral Management Company................... Delaware
192. SP International Holdings, Inc. ............................ Delaware
230. S.P. Home Finance Limited................................. .U.K.
235. Sec Pac Spain S.A. ....................................... Spain
194. Security Pacific EuroFinance Holdings, Inc. ........... Delaware
195. Security Pacific Equipment Finance (Europe) Inc. . Delaware
198. Security Pacific Equipment Finance, Inc. ........ Delaware
199. Security Pacific EuroFinance, Inc. .............. Delaware
200. Securilease BV............................ Netherlands
202. Securilease Holdings, Inc. .................. Delaware
204. Securilease, Inc. ........................... Delaware
205. Security Pacific Holdings, S.A. ..... Switzerland
209. Securilease NV................................ Belgium
210. Securilease SpA................................. Italy
207. Security Pacific Credit Bail SNC............... France
211. Security Pacific EuroFinance PLC................ U.K.
212. Normtrace Limited........................... U.K.
213. Northern Venturer Limited................... U.K.
214. Securilease Limited......................... U.K.
215. Shopfitters (Lancashire) Rentals Limited.... U.K.
216. Security Pacific Factoring GmbH............... Germany
218. Security Pacific International Leasefinance,
Inc. ................................... Delaware
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
219. Security Pacific International Leasing GmbH....... Germany
221. Beko Grundstucksverwaltungs GmbH.............. Germany
208. Security Pacific Location SNC...................... France
224. Security Pacific LeaseFinance (Europe) Inc. ........... Delaware
225. Security Pacific Holdings LImited............................. U.K.
232. Inchroy Credit Corporation Limited (50%) ................ Hong Kong
604. Debt Recovery (Hong Kong) Limited (50%)............... Hong Kong
233. Security Pacific Credit (Hong Kong) Limited.............. Hong Kong
604. Debt Recovery (Hong Kong) Limited (50%)............... Hong Kong
229. Security Pacific Trust Limited ............................... U.K.
401. Seafirst Corporation...................................... Washington
011. Rainier Credit Company.................................. Washington
012. Rainier Mortgage Company................................ Washington
403. SF Leasing Corporation of Delaware........................ Delaware
015. Seafirst Community Service Corporation.................. Washington
404. Seafirst Insurance Corporation.......................... Washington
027. Seafirst Investment Services, Inc....................... Washington
407. Seafirst Venture Capital Corporation.................... Washington
408. Seattle-First National Bank................................... U.S.
020. Centrum Properties Corporation....................... Washington
658. DAS Holdings, Inc....................................... Arizona
533. Electronic Payments Exchange, Inc. (Wash.)............. Delaware
(SFNB 2%; BofA 98%)
411. LAD Northwest, Inc................................... Washington
413. Leasco of Washington, Inc............................ Washington
415. SFNB Insurance Services Corporation.................. Washington
416. Seafirst America Corporation......................... Washington
417. Seafirst Capital Corporation......................... Washington
420. Seafirst Properties Corporation...................... Washington
421. Seafirst Services Corporation........................ Washington
045. Security Pacific Merchant Services, Inc................ Delaware
023. Security Pacific Premises Bellevue, Inc.............. Washington
425. Yakima Properties, Incorporated...................... Washington
132. Security-First Company.................................... California
133. Security-First CMO-I Corporation..................... California
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
098. Security Pacific Investors, Inc. ........................... Delaware
032. Security Pacific Savings Bank............................. Washington
042. Security Pacific Southwest Financial Services, Inc. ......... Arizona
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
numbers 33-51333 on Form S-4 filed December 8, 1993, as amended by Pre-
Effective Amendment No. 1 filed January 12, 1994; 33-60648 on Form S-8 filed
April 2, 1993; 33-59892 on Form S-3 filed March 23, 1993, as amended by Pre-
Effective Amendment No. 1 filed May 14, 1993; 33-51064 on Form S-3 filed
August 20, 1992, as amended by Pre-Effective Amendment No. 1 filed October 23,
1992; 33-50124 on Form S-8 filed July 29, 1992; 33-65326 on Form S-8 filed
July 1, 1993; 33-43862 on Form S-3 filed November 12, 1991, as amended by Pre-
Effective Amendment No. 1 filed January 17, 1992 (to which the prospectus in
33-51064 also applies); 33-36718 on Form S-3 filed September 7, 1990, as
amended by Pre-Effective Amendment No. 1 filed November 28, 1990 (to which the
prospectus in 33-51064 also applies); 33-26755 on Form S-3 filed January 27,
1989, as amended by Pre-Effective Amendment No. 1 filed February 16, 1989 and
Post-Effective Amendment No. 1 filed November 3, 1992; 33-23192 on Form S-3
filed July 21, 1988, as amended by Pre-Effective Amendment No. 1 filed
September 13, 1988 (to which the prospectus in 33-51064 also applies); 33-
11516 on Form S-3 filed January 26, 1987, as amended by Amendment No. 1 filed
March 12, 1987 and Amendment No. 2 filed April 3, 1987 (to which the
prospectus in 33-36718 also applies); 2-93664 on Form S-3 filed on October 9,
1984, as amended by Amendment No. 1 filed November 23, 1984; 33-28252 on Form
S-8 filed April 19, 1989, as amended by Post-Effective Amendment No. 1 filed
August 15, 1989 and Post-Effective Amendment No. 2 filed February 22, 1990; 33-
13368 on Form S-8 (to which the prospectus in 33-28252 also applies); 33-29646
on Form S-8 filed June 30, 1989, as amended by Post-Effective Amendment No. 1
filed August 3, 1990; and 2-82873, 2-71577, 2-64201, 2-58595, 2-57423, 2-
53068, 2-47747, 2-32651 and 33-14135 on Form S-8 (to all of which the
prospectus in 33-29646 also applies), of BankAmerica Corporation and related
prospectuses of our report dated January 18, 1994, except for Note 2, as to
which the date is January 27, 1994, with respect to the consolidated financial
statements of BankAmerica Corporation incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31,1993.
/s/ Ernst & Young
- ----------------
Ernst & Young
San Francisco, California
March 14, 1994
<PAGE>
Exhibit 24
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL SOROKIN,
and each of them, my attorneys-in-fact, each with full power of substitution, to
sign for me as the Chairman of the Board and Chief Executive Officer of
BankAmerica Corporation and file with the Securities and Exchange Commission the
Corporation's Form 10-K annual report for 1993, and any amendments.
Dated: February 4, 1994
/s/ RICHARD M. ROSENBERG
-----------------------------
Richard M. Rosenberg
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL SOROKIN,
and each of them, my attorneys-in-fact, each with full power of substitution, to
sign for me as an Executive Vice President and the Financial Controller of
BankAmerica Corporation and file with the Securities and Exchange Commission the
Corporation's Form 10-K annual report for 1993, and any amendments.
Dated: February 7, 1994
/s/ JOSEPH B. THARP
-------------------------
Joseph B. Tharp
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL SOROKIN,
and each of them, my attorneys-in-fact, each with full power of substitution, to
sign for me as a Vice Chairman of the Board, the Chief Financial Officer and the
Treasurer of BankAmerica Corporation and file with the Securities and Exchange
Commission the Corporation's Form 10-K annual report for 1993, and any
amendments.
Dated: February 7, 1994
/s/ LEWIS W. COLEMAN
-----------------------------
Lewis W. Coleman
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ JOSEPH F. ALIBRANDI
------------------------------
Joseph F. Alibrandi
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ PETER B. BEDFORD
------------------------------
Peter B. Bedford
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 6, 1994
/s/ ANDREW F. BRIMMER
------------------------------
Andrew F. Brimmer
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 8, 1994
/s/ RICHARD A. CLARKE
------------------------------
Richard A. Clarke
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ TIMM F. CRULL
------------------------------
Timm F. Crull
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ C.R. DAHL
------------------------------
C.R. Dahl
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ KATHLEEN FELDSTEIN
------------------------------
Kathleen Feldstein
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ DONALD E. GUINN
------------------------------
Donald E. Guinn
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ PHILIP M. HAWLEY
------------------------------
Philip M. Hawley
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ FRANK L. HOPE, JR.
------------------------------
Frank L. Hope, Jr.
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 5, 1994
/s/ LAWRENCE O. KITCHEN
------------------------------
Lawrence O. Kitchen
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ IGNACIO E. LOZANO, JR.
------------------------------
Ignacio E. Lozano, Jr.
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ CORNELL C. MAIER
------------------------------
Cornell C. Maier
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ WALTER E. MASSEY
------------------------------
Walter E. Massey
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ RUBEN F. METTLER
------------------------------
Ruben F. Mettler
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 7, 1994
/s/ A. MICHAEL SPENCE
------------------------------
A. Michael Spence
<PAGE>
POWER OF ATTORNEY
-----------------
I hereby appoint MICHAEL J. HALLORAN, JEFFREY R. LAPIC, and CHERYL
SOROKIN, and each of them, my attorneys-in-fact, each with full power of
substitution, to sign for me as a Director of BankAmerica Corporation and file
with the Securities and Exchange Commission the Corporation's Form 10-K annual
report for 1993, and any amendments.
Dated: February 8, 1994
/s/ JACQUES S. YEAGER
------------------------------
Jacques S. Yeager
