<PAGE>
BankAmerica Corporation Analytical Review and Form 10-Q
[BANKAMERICA CORPORATION LOGO APPEARS HERE]
1994
3rd Quarter
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 1-7377
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER:
BankAmerica Corporation
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION:
Delaware
I.R.S. EMPLOYER IDENTIFICATION NUMBER:
94-1681731
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
Bank of America Center
San Francisco, California 94104
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
415-622-3530
FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $1.5625 par value ------ 370,206,155 shares outstanding on
September 30, 1994.*
*In addition, 696,911 shares were held in treasury.
- --------------------------------------------------------------------------------
This document serves both as an analytical review for analysts, shareholders,
and other interested persons, and as the quarterly report on Form 10-Q of
BankAmerica Corporation to the Securities and Exchange Commission, which has
taken no action to approve or disapprove the report or to pass upon its accuracy
or adequacy. Additionally, this document is to be read in conjunction with the
consolidated financial statements and notes thereto included in BankAmerica
Corporation's Annual Report on Form 10-K for the year ended December 31, 1993.
<PAGE>
CONTENTS
<TABLE>
==================================================================================================================
<S> <C> <C>
PART I Item 1.
FINANCIAL Financial Statements:
INFORMATION Consolidated Statement of Operations............................................... 2
Consolidated Balance Sheet......................................................... 3
Consolidated Statement of Cash Flows............................................... 4
Consolidated Statement of Changes in Stockholders' Equity.......................... 5
Notes to Consolidated Financial Statements......................................... 6
Item 2.
Management's Discussion and Analysis:
Highlights......................................................................... 15
Business Sectors................................................................... 17
Results of Operations:
Net Interest Income.............................................................. 20
Noninterest Income............................................................... 20
Noninterest Expense.............................................................. 22
Income Taxes..................................................................... 23
Balance Sheet Analysis............................................................. 24
Overview of Loan Portfolio....................................................... 26
Domestic Consumer Loans........................................................ 26
Domestic Commercial Loans...................................................... 28
Foreign Loans.................................................................. 29
Restructuring Country Debt....................................................... 30
Credit Risk Management:
Allowance for Credit Losses...................................................... 32
Nonaccrual Assets, Restructured Loans, and
Loans Past Due 90 Days or More and Still Accruing Interest...................... 34
Foreign Exchange and Other Derivatives............................................. 38
Funding and Capital:
Liquidity........................................................................ 40
Capital.......................................................................... 40
Interest Rate Risk Management.................................................... 42
- ------------------------------------------------------------------------------------------------------------------
PART II Item 6.
OTHER INFORMATION Exhibits and Reports on Form 8-K...................................................... 44
Signatures............................................................................ 45
==================================================================================================================
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
==============================================================================================================================
1994 1993 NINE MONTHS ENDED
-------------------------- ---------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD -----------------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $2,510 $2,294 $2,206 $2,329 $2,345 $7,010 $7,134
Interest-bearing deposits in banks 87 74 56 54 49 217 140
Federal funds sold 16 15 13 6 12 44 29
Securities purchased under resale agreements 84 89 72 54 51 245 120
Trading account assets 116 122 111 102 111 349 270
Available-for-sale and held-to-maturity securities 340 345 355 331 377 1,040 1,058
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 3,153 2,939 2,813 2,876 2,945 8,905 8,751
INTEREST EXPENSE
Deposits 868 753 697 715 732 2,318 2,256
Federal funds purchased 6 3 3 4 3 12 12
Securities sold under repurchase agreements 82 97 79 46 55 258 112
Other short-term borrowings 71 59 61 56 51 191 145
Long-term debt 211 185 169 177 184 565 550
Subordinated capital notes 11 10 10 13 39 31 100
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 1,249 1,107 1,019 1,011 1,064 3,375 3,175
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 1,904 1,832 1,794 1,865 1,881 5,530 5,576
Provision for credit losses 110 125 125 150 178 360 653
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,794 1,707 1,669 1,715 1,703 5,170 4,923
NONINTEREST INCOME
Deposit account fees 301 290 294 302 306 885 896
Credit card fees 86 85 82 95 88 253 259
Trust fees 69 66 67 72 74 202 222
Other fees and commissions 279 262 266 268 275 807 815
Net trading account related 57 36 16 46 56 109 198
Foreign exchange trading related 63 73 58 55 76 194 270
Net gain (loss) on available-for-sale securities (2) 7 20 16 14 25 45
Net gain on sales of assets 33 20 45 45 17 98 61
Venture capital activities 33 32 31 53 24 96 76
Other income 156 147 124 167 77 427 312
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME 1,075 1,018 1,003 1,119 1,007 3,096 3,154
NONINTEREST EXPENSE
Salaries 741 700 710 729 744 2,151 2,157
Employee benefits 186 180 158 138 140 524 435
Occupancy 171 167 165 182 172 503 502
Equipment 145 138 146 174 145 429 436
Amortization of intangibles 100 99 105 115 100 304 306
Communications 79 80 78 81 82 237 249
Regulatory fees and related expenses 72 72 70 74 72 214 235
Professional services 54 53 58 73 63 165 195
Other expense 390 332 294 408 330 1,016 994
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 1,938 1,821 1,784 1,974 1,848 5,543 5,509
- ------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 931 904 888 860 862 2,723 2,568
Provision for income taxes 384 379 375 364 376 1,138 1,110
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 547 $ 525 $ 513 $ 496 $ 486 $ 1,585 $ 1,458
- ---------------------------------------------------------=====================================================================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 1.36 $ 1.33 $ 1.27 $ 1.21 $ 1.19 $ 3.95 $ 3.58
EARNINGS PER COMMON SHARE -- ASSUMING FULL DILUTION $ 1.35 $ 1.32 $ 1.26 $ 1.21 $ 1.18 $ 3.93 $ 3.56
- ------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $ 0.40 $ 0.40 $ 0.40 $ 0.35 $ 0.35 $ 1.20 $ 1.05
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
==============================================================================================================
1994 1993
------------------------------ ------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 12,493 $ 10,137 $ 10,455 $ 10,482 $ 10,410
Interest-bearing deposits in banks 4,884 4,707 3,978 2,988 2,646
Federal funds sold 570 2,758 2,549 2,050 2,036
Securities purchased under resale agreements 4,474 4,933 5,995 3,549 2,393
Trading account assets 7,103 5,714 6,648 6,866 7,845
Available-for-sale securities 11,166 8,938 9,413 3,282 3,515
Held-to-maturity securities 8,700 11,734 11,979 16,415 16,810
Loans 138,691 124,874 123,544 126,556 125,976
Less: Allowance for credit losses 3,625 3,414 3,445 3,508 3,715
- --------------------------------------------------------------------------------------------------------------
Net loans 135,066 121,460 120,099 123,048 122,261
Premises and equipment, net 3,935 3,705 3,664 3,631 3,584
Customers' acceptance liability 833 935 801 851 847
Accrued interest receivable 1,221 1,097 1,030 982 1,020
Other real estate owned 570 472 553 517 589
Goodwill, net 4,394 3,886 3,931 3,973 4,097
Identifiable intangibles, net 2,213 2,078 2,133 2,191 2,249
Unrealized gains on off-balance-sheet instruments 7,783 8,650 7,441 -- --
Other assets 8,825 6,339 6,543 6,108 6,807
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $214,230 $197,543 $197,212 $186,933 $187,109
- ----------------------------------------------------------====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Interest-bearing $ 91,872 $ 86,568 $ 88,139 $ 89,134 $ 90,774
Noninterest-bearing 33,006 31,009 30,920 31,578 31,560
Deposits in foreign offices:
Interest-bearing 25,981 22,898 22,034 19,608 17,272
Noninterest-bearing 1,807 1,560 1,496 1,298 1,363
- --------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 152,666 142,035 142,589 141,618 140,969
Federal funds purchased 1,690 223 270 220 602
Securities sold under repurchase agreements 5,278 6,332 6,910 4,229 3,465
Other short-term borrowings 5,796 3,537 3,628 3,523 3,083
Acceptances outstanding 833 935 801 851 847
Accrued interest payable 719 550 529 505 548
Unrealized losses on off-balance-sheet instruments 8,007 8,727 7,129 -- --
Other liabilities 5,202 3,894 4,059 4,728 5,849
Long-term debt 14,504 13,611 13,828 13,508 14,008
Subordinated capital notes 605 606 606 607 933
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 195,300 180,450 180,349 169,789 170,304
STOCKHOLDERS' EQUITY
Preferred stock 3,368 2,979 2,979 2,979 2,979
Common stock 580 561 561 560 559
Additional paid-in capital 7,732 7,150 7,130 7,118 7,094
Retained earnings 7,480 7,131 6,807 6,502 6,187
Net unrealized losses on available-for-sale securities (201) (210) (252) -- --
Common stock in treasury, at cost (29) (518) (362) (15) (14)
- --------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 18,930 17,093 16,863 17,144 16,805
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $214,230 $197,543 $197,212 $186,933 $187,109
- ----------------------------------------------------------====================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
==============================================================================================================
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
(IN MILLIONS) 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,585 $ 1,458
Adjustments to net income to arrive at net cash provided by operating activities:
Provision for credit losses 360 653
Net gain on sales of assets (98) (61)
Net amortization of loan fees and discounts (31) (105)
Depreciation and amortization of premises and equipment 361 337
Amortization of intangibles 304 306
Provision for deferred income taxes 405 567
Change in assets and liabilities net of effects from acquisitions, consolidations,
divestitures, and pending dispositions:
(Increase) decrease in accrued interest receivable (97) 7
Increase in accrued interest payable 214 25
Increase in trading account assets (197) (4,370)
Increase in current income taxes payable 268 428
Deferred fees received from lending activities 69 142
Other, net (820) 328
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 2,323 (285)
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales proceeds 2,357 1,658
Maturities, prepayments, and calls 4,487 5,431
Purchases (4,329) (3,537)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls 2,122 3,587
Purchases (1,234) (6,171)
Proceeds from sales of loans 1,122 1,071
Purchases of loans (549) (547)
Purchases of premises and equipment (460) (634)
Proceeds from sales of other real estate owned 442 348
Net cash provided (used) by:
Loan originations and principal collections (4,805) 236
Interest-bearing deposits in banks (1,054) (453)
Federal funds sold 2,011 (548)
Securities purchased under resale agreements (323) 433
Cash used by acquisitions (1,062) (25)
Cash provided by acquisitions 1,762 131
Proceeds from liquidations of assets identified for disposition 254 1,371
Other, net (186) 473
- --------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 555 2,824
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,067 2,911
Principal payments and retirements of long-term debt and subordinated capital notes (2,312) (4,343)
Proceeds from issuance of common stock 46 246
Treasury stock acquired (503) (5)
Common stock dividends (422) (372)
Preferred stock dividends (181) (181)
Net cash provided (used) by:
Deposits (1,130) (5,237)
Federal funds purchased 1,084 185
Securities sold under repurchase agreements 529 2,539
Other short-term borrowings 106 995
Cash used by disposition of liabilities of deconsolidated subsidiaries and operations (59) (193)
Other, net (107) (508)
- --------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (882) (3,963)
Effect of exchange rate changes on cash and due from banks 15 (14)
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 2,011 (1,438)
Cash and due from banks at beginning of period 10,482 11,848
- --------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $12,493 $10,410
- -----------------------------------------------------------------------------------------=====================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
==================================================================================================================
1994 1993
--------------------------- -----------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of quarter $ 2,979 $ 2,979 $ 2,979 $ 2,979 $ 2,979
Preferred stock issued 389 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 3,368 2,979 2,979 2,979 2,979
COMMON STOCK
Balance, beginning of quarter 561 561 560 559 556
Common stock issued 19 -- 1 1 3
- ------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 580 561 561 560 559
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of quarter 7,150 7,130 7,118 7,094 7,025
Common stock issued 556 20 12 24 69
Preferred stock issued 26 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 7,732 7,150 7,130 7,118 7,094
RETAINED EARNINGS
Balance, beginning of quarter 7,131 6,807 6,502 6,187 5,888
Net income 547 525 513 496 486
Common stock dividends (140) (139) (143) (125) (124)
Preferred stock dividends (60) (61) (60) (60) (61)
Foreign currency translation adjustments,
net of related income taxes 2 (1) (5) 4 (2)
- ------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 7,480 7,131 6,807 6,502 6,187
NET UNREALIZED LOSSES ON AVAILABLE-FOR-SALE SECURITIES
Balance, beginning of quarter (210) (252) -- -- --
Effect of adoption of SFAS No. 115, net of related income taxes -- -- (15) -- --
Valuation adjustments, net of related income taxes 9 42 (237) -- --
- ------------------------------------------------------------------------------------------------------------------
Balance, end of quarter (201) (210) (252) -- --
COMMON STOCK IN TREASURY, AT COST
Balance, beginning of quarter (518) (362) (15) (14) (14)
Treasury stock purchased -- (156) (347) (1) --
Treasury stock issued 489 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Balance, end of quarter (29) (518) (362) (15) (14)
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $18,930 $17,093 $16,863 $17,144 $16,805
- -------------------------------------------------------------------===============================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1. The unaudited consolidated financial statements of
FINANCIAL STATEMENT BankAmerica Corporation and subsidiaries (the
PRESENTATION Corporation) are prepared in conformity with generally
accepted accounting principles for interim financial
information, the instructions to Form 10-Q, and Rule
10-01 of Regulation S-X. In the opinion of management,
all adjustments necessary for a fair presentation of the
financial position and results of operations for the
periods presented have been included. All such
adjustments are of a normal recurring nature. These
unaudited consolidated financial statements should be
read in conjunction with the audited consolidated
financial statements included in BankAmerica
Corporation's (the Parent) Annual Report on Form 10-K
for the year ended December 31, 1993, the audited
consolidated financial statements included in
Continental Bank Corporation's (Continental) Annual
Report on Form 10-K for the year ended December 31, 1993
that were incorporated by reference and filed on the
Parent's Form 8-K dated March 21, 1994, and the
unaudited consolidated financial statements included in
Continental's Forms 10-Q for the quarters ended March
31, 1994 and June 30, 1994 that were incorporated by
reference and filed on the Parent's Forms 8-K dated May
12, 1994 and August 11, 1994, respectively.
The unaudited consolidated financial statements of the
Corporation include the accounts of the Parent and
companies in which more than 50 percent of the voting
stock is owned directly or indirectly by the Parent,
including Bank of America NT&SA (the Bank), Bank of
America Illinois, Seafirst Corporation, and other
banking and nonbanking subsidiaries. The revenues,
expenses, assets, and liabilities of the subsidiaries
are included in the respective line items in the
unaudited consolidated financial statements after
elimination of intercompany accounts and transactions.
Effective January 1, 1994, the Corporation adopted
Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and
Equity Securities," and Financial Accounting Standards
Board Interpretation No. 39 (FIN 39), "Offsetting of
Amounts Related to Certain Contracts." For information
on the adoption of this Statement and Interpretation,
refer to Notes 4 and 5 on pages 9 and 10 of the Notes to
Consolidated Financial Statements.
The Corporation's results of operations and financial
position reflect the effects of the merger of
Continental with and into the Parent subsequent to its
consummation on August 31, 1994.
Certain amounts in prior periods have been reclassified
to conform to the current presentation.
- --------------------------------------------------------------------------------
NOTE 2. On August 31, 1994, Continental was merged with and into
MERGER WITH the Parent and Continental's principal subsidiary,
CONTINENTAL BANK Continental Bank, was renamed Bank of America Illinois.
CORPORATION Each outstanding share of Continental's common stock
was converted into either 0.7993 of a share of the
Parent's common stock or $38.297 in cash. The total
amount of the Parent's common stock issued in connection
with the Continental merger was 21.5 million shares,
valued as of January 27, 1994 at $985 million, which
included 11.8 million shares of treasury stock purchased
in anticipation of the merger at an average per-share
price of $42.43. In addition, an aggregate amount of
approximately $950 million was paid in cash to
Continental common stockholders.
6
<PAGE>
================================================================================
In addition, each outstanding share of Continental's
Adjustable Rate Preferred Stock, Series 1 and Adjustable
Rate Cumulative Preferred Stock, Series 2 was converted
upon consummation of the Continental merger, into one
share of the Parent's Adjustable Rate Preferred Stock,
Series 1 (Preferred Stock, Series 1) and Adjustable Rate
Cumulative Preferred Stock, Series 2 (Preferred Stock,
Series 2), respectively, having substantially the same
terms. The Parent's preferred stock issued in connection
with the Continental merger was valued at $415 million,
based on market factors as of January 27, 1994.
Continental was a Delaware corporation organized in 1968
and was registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended, and the
Illinois Bank Holding Company Act of 1957. Continental
provided an extensive range of commercial banking
services, primarily in the Midwest, but also throughout
the United States and in various overseas markets.
Through its subsidiaries, Continental provided business
financing, specialized financial and operating services,
and private banking services. Continental also engaged
in equity finance and investing, as both principal and
arranger, and international trading.
The Continental merger was recorded during the third
quarter of 1994 by the Parent using the purchase method
of accounting in accordance with Accounting Principles
Board Opinion No. 16, "Business Combinations." Under
this method of accounting, the purchase price was
allocated to assets acquired and liabilities assumed
based on their estimated fair values at consummation. At
September 30, 1994, goodwill (net of accumulated
amortization) recorded in connection with the
Continental merger, which represents the excess of the
purchase price over the estimated fair value of
identifiable net assets, amounted to approximately $633
million. Identifiable intangibles (net of accumulated
amortization) related to the Continental merger totaled
approximately $86 million at September 30, 1994.
Goodwill is being amortized on a straight-line basis
over 25 years. Identifiable intangibles are being
amortized using accelerated methods over their estimated
periods of benefit.
Merger-related expenses of $50 million have been accrued
to reflect management's best estimate of separation and
benefits costs related to pre-merger BankAmerica
Corporation and subsidiaries' (BAC) employees,
employment assistance costs for separated employees of
BAC, and other expenses of BAC associated with the
Continental merger.
The following table presents a condensed pro forma
combined summary of operations of BAC and Continental
and its subsidiaries for the nine months ended September
30, 1994 and 1993. This information 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 of the
Corporation that would have occurred had the Continental
merger been in effect for the periods presented.
7
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
The condensed pro forma combined summary of operations
is as follows:
<TABLE>
<CAPTION>
PRO FORMA COMBINED FOR THE
NINE MONTHS ENDED SEPTEMBER 30
(DOLLAR AMOUNTS IN MILLIONS, ------------------------------
EXCEPT PER SHARE DATA) 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
SUMMARY OF OPERATIONS/ab/
Interest income $9,673 $9,605
Interest expense 3,831 3,642
--------------------------------------------------------------------------------
NET INTEREST INCOME 5,842 5,963
Provision for credit losses 420 789
--------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 5,422 5,174
Noninterest income 3,434 3,611
Noninterest expense 5,982/c/ 6,011
--------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,874 2,774
Provision for income taxes 1,200 1,194
--------------------------------------------------------------------------------
NET INCOME $1,674 $1,580
---------------------------------------------------------=======================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE/d/ $ 3.94 $ 3.62
EARNINGS PER COMMON SHARE -- ASSUMING FULL DILUTION/d/ $ 3.91 $ 3.59
================================================================================
</TABLE>
/a/ The condensed pro forma combined summary of operations is
presented as if the Continental merger had been effective
January 1, 1993. This information combines the historical
results of operations of BAC and Continental after giving
effect to amortization of purchase accounting adjustments
(see note b). This summary excludes the $80 million
cumulative effect of accounting change for income taxes
recognized by Continental for the nine months ended
September 30, 1993.
The condensed pro forma combined summary of operations
was based on BAC's historical results of operations for
the nine months ended September 30, 1994, which included
combined operations from the Continental merger date
forward, and Continental's historical results of
operations for the period January 1, 1994 through August
31, 1994. Accordingly, BAC's earnings for the month ended
September 30, 1994 included revenues and expenses related
to former Continental 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 BAC and
Continental were adjusted to reflect the amortization of
the estimated fair value adjustments and other purchase
accounting adjustments recorded in connection with the
Continental merger, including those related to available-
for-sale securities, loans, goodwill, identifiable
intangibles, deposits, and long-term debt. Amortization
was calculated based on the methods and estimated periods
of benefit determined appropriate by management. BAC's
historical results of operations for the nine months
ended September 30, 1994 included amortization of
purchase accounting adjustments from the consummation of
the Continental merger forward. Accordingly, for the
purposes of this condensed pro forma combined summary of
operations, historical results for 1994 were adjusted to
bring the actual amortization of purchase accounting
adjustments to the amounts that would have been recorded
if the Continental merger had been consummated on January
1, 1993. The historical income statement information for
the nine months ended September 30, 1993 was adjusted to
include amortization for the full period.
/c/ Merger-related expenses, as described on page 7, of $50
million have been eliminated from the combined historical
results of operations, as these expenses do not represent
ongoing expenses of the Corporation.
/d/ Primary and fully diluted pro forma combined earnings per
common share for the nine months ended September 30, 1994
and 1993 were calculated based on pro forma combined net
income, less the sum of actual preferred dividends paid
by BAC and Continental during each of the periods. Actual
average common and common equivalent shares outstanding
and average common shares outstanding assuming full
dilution for the month of September 1994 were used to
approximate the same information for the full nine months
ended September 30, 1994 as if the Continental merger had
taken place on January 1, 1993. The share amounts used to
calculate primary and fully diluted pro forma combined
earnings per common share for the nine months ended
September 30, 1993 were determined as follows:
<TABLE>
<CAPTION>
(in millions) Primary Fully Diluted
------------------------------------------------------------------------------------
<S> <C> <C>
Actual average number of common and common
equivalent shares outstanding for BAC for the
nine months ended September 30, 1993 357 363
Common shares issued in connection with the
Continental merger 21 21
Continental's common stock equivalents for the
nine months ended September 30, 1993 2 2
------------------------------------------------------------------------------------
380 386
------------------------------------------------------------========================
</TABLE>
8
<PAGE>
================================================================================
NOTE 3. During the nine-month periods ended September 30, 1994
SUPPLEMENTAL and 1993, the Corporation made interest payments on
DISCLOSURE OF CASH deposits and other interest-bearing liabilities of
FLOW INFORMATION $3,162 million and $3,131 million, respectively, and
made net income tax payments of $474 million and $115
million, respectively.
During the nine months ended September 30, 1993, the
Corporation securitized residential first mortgages of
$132 million and reclassified them to available-for-sale
securities. No residential first mortgages were
securitized during the nine months ended September 30,
1994.
Foreclosures totaled $371 million and $589 million for
the nine-month periods ended September 30, 1994 and
1993, respectively.
During the second quarter of 1994, assets that were
previously reported as assets pending disposition were
reclassified to either other assets or loans. Prior
periods have been adjusted for this reclassification. At
September 30, 1994 and 1993, such assets recorded in
other assets totaled $1,160 million and $1,290 million,
respectively and included commercial and industrial
loans held for sale in the normal course of business
that were originated with the intent to sell of $930
million and $622 million. Assets reclassified to loans
consisted of residential first mortgages held for sale
in the normal course of business of $52 million and $316
million at September 30, 1994 and 1993, respectively.
During the first quarter of 1993, management determined
that certain subsidiaries that were held for disposition
as of year-end 1992, including Bank of America (Asia)
Limited, formerly Security Pacific Asia Bank, Ltd, a
former subsidiary of Security Pacific Corporation, would
not be sold. Accordingly, assets and liabilities of
these subsidiaries that were previously recorded in
other assets, including $329 million of available-for-
sale securities, $1,950 million of loans, and $1,249
million of deposits, were consolidated in the
Corporation's financial statements effective January 1,
1993.
- --------------------------------------------------------------------------------
NOTE 4. SFAS No. 115 was adopted by the Corporation effective
CERTAIN INVESTMENTS January 1, 1994. SFAS No. 115 requires debt securities
IN DEBT AND for which the Corporation has the positive intent and
EQUITY SECURITIES ability to hold to maturity to be classified as held-
to-maturity securities and reported at amortized cost.
Debt and equity securities that are bought and held
principally for the purpose of selling them in the near
term will continue to be classified as trading account
assets and reported at their fair values with unrealized
gains and losses included in earnings. Other debt and
equity securities that the Corporation may not hold to
maturity and that are not considered to be part of
trading-related activities are classified as available-
for-sale securities and reported at their fair values,
with unrealized gains and losses reported on a net-of-
tax basis as a separate component of stockholders'
equity. Prior-period amounts have not been restated
since SFAS No. 115 does not allow retroactive
application.
Upon adoption of SFAS No. 115, $5.6 billion of
securities previously classified as held-to-maturity
securities with a market value of $5.7 billion were
transferred to available-for-sale securities. In
addition, certain debt-restructuring par bonds and other
instruments issued by the governments of certain
countries, most notably Mexico and Venezuela, were
reclassified from loans to either available-for-sale or
held-to-maturity securities. Debt-restructuring par
bonds and other instruments with a carrying value of
$1.2 billion and a market value of $1.0 billion at
December 31, 1993 were reclassified to held-to-maturity
securities, and debt-restructuring par bonds and other
instruments with a carrying value of $1.3 billion and a
market value of $1.0 billion at December 31, 1993 were
reclassified to available-for-sale securities.
9
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
In connection with the Continental merger, $1.2 billion
of investment securities were obtained and classified as
available-for-sale securities. Approximately $0.4
billion of these securities were classified as held-to-
maturity by Continental prior to the merger.
As a result of the Continental merger, $2.5 billion of
the Corporation's held-to-maturity securities were
transferred to available-for-sale securities to enable
the Corporation to maintain its pre-merger interest rate
risk position. This transfer resulted in gross
unrealized losses of $145 million and gross unrealized
gains of $22 million.
At September 30, 1994, certain nonaccrual debt-
restructuring par bonds and other instruments issued by
the governments of Brazil and Argentina with an
aggregate face value of $645 million were included in
available-for-sale securities at their fair value of
$393 million, including net unrealized gains of $253
million.
The fair values and amortized costs of available-for-
sale and held-to-maturity securities were as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
SECURITIES SECURITIES
--------------------- ---------------------
FAIR AMORTIZED FAIR AMORTIZED
(IN MILLIONS) VALUE COST VALUE COST
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1994 $11,166 $11,505 $ 8,018 $ 8,700
June 30, 1994 8,938 9,288 11,544 11,734
March 31, 1994 9,413 9,849 11,976 11,979
December 31, 1993 3,405 3,282 16,802 16,415
September 30, 1993 3,688 3,515 17,357 16,810
</TABLE>
During the nine-month period ended September 30, 1994,
the Corporation sold available-for-sale securities for
aggregate proceeds of $2,357 million resulting in gross
realized gains of $91 million and gross realized losses
of $66 million. During the nine-month period ended
September 30, 1993, the Corporation sold available-for-
sale securities for aggregate proceeds of $1,658
million, resulting in gross realized gains of $36
million and no gross realized losses. There were no
sales of held-to-maturity securities during the nine-
month periods ended September 30, 1994 and 1993.
During the nine-month period ended September 30, 1994,
trading income included a net unrealized holding loss on
trading securities of $47 million, excluding the net
unrealized trading results of the Parent's securities
broker and dealer subsidiaries, which are not subject to
the requirements of SFAS No. 115.
- --------------------------------------------------------------------------------
NOTE 5. FIN 39 was prospectively adopted by the Corporation
OFFSETTING OF effective January 1, 1994. FIN 39 requires unrealized
AMOUNTS RELATED TO gains on forward, swap, option, and other conditional
CERTAIN CONTRACTS or exchange contracts to be recorded as assets and
unrealized losses on these contracts to be recorded as
liabilities. However, unrealized gains and losses may be
netted where right of set-off criteria are met or
contracts are executed under legally enforceable master
netting agreements with counterparties. To the extent
allowed by FIN 39, the Corporation nets unrealized gains
and losses on certain off-balance-sheet instruments.
Prior to January 1, 1994, unrealized gains and losses
were recorded on the consolidated balance sheet on a net
basis for most products, primarily in trading account
assets and other liabilities. At December 31, 1993, net
unrealized gains and net unrealized losses were $0.9
billion and $0.7 billion, respectively. Upon adoption of
FIN 39, the unrealized gains and unrealized losses
included in these amounts, which were netted where
appropriate, were reclassified to unrealized gains on
off-balance-sheet instruments and unrealized losses on
off-balance-sheet instruments, respectively.
10
<PAGE>
===============================================================================
NOTE 6. In connection with the Continental merger, on August 31,
PREFERRED STOCK 1994, the Parent issued 1,788,000 shares of Preferred
Stock, Series 1, $50 stated value. Preferred Stock,
Series 1 shares are nonvoting except in certain limited
circumstances, while dividends are cumulative and
payable quarterly, at an adjustable rate determined each
quarter that is not less than 7.50% or greater than
13.50%. The liquidation preference price is $50.00 per
preferred share plus accrued and unpaid dividends to the
final distribution date. The Preferred Stock, Series 1,
may be redeemed at the option of the Parent at a
redemption price of $50.00 per share, plus dividends
accrued and unpaid to the redemption date.
In connection with the Continental merger, on August 31,
1994, the Parent issued 3,000,000 shares of Preferred
Stock, Series 2, $100 stated value, represented by
12,000,000 depositary shares, each corresponding to a
one-fourth interest in a share of preferred stock.
Preferred Stock, Series 2 shares are nonvoting except in
certain limited circumstances, while dividends are
cumulative and payable quarterly at 9.00%. On November
1, 1994, the Parent announced that it will redeem all of
the outstanding shares of Preferred Stock, Series 2 on
December 5, 1994 at $108.00 per share, or $27.00 per
depositary share, plus dividends accrued and unpaid to
the redemption date.
- -------------------------------------------------------------------------------
NOTE 7. The following is a summary of the components of income
INCOME TAXES tax expense:
<TABLE>
<CAPTION>
1994 1993 NINE MONTHS ENDED
--------------------------- ----------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD --------------------
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES
Federal $269 $278 $269 $260 $261 $ 816 $ 763
State and local 72 67 72 75 77 211 230
Foreign 43 34 34 29 38 111 117
-------------------------------------------------------------------------------------------------
$ 384 $379 $375 $364 $376 $1,138 $1,110
------------------------------===================================================================
</TABLE>
The income tax provision for the third quarter of 1994
reflected the Corporation's estimated annual effective
income tax rate of 41.8 percent, compared to the annual
effective income tax rate of 43.2 percent for 1993.
These effective income tax rates are higher than the
federal statutory tax rate of 35.0 percent due
principally to state income taxes and the amortization
of nondeductible goodwill.
- -------------------------------------------------------------------------------
NOTE 8. Earnings per common share have been computed based on
EARNINGS PER the following:
COMMON SHARE
<TABLE>
<CAPTION>
1994 1993 NINE MONTHS ENDED
--------------------------- ----------------- SEPTEMBER 30
(DOLLAR AMOUNTS IN MILLIONS, THIRD SECOND FIRST FOURTH THIRD -------------------
NUMBER OF SHARES IN THOUSANDS) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to
common stock $487 $464 $453 $436 $425 $1,404 $1,277
Average number of common
shares outstanding 355,012 347,791 355,749 357,629 356,567 352,851 354,266
Average number of common
and common equivalent
shares outstanding 357,962 349,721 357,569 359,547 358,835 355,084 357,057
Average number of common
shares outstanding-assum-
ing full dilution 363,442 355,201 363,049 365,360 364,315 360,564 362,539
</TABLE>
11
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
NOTE 9. In the ordinary course of business, the Corporation
OFF-BALANCE-SHEET enters into various types of transactions that involve
TRANSACTIONS financial instruments with off-balance-sheet risk.
The following table is a summary of the aggregate
contractual amounts for each significant class of
credit-related financial instrument outstanding. The
contractual amounts of these instruments represent the
amounts at risk should the contract be fully drawn upon,
the client defaults, and the value of any existing
collateral become worthless.
<TABLE>
<CAPTION>
1994 1993
-------------------------------- -------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commitments to extend credit:
Unutilized credit card lines $26,141 $24,647 $24,110 $23,437 $24,069
Other commitments to extend credit/a/ 85,688 60,368 60,690 57,227 57,233
Standby letters of credit and financial
guarantees/b/ 15,669 12,550 11,640 13,323 11,605
Commercial letters of credit 4,228 4,238 3,438 3,124 2,902
----------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents agreements to extend credit to a customer
for which the Corporation may have received fees. These
commitments have specified interest rates, generally
have fixed expiration dates, and may be terminated by
the Corporation if certain conditions of the contract
are violated.
/b/ Net of participations sold of $2,483 million at
September 30, 1994, $4,020 million at June 30, 1994,
$4,032 million at March 31, 1994, $2,076 million at
December 31, 1993, and $1,980 million at September 30,
1993.
The following table summarizes the credit risk and notional
or contract amounts associated with the Corporation's off-
balance-sheet trading and asset and liability management
activities for each significant class of foreign exchange
contracts and derivative contracts outstanding. The credit
risk amounts represent the Corporation's exposure to
potential loss on these transactions if all counterparties
failed to perform according to the terms of the contract
and the value of any existing collateral became worthless,
based on then-current currency exchange and interest rates
at each respective date. The notional or contract amounts
of these transactions represent the face or principal value
upon which calculations of amounts to be exchanged are
based. They do not represent the potential for gain or loss
associated with the market risk or credit risk of such
transactions.
<TABLE>
<CAPTION>
1994 1993
---------------------------------- ---------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CREDIT RISK AMOUNTS/a/
Foreign exchange contracts $ 10,390 $ 13,071 $ 6,441 $ 4,633 $ 6,056
Interest rate swaps 5,307 5,038 5,646 6,848 7,270
Currency swaps 1,859 1,847 1,988 1,841 1,987
Futures and forward contracts-
commitments to purchase 171 148 104 8 12
Futures and forward contracts-
commitments to sell 31 16 40 36 54
Interest rate options written/b/ - - - - -
Interest rate options purchased 411 283 307 358 379
NATIONAL OR CONTRACT AMOUNTS
Foreign exchange contracts 745,611 691,703 571,849 443,298 475,041
Interest rate swaps 350,195 295,514 268,390 233,359 232,261
Currency swaps 24,668 22,507 22,859 22,866 24,150
Futures and forward contracts-
commitments to purchase 121,968 80,526 85,891 75,413 83,130
Futures and forward contracts-
commitments to sell 110,452 98,424 97,084 81,986 84,131
Interest rate options written 30,981 22,968 27,528 29,576 26,672
Interest rate options purchased 49,507 33,983 35,327 35,466 39,794
----------------------------------------------------------------------------------------------------
</TABLE>
/a/ Without regard to legally enforceable master
netting agreements.
/b/ Interest rate options written have no credit risk.
12
<PAGE>
================================================================================
The Corporation conducts securities lending transactions
for certain customers and, at times, indemnifies these
customers against various losses. All securities lending
transactions are collateralized by U.S. government or
federal agency securities, cash, or letters of credit
with total market value equal to or in excess of the
market value of the securities loaned. In the event of
customer default combined with a decline in the value of
the associated collateral, the Corporation may be
exposed to risk of loss.
The following summarizes indemnified securities lending
transactions and the associated collateral:
<TABLE>
<CAPTION>
1994 1993
------------------------------- -------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Indemnified securities lent $6,241 $5,185 $6,691 $5,133 $2,562
Associated collateral 6,613 5,328 6,825 5,185 2,604
</TABLE>
13
<PAGE>
================================================================================
[THIS PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Highlights
================================================================================
The following is a summary of third-quarter 1994 financial
information for BankAmerica Corporation and subsidiaries (the
Corporation).
. The Corporation reported third-quarter 1994 earnings per
share of $1.36, an increase of 14 percent from $1.19 for the
same period a year ago. Net income for the third quarter of
1994 was $547 million, up 13 percent from $486 million for the
third quarter of 1993. Earnings for the third quarter of 1994
reflect the effects of the Corporation's merger with
Continental Bank Corporation (Continental) subsequent to its
consummation on August 31, 1994.
. The Continental merger gives the Corporation improved access to
wholesale and other customers, particularly in the Midwest. The
Corporation has designated Chicago as the headquarters of its
U.S corporate banking business and has established Bank of
America Illinois, which will be responsible for its private
banking and middle-market services in the midwestern U.S.
. The Corporation's results of operations demonstrated the
value of its diverse franchise. The three business sectors that
contributed the largest amounts to the Corporation's third-
quarter 1994 earnings were Consumer Banking, Large Corporate
and Foreign Banking, and Seafirst. For more information on the
Corporation's business sectors, refer to the Business Sectors
section on page 17.
. Total loan outstandings at September 30, 1994 were up $13.8
billion from the previous quarter -- $11.2 billion of this
coming from the addition of Continental's loans to the
Corporation's portfolio and the remainder from continued
portfolio growth. Excluding the loans obtained from
Continental, total loans at September 30, 1994 increased 2
percent from their June 30, 1994 level, with growth occurring
in a number of loan categories.
. The credit quality in the Corporation's loan portfolios
continued to improve. During the third quarter of 1994, total
nonaccrual assets decreased $138 million, bringing the decline
since year-end 1993 to $802 million, or 28 percent. In
addition, net credit losses for the third quarter of 1994
decreased $130 million, or 55 percent, from the amount reported
in the third quarter last year. This continued improvement in
credit quality allowed the Corporation to reduce its third-
quarter 1994 provision for credit losses by $68 million from
the amount reported in the same period last year. For more
information on the Corporation's nonaccrual assets, refer to
Nonaccrual Assets, Restructured Loans, and Loans Past Due 90
Days or More and Still Accruing Interest section on pages 34-
37.
. The Corporation's net interest margin for the third quarter of
1994 was 4.51 percent compared with 4.72 percent for the same
period last year. If current economic conditions persist and
the Federal Reserve further tightens monetary policy, and if
deposit interest rates rise in response to this action, the
Corporation's net interest margin may be negatively impacted in
the short term.
NOTE: THE INFORMATION CONTAINED IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS
SECTION REFLECTS THE EFFECTS OF THE CONTINENTAL MERGER SUBSEQUENT TO
ITS CONSUMMATION ON AUGUST 31, 1994.
15
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993 NINE MONTHS ENDED
(DOLLAR AMOUNTS IN MILLIONS, -------------------------------- -------------------- SEPTEMBER 30
EXCEPT PER SHARE DATA) THIRD SECOND FIRST FOURTH THIRD ------------------------
QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Interest income $ 3,153 $ 2,939 $ 2,813 $ 2,876 $ 2,945 $ 8,905 $ 8,751
Interest expense 1,249 1,107 1,019 1,011 1,064 3,375 3,175
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,904 1,832 1,794 1,865 1,881 5,530 5,576
Provision for credit losses 110 125 125 150 178 360 653
Noninterest income 1,075 1,018 1,003 1,119 1,007 3,096 3,154
Noninterest expense 1,938 1,821 1,784 1,974 1,848 5,543 5,509
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 931 904 888 860 862 2,723 2,568
Provision for income taxes 384 379 375 364 376 1,138 $ 1,110
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 547 $ 525 $ 513 $ 496 $ 486 1,585 $ 1,458
- -----------------------------------------===========================================================================================
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE $ 1.36 $ 1.33 $ 1.27 $ 1.21 $ 1.19 $ 3.95 $ 3.58
EARNINGS PER COMMON SHARE -- ASSUMING
FULL DILUTION $ 1.35 $ 1.32 $ 1.26 $ 1.21 $ 1.18 $ 3.93 $ 3.56
- ------------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
Dividends declared per
common share $ 0.40 $ 0.40 $ 0.40 $ 0.35 $ 0.35 $ 1.20 $ 1.05
Book value per common
share at period end 42.02 40.69 39.67 39.58 38.69 42.02 38.69
Common stock price range:
High 49 5/8 50 1/4 48 7/8 47 3/8 49 1/8 50 1/4 55 1/2
Low 44 38 3/8 38 3/4 40 3/8 43 3/8 38 3/8 40 1/2
Closing common stock price 44 1/8 45 3/4 39 3/8 46 3/8 44 44 1/8 44
Average number of common and common
equivalent shares
outstanding (in thousands) 357,962 349,721 357,569 359,547 358,835 355,084 357,057
Number of common shares outstanding at
period end (in thousands) 370,206 346,909 350,029 357,912 357,343 370,206 357,343
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL CONDITION AND
CAPITAL AT PERIOD END
Loans $138,691 $124,874 $123,544 $126,556 $125,976 $138,691 $125,976
Total assets 214,230 197,543 197,212 186,933 187,109 214,230 187,109
Deposits 152,666 142,035 142,589 141,618 140,969 152,666 140,969
Long-term debt and subordinated
capital notes 15,109 14,217 14,434 14,115 14,941 15,109 14,941
Common stockholders' equity 15,562 14,114 13,884 14,165 13,826 15,562 13,826
Total stockholders' equity 18,930 17,093 16,863 17,144 16,805 18,930 16,805
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Rate of return (based on net income) on:
Average total assets 1.07% 1.08% 1.07% 1.06% 1.04% 1.07% 1.05%
Average common stockholders' equity 13.12 13.32 13.00 12.48 12.46 13.18 13.02
Average total stockholders' equity 12.17 12.41 12.17 11.69 11.66 12.28 12.11
Ratio of common stockholders' equity to
total assets 7.26 7.14 7.04 7.58 7.39 7.26 7.39
Ratio of total stockholders' equity to
total assets 8.83 8.65 8.55 9.17 8.98 8.33 8.98
Ratio of average stockholders' equity to
average total assets 8.77 8.67 8.78 9.03 8.93 8.72 8.71
Risk-based capital ratios:/a/
Total risk-based capital ratio 11.59 12.11 12.21 12.00 11.60 11.59 11.60
Tier 1 risk-based capital ratio 7.24 7.56 7.64 7.61 7.19 7.24 7.19
Tier 1 leverage ratio 6.64 6.55 6.37 6.64 6.42 6.64 6.42
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Refer to the table on page 41 of the Funding and Capital section for
information on the calculation of risk-based capital ratios.
16
<PAGE>
BUSINESS SECTORS
================================================================================
The Corporation manages its operations by customer and market
sectors. Since the Corporation's operations are highly
integrated, certain non-sector-specific income, expense,
assets, and liabilities must be allocated to these customer and
market sectors. Domestic sources of funds, equity, overhead,
and federal and state taxes are allocated in this process.
Additionally, the unallocated allowance for credit losses and
related provision for credit losses are allocated to the
business sectors. The information set forth in the following
table reflects the Corporation's net income, average total
assets, average total deposits, and return on assets by
customer and market sectors and does not necessarily represent
their financial condition and results of operations if managed
as independent entities.
- --------------------------------------------------------------------------------
SELECTED BUSINESS SECTOR DATA /a/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1994
-----------------------------------------------
AVERAGE AVERAGE RETURN
(DOLLAR AMOUNTS IN BILLIONS, EXCEPT FOR NET TOTAL TOTAL ON
NET INCOME WHICH IS IN MILLIONS) INCOME ASSETS DEPOSITS ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large corporate and foreign banking $ 533 $ 66 $ 25 1.09%
Consumer banking 532 54 67 1.31
Seafirst Corporation 218 15 12 1.94
Commercial real estate 171 8 2 2.78
Middle market banking 141 10 5 1.86
Other non-California banks 33 23 24 0.19
Private banking 27 2 4 1.62
Other (70) 20 4 (0.48)
- ----------------------------------------------------------------------------------------------------------------------------
$1,585 $198 $143 1.07%
- -----------------------------------------------------------------------------===============================================
</TABLE>
/a/ Amounts reflect 1994 changes in the Corporation's organizational structure
and in its business-sector allocation methodologies.
17
<PAGE>
<TABLE>
RESULTS OF OPERATIONS
===================================================================================================================================
AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
THIRD QUARTER 1994 THIRD QUARTER 1993
--------------------------------- ----------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits in banks $ 5,285 $ 87 6.56% $ 2,638/d/ $ 49 7.42%
Federal funds sold 1,380 16 4.58 1,386 12 3.11
Securities purchased under resale agreements 5,759 84 5.80 4,688 51 4.36
Trading account assets 6,412 118 7.29 7,469 112 5.97
Available-for-sale securities/c/ 9,171/d/ 134 5.81/e/ 3,620 67 7.41
Held-to-maturity securities/c/ 11,253 208 7.41 16,379 313 7.62
Domestic loans:
Consumer-residential first mortgages 32,417 484 5.97 29,460 456 6.18
Consumer-credit card 7,221 283 15.67 7,350 298 16.22
Other consumer 25,128 564 8.91 24,182 547 8.97
Commercial and industrial 24,385 436 7.09 19,811 323 6.48
Commercial loans secured by real estate 9,435 196 8.32 9,508 182 7.64
Construction and development loans
secured by real estate 3,811 82 8.51 5,468 74 5.39
Loans for purchasing or carrying securities 1,478 21 5.53 1,485 15 4.10
Financial institutions 2,184 29 5.27 1,948 17 3.45
Lease financing 1,662 28 6.73 1,766 56 12.54
Agricultural 1,687 34 8.08 1,606 33 8.19
Other 1,231 19 5.96 1,095 14 5.16
------- ------ -------- ------
Total domestic loans 110,639 2,176 7.83 103,679 2,015 7.74
Foreign loans 18,860 336 7.07 19,609 332 6.71
-------- ------ -------- ------
Total loans/d/ 129,499 2,512 7.72 123,288 2,347 7.58
-------- ------ -------- ------
Total earning assets 168,759 $3,159 7.45 159,468 $2,951 7.37
====== ======
Nonearning assets 37,980 29,285
Less: Allowance for credit losses 3,507 3,751
-------- --------
TOTAL ASSETS $203,232 $185,002
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Domestic interest-bearing deposits:
Transaction $ 13,773 $ 40 1.16% $ 13,480 $ 43 1.26%
Savings 14,682 76 2.05 14,179 76 2.13
Money market 32,155 207 2.55 34,222 210 2.43
Time 28,179 225 3.17 30,253 193 2.53
-------- ------ -------- ------
Total domestic interest-bearing deposits 88,789 548 2.45 92,134 522 2.25
Foreign interest-bearing deposits:
Banks located in foreign countries 6,940 113 6.43 3,290 57 6.84
Governments and official institutions 5,207 63 4.77 1,951 20 4.08
Time, savings, and other 11,730 144 4.89 10,152 133 5.21
-------- ------ -------- ------
Total foreign interest-bearing deposits 23,877 320 5.31 15,393 210 5.41
-------- ------ -------- ------
Total interest-bearing deposits 112,666 868 3.06 107,527 732 2.70
Federal funds purchased 580 6 4.26 501 3 2.82
Securities sold under repurchase agreements 6,066 82 5.40 3,656 55 5.98
Other short-term borrowings 4,341 71 6.49 3,014 51 6.77
Long-term debt 13,990 211 5.99 14,295 184 5.10
Subordinated capital notes 606 11 6.81 1,108 39 13.71
-------- ------ -------- ------
Total interest-bearing liabilities 138,249 $1,249 3.58 130,101 $1,064 3.24
Domestic noninterest-bearing deposits 31,825 ====== 30,670 ======
Foreign noninterest-bearing deposits 1,451 1,356
Other noninterest-bearing liabilities 13,880 6,349
-------- --------
Total liabilities 185,405 168,476
Stockholders' equity 17,827 16,526
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $203,232 $185,002
======== ========
Interest income as a percentage of average earning assets 7.45% 7.37%
Interest expense as a percentage of average earning assets (2.94) (2.65)
----- ------
NET INTEREST MARGIN 4.51% 4.72%
===== ======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Interest income and average rates are presented on a taxable-equivalent
basis. The taxable-equivalent adjustments are based on a marginal tax rate
of 35 percent.
/c/ Refer to the table on page 25 of the Balance Sheet Analysis section for more
detail on available-for-sale and held-to-maturity securities.
/d/ Average balances include nonaccrual assets.
/e/ Due to the first-quarter 1994 adoption of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," available-for-sale securities are recorded at their fair
values. Without regard to net unrealized losses, the rates would have been
5.64% and 5.68% for the third quarter of 1994 and the nine months ended
September 30, 1994, respectively.
18
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Nine Months Ended September 30
- --------------------------------------------------------------------------------------------------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------------------------
Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits in banks $ 4,596 $ 217 6.31% $ 2,475/d/ $ 140 7.58%
Federal funds sold 1,478 44 3.93 1,216 29 3.13
Securities purchased under resale agreements 6,185 245 5.30 3,594 120 4.47
Trading account assets 6,695 351 7.01 6,023 272 6.05
Available-for-sale securities/c/ 9,436/d/ 412 5.83/e/ 4,362 217 6.66
Held-to-maturity securities/c/ 11,598 638 7.33 15,556 851 7.29
Domestic loans:
Consumer-residential first mortgages 31,549 1,389 5.87 29,224 1,402 6.39
Consumer-credit card 7,173 850 15.80 7,589 928 16.29
Other consumer 24,694 1,629 8.82 24,851 1,697 9.13
Commercial and industrial 22,016 1,089 6.61 20,708 953 6.16
Commercial loans secured by real estate 9,203 545 7.89 9,838 552 7.48
Construction and development loans
secured by real estate 3,979 223 7.48 5,999 222 4.95
Loans for purchasing or carrying securities 1,889 66 4.66 1,173 37 4.18
Financial institutions 1,936 71 4.92 1,843 47 3.44
Lease financing 1,659 103 8.29 1,785 175 13.11
Agricultural 1,632 93 7.61 1,616 91 7.51
Other 1,207 55 6.08 1,073 41 5.11
-------- ------ -------- ------
Total domestic loans 106,937 6,113 7.63 105,699 6,145 7.76
Foreign loans 18,099 902 6.67 19,375 993 6.86
-------- ------ -------- ------
Total loans/d/ 125,036 7,015 7.49 125,074 7,138 7.62
-------- ------ -------- ------
Total earning assets 165,024 $8,922 7.22 158,300 $8,767 7.39
====== ======
Nonearning assets 36,328 30,445
Less: Allowance for credit losses 3,478 3,872
-------- --------
TOTAL ASSETS $197,874 $184,873
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Domestic interest-bearing deposits:
Transaction $ 13,789 $ 119 1.16% $ 13,397 $ 141 1.41%
Savings 14,506 221 2.04 13,926 240 2.30
Money market 32,817 603 2.45 34,241 647 2.53
Time 27,208 554 2.72 31,802 587 2.47
-------- ------ -------- ------
Total domestic interest-bearing deposits 88,320 1,497 2.27 93,366 1,615 2.31
Foreign interest-bearing deposits:
Banks located in foreign countries 6,115 284 6.20 3,084 164 7.09
Governments and official institutions 4,468 148 4.43 1,713 53 4.10
Time, savings, and other 11,057 389 4.71 10,254 424 5.53
-------- ------ -------- ------
Total foreign interest-bearing deposits 21,640 821 5.07 15,051 641 5.69
-------- ------ -------- ------
Total interest-bearing deposits 109,960 2,318 2.82 108,417 2,256 2.78
Federal funds purchased 426 12 3.77 589 12 2.77
Securities sold under repurchase agreements 6,399 258 5.39 2,601 112 5.77
Other short-term borrowings 3,943 191 6.48 2,939 145 6.61
Long-term debt 13,637 565 5.54 14,163 550 5.19
Subordinated capital notes 606 31 6.75 1,726 100 7.73
-------- ------ -------- ------
Total interest-bearing liabilities 134,971 $3,375 3.34 130,435 $3,175 3.25
Domestic noninterest-bearing deposits 31,273 ====== 30,156 ======
Foreign noninterest-bearing deposits 1,453 1,410
Other noninterest-bearing liabilities 12,916 6,777
-------- --------
Total liabilities 180,613 168,778
Stockholders' equity 17,261 16,095
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $197,874 $184,873
======== ========
Interest income as a percentage of average earning assets 7.22% 7.39%
Interest expense as a percentage of average earning assets (2.73) (2.68)
----- -----
NET INTEREST MARGIN 4.49 4.71%
===== =====
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Interest income and average rates are presented on a taxable-equivalent
basis. The taxable-equivalent adjustments are based on a marginal tax rate
of 35 percent.
/c/ Refer to the table on page 25 of the Balance Sheet Analysis section for more
detail on available-for-sale and held-to-maturity securities.
/d/ Average balances include nonaccrual assets.
/e/ Due to the first-quarter 1994 adoption of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," available-for-sale securities are recorded at their fair
values. Without regard to net unrealized losses, the rates would have been
5.64% and 5.68% for the third quarter of 1994 and the nine months ended
September 30, 1994, respectively.
19
<PAGE>
===============================================================================
NET INTEREST Taxable-equivalent net interest income was $1,910 million
INCOME for the third quarter of 1994, up $23 million from the amount
reported in the third quarter of last year. Taxable-equivalent
net interest income totaled $5,547 million for the first nine
months of 1994 and $5,592 million during the same period in
1993.
Net interest income in the third quarter of 1994 increased
modestly over the third quarter of 1993 primarily due to the
Continental merger, which contributed $40 million to net
interest income. The Corporation's net interest margin was 4.51
percent for the quarter ended September 30, 1994, down 21 basis
points from the comparable period in 1993, while the net
interest margin for the first nine months of 1994 was 4.49
percent, compared with 4.71 percent for the same period last
year.
The Corporation's net interest margin includes the results of
hedging with certain off-balance-sheet financial instruments.
Hedging transactions are generally entered into to modify the
interest rate characteristics of assets and liabilities in an
effort to reduce the Corporation's sensitivity to interest rate
movements. As a result, management does not consider it
meaningful to separate the results of hedging from the net
interest income arising from the hedged assets and liabilities.
Management accomplishes hedging primarily through the use of
off-balance-sheet instruments and also manages interest rate
risk using on-balance-sheet instruments. Since management
defines the amounts and nature of the risks it is willing to
assume prior to identifying the hedging method, it believes the
Corporation's net interest income and results of operations
would have been substantially the same had instruments other
than off-balance-sheet products been used for interest rate
risk management purposes.
In the third quarter and first nine months of 1994, the
Corporation's net interest income included approximately $75
million and $330 million, respectively, attributable to hedging
with derivative instruments, compared with approximately $165
million and $545 million, respectively, in the comparable
periods of 1993. The derivative hedging amounts for the third
quarter and the first nine months of 1994 accounted for
approximately 20 basis points and 25 basis points,
respectively, of the net interest margins for those periods,
while the derivative hedging amounts for the comparable periods
of 1993 accounted for approximately 40 basis points and 45
basis points, respectively.
- -------------------------------------------------------------------------------
NONINTEREST Noninterest income for the third quarter of 1994, which
INCOME included $39 million related to Continental, increased
$68 million from the amount reported the same period last year.
Noninterest income for the first nine months of 1994 decreased
$58 million from the comparable period in 1993. Included in
noninterest income for the first nine months of 1993 was $38
million of nonrecurring income representing previously
unrecognized post Security Pacific Corporation merger 1992
earnings of Bank of America (Asia) Limited, formerly Security
Pacific Asia Bank, Ltd. (SPABL). Excluding this nonrecurring
item, noninterest income for the first nine months of 1994
decreased $20 million over the first nine months of 1993.
20
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
NONINTEREST INCOME
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30
------------------- ---------------------
(IN MILLIONS) 1994 1993 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEES AND COMMISSIONS
Deposit account fees $ 301 $ 306 $ 885 $ 896
Credit card fees 86 88 253 259
Trust fees 69 74 202 222
Other fees and commissions:
Loan fees and charges 75 78 211 237
Off-balance-sheet credit-related instrument fees 72 67 205 188
Mutual fund and annuity commissions 22 24 68 71
Other 110 106 323 319
- ---------------------------------------------------------------------------------------------------------------------
279 275 807 815
- ---------------------------------------------------------------------------------------------------------------------
735 743 2,147 2,192
- ---------------------------------------------------------------------------------------------------------------------
TRADING INCOME
Net trading account related 57 56 109 198
Foreign exchange trading related 63 76 194 270
- ---------------------------------------------------------------------------------------------------------------------
120 132 303 468
- ---------------------------------------------------------------------------------------------------------------------
OTHER NONINTEREST INCOME
Income from assets pending disposition 22 27 142 87
Net gain on sales of assets/a/ 33 17 98 61
Venture capital activities 33 24 96 76
Net gain (loss) on available-for-sale securities (2) 14 25 45
Other income 134 50 285 225
- ---------------------------------------------------------------------------------------------------------------------
220 132 646 494
- ---------------------------------------------------------------------------------------------------------------------
$1,075 $1,007 $3,096 $3,154
- --------------------------------------------------------=============================================================
</TABLE>
/a/ Net gain on sales of assets includes gains and losses from the disposition
of loans, premises and equipment, and certain other assets.
Excluding Continental's contribution of $27 million, total fees
and commissions for the third quarter and first nine months of
1994 decreased $35 million and $72 million, respectively, from
the amounts reported in the corresponding periods of 1993. This
decrease was primarily due to declines in trust fees and loan
fees and charges. The decline in trust fees was primarily due
to a decline in the institutional trust customer base and
market-driven price reductions in the corporate trust segment.
Loan fees and charges for the first nine months of both 1994
and 1993 were affected by adjustments to excess servicing
assets.
Other noninterest income for the third quarter of 1994
increased $88 million from the third quarter of 1993 primarily
due to the sales of a twenty-six percent equity interest in
Burns-Fry Holdings Corporation and a Malaysian branch. These
sales resulted in gains of $36 million and $34 million,
respectively.
Other noninterest income for the first nine months of 1994
increased $190 million from the amount reported in the same
period last year excluding the 1993 nonrecurring income related
to SPABL, as discussed on page 20. This growth was largely
attributable to the previously mentioned gains and increases in
income from assets pending disposition and venture capital
activities. The increase in income from assets pending
disposition was primarily due to certain asset sales in
improved markets, while the increase in venture capital
activities was largely attributable to higher realized gains.
21
<PAGE>
================================================================================
Trading income represents the net amount earned from the
Corporation's trading activities, which include facilitating
transactions for customers and entering into transactions for
the Corporation's own account in a diverse range of financial
instruments and markets. Trading income, as disclosed in the
Corporation's consolidated statement of operations, does not
include the net interest income associated with trading
activities. However, the net interest income amounts are
presented in the table below as they should be considered in
evaluating the overall profitability of those activities.
To reflect the business purpose and use of the financial
contracts into which the Corporation enters, trading income and
the net interest revenue or expense associated with such
contracts has been allocated into three broad functional
categories: interest rate trading, foreign exchange trading,
and debt instruments trading.
================================================================================
TRADING INCOME AND TRADING-RELATED NET INTEREST INCOME BY FUNCTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------------------------------------
THIRD QUARTER NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------------ ---------------------------------------------------
INTEREST FOREIGN DEBT INTEREST FOREIGN DEBT
(IN MILLIONS) RATE/A/ EXCHANGE/B/ INSTRUMENTS/C/ TOTAL RATE/A/ EXCHANGE/B/ INSTRUMENTS/C/ TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trading income $20 $68 $32 $120 $48 $198 $57 $303
Net interest income 2 3 25 30 - 6 63 69
- ------------------------------------------------------------------------------------------------------------------------------------
$22 $71 $ 57 $150 $48 $204 $120 $372
- ------------------------------======================================================================================================
</TABLE>
/a/ Includes income from interest rate and currency swaps, interest rate futures
and option contracts, and forward rate agreements.
/b/ Includes income from foreign exchange spot, forward, futures, and option
contracts.
/c/ Includes income from debt securities and debt-related derivatives.
Trading income for the third quarter and first nine months of
1994 decreased $12 million and $165 million, respectively, from
the amounts reported in the corresponding periods of 1993.
These declines were primarily due to less favorable market
conditions.
- --------------------------------------------------------------------------------
NONINTEREST Noninterest expense for the third quarter and first
EXPENSE nine months of 1994 increased $90 million and $34 million,
respectively, from the amounts reported in the corresponding
periods of 1993. Noninterest expense in the third quarter and
first nine months of 1994 included $51 million related to
Continental's ongoing operations, as well as an additional $50
million of merger-related expenses recorded in connection with
the Continental merger. In addition, noninterest expense for
the first nine months of 1994 included $83 million of capital
additions to two of the Pacific Horizon money market mutual
funds, for which Bank of America NT&SA serves as investment
advisor. Noninterest expense for the third quarter and first
nine months of 1993 included $26 million of nonrecurring
additional salary expense related to a special recognition
award given to employees. Excluding the above items,
noninterest expense for the third quarter of 1994 remained
essentially unchanged from the third quarter of 1993, while
noninterest expense for the first nine months of 1994 was down
$124 million from the first nine months of 1993.
22
<PAGE>
<TABLE>
================================================================================================================================
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30
----------------------- -----------------------
(IN MILLIONS) 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries $ 741 $ 744 $2,151 $2,157
Employee benefits 186 140 524 435
Occupancy 171 172 503 502
Equipment 145 145 429 436
Amortization of intangibles 100 100 304 306
Communications 79 82 237 249
Regulatory fees and
related expenses 72 72 214 235
Professional services 54 63 165 195
Merger-related expenses 50 - 50 9
Net other real estate
owned expense 15 38 21 100
Other expense 325 292 945 885
- --------------------------------------------------------------------------------------------------------------------------------
$1,938 $1,848 $5,543 $5,509
- ---------------------------------------------------------------=================================================================
</TABLE>
Excluding the nonrecurring employee recognition award discussed
on page 22, personnel expense (comprised of salaries and
employee benefits) for the third quarter and first nine months
of 1994 increased $69 million and $109 million, respectively,
from the amounts reported in the same periods last year. This
increase was largely due to increases in severance-related
benefits and incentive-based pay, and also to higher staff
levels resulting from the consummation of the Continental
merger. The Corporation's staff level on a full-time-equivalent
(FTE) basis was approximately 81,900 in September 1994, up from
approximately 80,200 in September 1993. The Corporation had
approximately 98,600 employees in September 1994, up slightly
from approximately 98,000 a year earlier. FTEs and employees in
September included approximately 4,200 and 4,600, respectively,
related to the Continental merger.
Net other real estate owned expense for the third quarter and
first nine months of 1994 decreased $23 million and $79
million, respectively from the amounts reported in the
comparable periods of 1993. These decreases can be primarily
attributed to increased gains on sales of other real estate
owned and declines in writedowns on foreclosed properties.
- --------------------------------------------------------------------------------
INCOME The provision for income taxes was $384 million and $376
TAXES million for the quarters ended September 30, 1994 and 1993,
respectively, reflecting forecasted annual effective income tax
rates of 41.8 percent and 43.2 percent, respectively.
For further information concerning the Corporation's provision
for federal, state and foreign income taxes for the most recent
five quarters, refer to Note 7 on page 11 of the Notes to
Consolidated Financial Statements.
23
<PAGE>
BALANCE SHEET ANALYSIS
================================================================================
The increases in most categories of the Corporation's balance
sheet between the amounts reported at September 30, 1994 and
those amounts reported at December 31, 1993 primarily resulted
from the Continental merger. The amounts related to Continental
and other significant factors affecting the Corporation's
financial position at September 30, 1994 are described in the
applicable sections below.
Total assets increased $27.3 billion between December 31, 1993
and September 30, 1994 primarily due to $20.5 billion of assets
obtained in connection with the Continental merger. In
addition, $6.9 billion of the increase in total assets was due
to the recording of unrealized gains on forward, swap, option,
and other conditional exchange contracts as assets and
unrealized losses on these contracts as liabilities, as
required under Financial Accounting Standards Board
Interpretation (FIN) No. 39, "Offsetting of Amounts Related to
Certain Contracts," which was adopted in the first quarter of
1994. For further information concerning the adoption of FIN
No. 39, refer to Note 5 of the Notes to Consolidated Financial
Statements on page 10.
Earning assets totaled $175.6 billion at September 30, 1994, up
$13.9 billion from $161.7 billion at year-end 1993. The
Continental merger increased loans by $11.2 billion, available-
for-sale securities by $1.2 billion, interest-bearing deposits
in banks by $0.8 billion, and securities purchased under resale
agreements by $0.6 billion.
Reclassifications made in connection with the first-quarter
1994 adoption of Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and the Continental merger caused a shift
in the Corporation's earning assets mix, but did not affect the
total earning assets between year-end 1993 and September 30,
1994. Although earning assets increased between December 31,
1993 and September 30, 1994, they decreased as a percentage of
total assets from 87 percent at year-end 1993 to 82 percent at
September 30, 1994, primarily due to the first-quarter 1994
adoption of FIN 39. For further information concerning
reclassifications made in connection with the adoption of SFAS
No. 115 and the Continental merger, refer to Note 4 of the
Notes to Consolidated Financial Statements on pages 9 and 10.
The increase in total goodwill and identifiable intangibles
between December 31, 1993 and September 30, 1994 was primarly
due to the Continental merger. This increase in goodwill and
identifiable intangibles was partially offset by amortization
recorded during the first nine months of 1994.
24
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES - AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
- ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1994 THIRD QUARTER 1993
----------------------------------------- ----------------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury and other government
agency securities $ 2,820 $ 40 5.57% $ 922 $ 16 7.04%
Mortgage-backed securities 3,997 58 5.78 1,871 31 6.68
State, county, and municipal securities 9 - 5.93 - - -
Other domestic securities 480 5 4.46 49 1 10.21
Foreign securities 1,865/c/ 31 6.60 778 19 9.43
------- ---- ------- ----
TOTAL AVAILABLE-FOR-SALE SECURITIES $ 9,171 $ 134 5.81/d/ $ 3,620 $ 67 7.41
======= ==== ======= ====
Held-to-maturity securities:
U.S. Treasury and other government
agency securities $ 712 $ 12 6.91% $ 3,360 $ 45 5.35%
Mortgage-backed securities 7,255 130 7.19 11,687 209 7.14
State, county, and municipal securities 472 10 8.04 540 11 8.13
Other domestic securities 213 4 7.13 696 46 26.39/e/
Foreign securities 2,601 52 8.00 96 2 6.89
------- ----- ------- ----
TOTAL HELD-TO-MATURITY SECURITIES $11,253 $ 208 7.41 $16,379 $313 7.62
======= ===== ======= ====
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------------------------
1994 1993
----------------------------------------- ----------------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Treasury and other government
agency securities $ 3,266 $ 134 5.46% $ 1,944 $ 71 4.88%
Mortgage-backed securities 3,988 165 5.52 1,543 90 7.83
State, country and municipal 8 - 6.38 - - -
Other domestic securities 398 14 4.62 34 2 8.13
Foreign securities 1,776/c/ 99 7.44 841 54 8.56
------- ----- ------- ----
Total Available-for-Sale Securities $ 9,436 $ 412 5.83/d/ $ 4,362 $217 6.66
======= ===== ======= ====
Held-to-maturity securities
U.S. Treasury and other government
agency securities $ 758 $ 38 6.66% $ 3,564 $138 5.19%
Mortgage-backed securities 7,719 418 7.21 10,543 588 7.43
State, county, and municipal
securities 486 29 8.11 562 34 8.04
Other domestic securities 234 13 7.15 801 86 14.29/e/
Foreign securities 2,401 140 7.82 86 5 7.20
------- ----- -------- ----
TOTAL HELD-TO-MATURITY SECURITIES $11,598 $ 638 7.33 $15,556 $851 7.29
======= ===== ======= ====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Interest income and average rates are presented on a taxable-equivalent
basis. The taxable-equivalent adjustments are based on a marginal tax rate
of 35 percent.
/c/ Average balances include nonaccrual assets.
/d/ Due to the first-quarter 1994 adoption of SFAS No. 115, available-for-sale
securities are recorded at their fair values. Without regard to net
unrealized losses, the rates would have been 5.64% and 5.68% for the third
quarter of 1994 and the nine months ended September 30, 1994, respectively.
/e/ Rates reflect income recognized on call premiums received and unamortized
discounts related to debentures called prior to maturity.
25
<PAGE>
================================================================================
During the first nine months of 1994, total deposits increased
$11.0 billion. The Continental merger contributed $11.9 billion
to total deposits, but this contribution was partially offset
by a reduction in time deposit and money market balances in
association with the low interest rate environment in early
1994. Other short-term borrowings and securities sold under
repurchase agreements increased $2.3 billion and $1.0 billion,
respectively, during the first nine months of 1994. The
Continental merger increased other short term-borrowings by
$2.2 billion and securities sold under repurchase agreements by
$0.5 billion. The remaining increase in securities sold under
repurchase agreements was primarily used to fund the trading
positions of BA Securities, Inc.
- --------------------------------------------------------------------------------
OVERVIEW OF Total loans at September 30, 1994 were up $12.1 billion
LOAN PORTFOLIO from year-end 1993, resulting from $11.2 billion of loans
obtained in connection with the Continental merger, as well as
from continued portfolio growth. Excluding the newly acquired
Continental loans and certain reclassifications made in
connection with the first-quarter 1994 adoption of SFAS No. 115
(as discussed in Note 4 of the Notes to Consolidated Financial
Statements on pages 9 and 10), total loans grew by $3.4 billion
between December 31, 1993 and September 30, 1994.
The Continental merger caused a slight shift in the risk
profile of the credit portfolio, as the majority of loans
obtained from Continental were commercial loans. At September
30, 1994, domestic consumer loans remained the largest
component of the portfolio, but accounted for 48 percent of
total loans compared with 49 percent at year-end 1993. Domestic
commercial loans accounted for 37 percent of total loans at
September 30, 1994, up from 35 percent at year-end 1993.
Foreign loans accounted for 15 percent of total loan
outstandings at September 30, 1994, down from 16 percent at
year-end 1993.
Domestic Consumer Loans -- The growth in domestic consumer
loans during the first nine months of 1994 included increases
in residential first mortgages and installment loans of $2.6
billion and $1.6 billion, respectively. The increase in
residential first mortgages was primarily due to growth in
mortgage originations for the purchase of homes and, to a
lesser extent, a decline in the level of prepayments. In
addition, the level of first residential mortgage originations
for the third quarter of 1994 increased in other western states
from the same period last year. The increase in installment
loan outstandings between year-end 1993 and September 30, 1994
was primarily attributable to increases in junior mortgages
nationwide and manufactured housing loans in affiliate states.
26
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================================
LOAN OUTSTANDINGS
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993
------------------------------------------ ------------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages/a/ $ 33,033 $ 31,784 $ 30,993 $ 30,483 $ 30,021
Installment/b/ 16,890 16,229 15,809 15,332 15,115
Credit card 7,420 7,169 7,162 7,474 7,334
Individual lines of credit/b/ 8,367 8,235 8,268 8,486 8,749
Other/b/ 539 285 289 274 278
- ----------------------------------------------------------------------------------------------------------------------------------
66,249 63,702 62,521 62,049 61,497
Commercial:
Commercial and industrial/c/ 29,021 21,815 20,954 20,486 20,124
Loans secured by real estate 9,823 9,131 9,050 9,251 9,381
Construction and development
loans secured by real estate 3,929 3,742 3,991 4,418 5,085
Loans for purchasing or carrying
securities 1,495 1,683 2,934 3,090 3,308
Financial institutions 2,601 1,340 1,751 2,170 2,099
Lease financing 1,694 1,678 1,665 1,715 1,753
Agricultural 1,721 1,605 1,614 1,679 1,625
Other 1,642 1,465 1,332 1,478 1,361
- ----------------------------------------------------------------------------------------------------------------------------------
51,926 42,459 43,291 44,287 44,736
- ----------------------------------------------------------------------------------------------------------------------------------
118,175 106,161 105,812 106,336 106,233
FOREIGN
Commercial and industrial 13,331 12,388 11,748 11,448 11,395
Governments and official
institutions 1,220 862 787 3,429 3,527
Banks and other financial
institutions 2,629 2,206 1,955 2,279 1,902
Other 3,336 3,257 3,242 3,064 2,919
- ----------------------------------------------------------------------------------------------------------------------------------
20,516 18,713 17,732 20,220 19,743
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 138,691 124,874 123,544 126,556 125,976
Less: Allowance for credit losses 3,625 3,414 3,445 3,508 3,715
- ----------------------------------------------------------------------------------------------------------------------------------
$135,066 $121,460 $120,099 $123,048 $122,261
- ------------------------------------------------------============================================================================
</TABLE>
/a/ Includes loans held for sale in the normal course of business of $52
million, $38 million, $138 million, $177 million, and $316 million at
September 30, 1994, June 30, 1994, March 31, 1994, December 31, 1993, and
September 30, 1993, respectively.
/b/ Installment loans, individual lines of credit, and other consumer loans
included the following aggregate amounts that were collateralized by
junior mortgages on residential real estate: $13,658 million at
September 30, 1994, $13,280 million at June 30, 1994, $12,927 million at
March 31, 1994, $12,847 million at December 31, 1993, and $13,117 million
at September 30, 1993.
/c/ Excludes loans held for sale in the normal course of business that were
originated with the intent to sell and are included in other assets of
$930 million, $760 million, $487 million, $554 million, and $622 million
at September 30, 1994, June 30, 1994, March 31, 1994, December 31, 1993,
and September 30, 1993, respectively.
27
<PAGE>
==============================================================================
During the first nine months of 1994, the Corporation's
consumer loan delinquency ratios (the percentage of loan
outstandings in each portfolio that are past due 60 days or
more) decreased in every loan category. The delinquency ratio
on residential first mortgages has declined each quarter since
September 30, 1993, and fell to 1.71 percent at September 30,
1994 from 2.25 percent at December 31, 1993. In addition, the
delinquency ratio on credit card loans has decreased each
quarter since December 31, 1992, declining to 2.07 percent at
September 30, 1994 from 2.39 percent at year-end 1993.
Domestic Commercial Loans -- Commercial and industrial loans,
the largest sector of the Corporation's domestic commercial
loan portfolio, grew $8.5 billion between December 31, 1993 and
September 30, 1994. Continental contributed $7.1 billion to
this growth. Excluding Continental loans, the increase in
commercial and industrial loans was due to growth in loans to
large corporate borrowers. Partially offsetting this growth
were declines in loans for purchasing or carrying securities
and construction real estate, which decreased $1.6 billion and
$0.5 billion, respectively, during the first nine months of
1994. The decline in loans for purchasing or carrying
securities largely reflected lower demand among brokers and
dealers. The decline in construction real estate loans was
primarily due to paydowns and bulk loan sales.
For information regarding the geographic concentrations
included in the Corporation's portfolios of domestic commercial
loans secured by real estate, as well as the geographic
concentrations and project types included in the construction
and development loan portfolio, refer to the tables on page 29.
28
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
DOMESTIC COMMERCIAL LOANS SECURED BY REAL ESTATE BY GEOGRAPHIC AREA
- -----------------------------------------------------------------------------------------------------------------------------------
1994 1993
------------------------------------------- ------------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
California/a/ $5,040 $5,090 $4,971 $5,117 $5,131
Washington 2,210 2,138 2,037 2,061 2,077
Nevada 501 346 364 394 385
Arizona 323 325 340 334 347
Oregon 361 325 295 281 295
Other/b/ 1,388 907 1,043 1,064 1,146
- ----------------------------------------------------------------------------------------------------------------------------
$9,823 $9,131 $9,050 $9,251 $9,381
- ---------------------------------------------------=========================================================================
</TABLE>
/a/ Approximately 50 percent of domestic commercial loans secured by real estate
in California at September 30, 1994 and June 30, 1994, approximately 55
percent at March 31,1994 and December 31, 1993 and approximately 50 percent
at September 30, 1993 were secured by properties in the following Southern
California counties: Los Angeles, Orange, San Bernardino, San Diego,
Riverside and Ventura.
/b/ For each period presented, no other state individually exceeded 2 percent of
total domestic commercial loans secured by real estate.
<TABLE>
<CAPTION>
====================================================================================================================================
DOMESTIC CONSTRUCTION AND DEVELOPMENT LOANS BY GEOGRAPHIC AREA AND PROJECT TYPE AT SEPTEMBER 30, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
APARTMENT & LIGHT
(IN MILLIONS) OFFICE SUBDIVISION RETAIL CONDOMINIUM HOTEL INDUSTRY OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $ 590 $497 $363 $214 $131 $ 66 $144 $2,005/a/
Washington 236 185 175 75 32 27 52 782
Pennsylvania 201 - - - - - - 201
Illinois 49 34 47 - - - - 130
Arizona 3 52 45 6 2 3 9 120
Texas 7 23 55 25 - 6 1 117
Georgia 15 7 49 14 - 15 - 100
Other/b/ 109 59 121 58 10 10 107 474
- ------------------------------------------------------------------------------------------------------------------------------------
$1,210 $857 $855 $392 $175 $127 $313 $ 3,929
- --------------------------==========================================================================================================
</TABLE>
/a/ Approximately 65 percent of domestic construction and development loans in
California at September 30, 1994 were secured by properties in the following
Southern California counties: Los Angeles, Orange, San Bernardino, San
Diego, Riverside, and Ventura.
/b/ No other state individually exceeded 2 percent of total domestic
construction and development loans.
Foreign Loans -- Foreign loans increased $0.3 billion between
December 31, 1993 and September 30, 1994, primarily due to $0.9
billion of foreign loans obtained in connection with the
Continental merger. Excluding Continental loans, foreign loans
decreased $0.6 billion between year-end 1993 and September 30,
1994 primarily due to the $2.5 billion reclassification of
debt-restructuring par bonds and other instruments issued by
foreign governments to the securities portfolios in connection
with the first-quarter adoption of SFAS No. 115, as discussed
in Note 4 of the Notes to Consolidated Financial Statements on
pages 9 and 10. Partially offsetting this decrease was a $1.4
billion increase in foreign commercial and industrial loans,
primarily attributable to Asian borrowers.
29
<PAGE>
================================================================================
RESTRUCTURING At September 30, 1994, total public and private sector cross-
COUNTRY DEBT border outstandings owed to the Corporation by borrowers in
restructuring countries amounted to $1,840 million, of which
$660 million was related to Continental. Of the total cross-
border outstandings amount, $651 million was medium- and long-
term debt and $227 million was local currency outstandings
which were neither hedged nor funded by local currency
borrowings.
Total cross-border outstandings at September 30, 1994 excluded
$901 million in par bonds and other instruments issued by
certain restructuring countries that are collateralized by
zero-coupon U.S. Treasury securities, which, at maturity, will
have redemption values equal to the aggregate face amounts of
the related par bonds and other instruments. Under SFAS No.
115, these par bonds and other instruments were classified as
either available-for-sale securities or held-to-maturity
securities at September 30, 1994.
On April 15, 1994, the government of Brazil concluded a debt
exchange in connection with a plan to restructure its medium-
and long-term debt. The Corporation exchanged debt with an
aggregate carrying value of $139 million and an aggregate face
value of $692 million and past due accrued interest for 30-year
bonds with an aggregate face value of $727 million. Of these
bonds, approximately half are collateralized by zero-coupon
U.S. Treasury securities, which, at maturity, will have
redemption values equal to the aggregate face amounts of the
related bonds. Upon receipt, these bonds were recorded in
available-for-sale securities at their fair values.
At September 30, 1994, cross-border outstandings owed to the
Corporation by borrowers in Brazil totaled $951 million, of
which $228 million was related to Continental. Of the total
cross-border outstandings owed to the Corporation by borrowers
in Brazil, $313 million was medium- and long-term debt. During
the third quarter of 1994 and first nine months of 1994, the
Corporation received $2 million and $21 million, respectively,
of cash payments from the government of Brazil on its medium-
and long-term outstandings. The majority of these payments were
recorded in income, since the recorded investment of the
related debt is considered to be realizable.
30
<PAGE>
<TABLE>
====================================================================================================================================
CROSS-BORDER OUTSTANDINGS EXCEEDING ONE PERCENT OF TOTAL ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cross-Border
Total Outstanding
Public Private Cross-Border as a Percentage
(DOLLAR AMOUNTS IN MILLIONS)/abcd/ Date Reported Sector/e/ Banks/e/ Sector/e/ Outstandings of Total Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Japan SEPTEMBER 30, 1994 $ 18 $1,339 $2,215 $3,572 1.67%
June 30, 1994 17 1,529 2,049 3,595 1.82
March 31, 1994 17 1,596 1,712 3,325 1.69
December 31, 1993 10 1,490 2,054 3,554 1.90
September 30, 1993 10 1,466 1,807 3,283 1.75
Spain SEPTEMBER 30, 1994 108 196 1,784 2,088 0.97
June 30, 1994 61 110 3,026 3,197 1.62
March 31, 1994 117 85 3,045 3,247 1.65
December 31, 1993 56 105 1,941 2,102 1.12
September 30, 1993 47 29 1,603 1,679 0.90
Hong Kong SEPTEMBER 30, 1994 5 192 1,488 1,685 0.79
June 30, 1994 - 101 2,328 2,429 1.23
March 31, 1994 - 106 2,202 2,308 1.17
December 31, 1993 - 110 2,181 2,291 1.23
September 30, 1993 - 84 2,008 2,092 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Cross-border outstandings include the following assets, primarily in U.S.
dollars, with borrowers or customers in a foreign country: loans, accrued
interest, acceptances, interest-bearing deposits with other banks, trading
account assets, available-for-sale securities, held-to-maturity securities,
other interest-earning investments, and other monetary assets. Local
currency outstandings which are neither hedged nor funded by local currency
borrowings are included in cross-border outstandings. Guarantees of
outstandings of borrowers of other countries are considered outstandings of
the guarantor. Loans made to, or deposits placed with, a branch of a foreign
bank located outside the foreign bank's home country are considered loans or
deposits with the country in which the foreign bank is headquartered.
Outstandings of a country do not include amounts of principal or interest
which are supported by written, legally enforceable guarantees by guarantors
from other countries or the amount of outstandings to the extent that they
are secured by tangible, liquid collateral held and realizable by the
Corporation outside the country.
/b/ At September 30, 1994, total unfunded commitments of the above countries,
whose unfunded commitments exceeded 10 percent of their respective cross-
border outstandings, were as follows: Japan, $1,171 million and Hong Kong,
$426 million.
/c/ Included in the cross-border outstandings of the countries listed are loans
and other interest-bearing assets on nonaccrual status at September 30,
1994, June 30, 1994, March 31, 1994, December 31, 1993, and September 30,
1993, respectively, as follows: $17 million, $17 million, $16 million,
$16 million, and $17 million for Japan; $4 million, $6 million, $6 million,
$7 million, and $5 million for Hong Kong; and $3 million, $6 million,
$6 million, and $6 million at September 30, 1994, June 30, 1994, March 31,
1994, and December 31, 1993 for Spain. Also included in cross-border
outstandings are restructured loans of $2 million for Hong Kong at June 30,
1993 and loans past due 90 days or more and still accruing interest of
$1 million for Hong Kong at June 30, 1994 and December 31, 1993.
/d/ No country excluded from this table had cross-border outstandings between
0.75 percent and 1.00 percent of total assets for any of the periods
presented except $1,816 million and $1,738 million for Italy at September
30, 1994 and June 30, 1994, respectively; $1,690 million and $1,522 million
for South Korea at September 30, 1994 and June 30, 1994, respectively; and
$1,489 million for the United Kingdom at September 30, 1993.
Not included in cross-border outstandings with Mexico were par bonds issued
by the government of Mexico with face values of $1,341 million at September
30, 1994, June 30, 1994, March 31, 1994, December 31, 1993, and September
30, 1993. The par bonds had a carrying value of $1,162 million at September
30, 1994, $1,153 million at June 30, 1994, $1,178 million at March 31, 1994,
and $1,297 million at December 31, 1993, and September 30, 1993. At
September 30, 1994, the par bonds had a total fair value of approximately
$910 million. Due to the first-quarter 1994 adoption of SFAS No. 115,
certain of these par bonds were recorded in available-for-sale securities
and carried at their fair value of $304 million at September 30, 1994, while
the remainder of these par bonds were recorded in held-to-maturity
securities at their amortized cost. Principal repayment of these par bonds
is collateralized by zero-coupon U.S. Treasury securities which, at maturity
in 2008 and 2019, will have a redemption value equal to the face value of
the par bonds. At September 30, 1994, this collateral had a fair value of
approximately $200 million. Future interest payments for a rolling eighteen-
month period are also collateralized by additional U.S. dollar-denominated
securities permitted by the agreement. The details of the transaction in
which the majority of these par bonds were acquired were reported in the
Parent's Annual Report on Form 10-K for the year ended December 31, 1990.
Mexico's cross-border outstandings also excluded additional loans of $30
million at September 30, 1994, and $45 million at June 30, 1994, March 31,
1994, December 31, 1993, and September 30, 1993, which are fully
collateralized at maturity by separate zero-coupon U.S. Treasury securities.
Had these par bonds and other instruments been included, total cross-border
outstandings with Mexico would have exceeded 0.75 percent of total assets
for all periods presented.
/e/ Sector definitions are based on Federal Financial Institutions Examination
Council Instructions for preparing the Country Exposure Report.
31
<PAGE>
CREDIT RISK MANAGEMENT
===============================================================================
ALLOWANCE FOR The allowance for credit losses at September 30, 1994 was
CREDIT LOSSES $3,625 million, or 2.61 percent of loan outstandings, compared
with $3,508 million, or 2.77 percent, at December 31, 1993.
Excluding outstandings in the residential first mortgage
portfolio and the portion of the allowance associated with
these outstandings, the ratios were 3.34 percent and 3.59
percent of loans at September 30, 1994 and December 31, 1993,
respectively. In addition, the Corporation's ratio of the
allowance for credit losses to total nonaccrual assets was 174
percent at September 30, 1994, up from 122 percent at December
31, 1993.
Although the allowance is general in nature and is available
for the credit portfolio in its entirety, management develops
the allowance using a "building block approach" for various
portfolio segments. The allowance is established by credit
officers for each portfolio segment. Significant credits,
particularly those classified as "doubtful," are individually
analyzed, while other credits are analyzed by portfolio
segment. In establishing the allowance for the portfolio
segments, credit officers initially employ results obtained
from statistical models using historical loan performance data.
These models have been developed and refined for various
portfolio segments over the last nine years. In addition to the
allowance amounts that would be required based on historical
loss experience, the credit officer responsible for each
portfolio segment makes adjustments based on qualitative
evaluations of individual classified assets, knowledge of
portfolio segment conditions, or on the officer's judgment of
factors that are expected to influence the future performance
of the portfolio. These factors include geographic and
portfolio concentrations, new products or markets, evaluations
of the changes in the historical loss experience component, and
projections of this component into the current and future
periods. The Composition of Allowance for Credit Losses table
below displays how the allowance for credit losses related to
special mention and classified assets is determined by
combining the historical loss experience component with the
credit management allocated component.
After an allowance has been established for the portfolio
segments, the final step in this building block approach
occurs. Credit management establishes an unallocated portion of
the allowance for credit losses, which is attributable to
factors that cannot be associated with a particular portfolio
segment. These factors include general economic conditions,
recognition of specific regional and international geographic
concerns, trends in portfolio growth, new business volume, and
the level of the allowance in relation to total loans and
nonaccrual assets.
===============================================================================
COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
----------------------------------------- -----------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special mention and classified:/a/
Historical loss experience component $ 292 $ 311 $ 401 $ 475 $ 590
Credit management allocated component 626 579 653 770 777
- ------------------------------------------------------------------------------------------------------------------------------
Total special mention and classified 918 890 1,054 1,245 1,367
Domestic consumer/b/ 1,048 1,042 1,079 1,072 1,099
Domestic commercial/b/ 225 166 148 151 160
Foreign/b/ 189 149 144 165 297
- ------------------------------------------------------------------------------------------------------------------------------
Total allocated 2,380 2,247 2,425 2,633 2,923
Unallocated 1,245 1,167 1,020 875 792
- ------------------------------------------------------------------------------------------------------------------------------
$3,625 $3,414 $3,445 $3,508 $3,715
- ------------------------------------------------------========================================================================
</TABLE>
/a/ Includes all loans regardless of type that have been internally risk rated
as "special mention," "substandard," or "doubtful." The Corporation's actual
historical loss experience indicates ultimate loss rates for all periods
presented for "special mention," "substandard," and "doubtful" loans of
approximately 2 percent, 6 percent, and 37 percent, respectively.
/b/ Excludes "special mention" and "classified".
32
<PAGE>
<TABLE>
==================================================================================================================================
QUARTERLY CREDIT LOSS EXPERIENCE
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 NINE MONTHS ENDED
---------------------------- ----------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD -----------------------
(DOLLAR AMOUNTS IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
Balance, beginning of period $3,414 $3,445 $3,508 $3,715 $3,781 $3,508 $3,921
CREDIT LOSSES
Domestic consumer:
Residential first mortgages 14 13 7 10 6 34 13
Credit card 93 96 102 108 115 291 380
Other consumer 73 81 90 94 96 244 310
Domestic commercial:
Commercial and industrial 9 18 11 54 49 38 176
Loans secured by restate 9 21 15 23 29 45 68
Construction and development loans secured by real estate 42 12 23 65 61 77 226
Loans for purchasing or carrying securities - - - - - - 2
Financial institutions - 1 - - 10 1 18
Lease financing - - - 1 1 - 8
Agricultural - 1 1 2 1 2 5
Foreign 7 9 24 13 10 40 23
- ----------------------------------------------------------------------------------------------------------------------------------
Total credit losses 247 252 273 370 378 772 1,229
CREDIT LOSS RECOVERIES
Domestic consumer:
Residential first mortgages 1 - - - 1 1 1
Credit card 19 11 12 13 13 42 40
Other consumer 30 27 25 27 30 82 87
Domestic commercial:
Commercial and industrial 34 21 20 45 24 75 66
Loans secured by real estate 6 7 4 16 8 17 17
Construction and development loans secured by real estate 22 18 24 45 21 64 42
Loans for purchasing or carrying securities - - - - - - 1
Financial institutions 2 2 2 - 1 6 2
Lease financing 1 1 2 2 1 4 4
Agricultural 2 2 2 1 2 6 9
Foreign 24 9 8 9 41 41 57
- ----------------------------------------------------------------------------------------------------------------------------------
Total credit loss recoveries 141 98 99 158 142 338 326
- ----------------------------------------------------------------------------------------------------------------------------------
Total net credit losses 106 154 174 212 236 434 903
Provision for credit losses 110 125 125 150 178 360 653
Allowance related to acquisitions 241/a/ - - - - 241/a/ 12/b/
Other net additions (deductions) (34)/c/ (2) (14)/d/ (145)/e/ (8) (50)/cd/ 32/f/
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD/g/ $3,625 $3,414 $3,445 $3,508 $3,715 $3,625 $3,715
- ----------------------------------------------------------========================================================================
ANNUALIZED RATIO OF NET CREDIT LOSSES (RECOVERIES)
TO AVERAGE LOAN OUTSTANDINGS
Domestic consumer:
Residential first mortgages 0.16% 0.16% 0.10% 0.12% 0.07% 0.14% 0.06%
Credit card 4.05 4.82 5.07 5.23 5.50 4.64 5.99
Other consumer 0.68 0.88 1.08 1.12 1.09 0.88 1.20
Domestic commercial:
Commercial and industrial (0.40) (0.05) (0.19) 0.20 0.50 (0.22) 0.70
Loans secured by real estate 0.11 0.63 0.50 0.29 0.84 0.41 0.69
Construction and development loans secured by real estate 2.07 (0.62) (0.14) 1.64 2.93 0.42 4.10
Loans for purchasing or carrying securities - - - - - - 0.19
Financial institutions (0.26) (0.37) (0.47) - 1.71 (0.36) 1.14
Lease financing (0.31) (0.32) (0.31) (0.19) - (0.31) 0.32
Agricultural (0.37) (0.14) (0.33) 0.09 (0.23) (0.28) (0.34)
Total domestic 0.44 0.59 0.61 0.79 1.02 0.54 1.18
Foreign (0.37) - 0.37 0.06 (0.62) (0.01) (0.23)
TOTAL 0.32 0.50 0.58 0.67 0.76 0.46 0.97
RATIO OF ALLOWANCE TO LOANS AT QUARTER END 2.61 2.73 2.79 2.77 2.95 2.61 2.95
EARNINGS COVERAGE OF NET CREDIT LOSSES/h/ 9.82x 6.66x 5.83x 4.77x 4.41x 7.10x 3.57x
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents the addition of consummation date allowances for credit losses of
Continental and Liberty Bank of $238 million and $3 million, respectively.
/b/ Represents the addition of consummation date allowance for credit losses of
First Gibraltar Bank, FSB.
/c/ This amount includes a $33 million reduction of the allowance related to the
sale of certain loans, primarily commercial and construction and development
loans secured by real estate, net of their allowance.
/d/ Primarily represents a reduction of the allowance due to the transfer of
certain debt-restructuring par bonds and other instruments issued by foreign
governments net of their related allowance to available-for-sale securities.
/e/ Due to the transfer of certain assets net of their related allowance to
other assets, the allowance for credit losses was reduced by $128 million,
which included $88 million of regulatory-related allocated transfer risk
reserve (ATRR). This amount also includes $16 million related to the sale of
commercial real estate loans net of their allowance.
/f/ Includes $36 million related to the consolidation of subsidiaries and
operations that were held for disposition at December 31, 1992.
/g/ Includes ATRR of $81 million and $80 million at September 30, 1993 and June
30, 1993, respectively. Due to the transfer of certain assets net of their
related allowance to other assets during the fourth quarter of 1993, the
allowance for credit losses does not include any ATRR subsequent to the
transfer.
/h/ Earnings coverage of net credit losses is calculated as income before income
taxes plus the provision for credit losses as a multiple of net credit
losses.
33
<PAGE>
===============================================================================
Net credit losses for the third quarter and first nine
months of 1994 declined $130 million and $469 million,
respectively, from the amounts reported in the same periods
last year. These declines reflected continued improvement in
various sectors of the Corporation's credit portfolio, most
notably in construction and development loans, commercial
and industrial loans, and credit card outstandings. These
decreases in net credit losses were partially offset by
higher charge-offs related to residential first mortgages
and foreign loans.
- -------------------------------------------------------------------------------
NONACCRUAL Total nonaccrual assets decreased $802 million, or 28
ASSETS, RESTRUC- percent, between year-end 1993 and September 30, 1994.
TURED LOANS, AND Excluding $245 million of nonaccrual assets obtained in
LOANS PAST DUE connection with the Continental merger, total nonaccrual
90 DAYS OR MORE assets at September 30, 1994 decreased $1,047 million, or
AND STILL ACCURING 36 percent, from their year-end 1993 level. This decrease
INTEREST was largely the result of full or partial payments and
loans restored to accrual status, which reflects improve-
ments in most segments of the credit portfolio,
particularly in the construction and development,
commercial and industrial, and loans secured by real estate
portfolios. In addition, $162 million of this decrease was
due to the sale of selected real-estate-related assets.
The improvement in the Corporation's credit quality during
the first nine months of 1994 was also reflected in the
Corporation's nonperforming asset ratios. At September 30,
1994, the ratio of nonaccrual loans to total loans was 1.49
percent, down from 2.28 percent at December 31, 1993. In
addition, the ratio of total nonperforming assets
(comprised of nonaccrual assets and other real estate
owned) to total assets declined 58 basis points since year-
end 1993 to 1.24 percent.
For further information concerning nonaccrual assets, refer
to the table below and the tables on pages 35-37.
<TABLE>
==============================================================================================================================
ANALYSIS OF CHANGE IN NONACCRUAL ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993
---------------------------------------- -----------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter $2,222 $2,498 $2,886 $3,928 $4,618
ADDITIONS
Loans placed on nonaccrual status 200 269 227 284 256
Acquired in the Continental merger 245 - - - -
DEDUCTIONS
Sales (167) (4) (30) (116) -
Restored to accrual status (145) (169) (195) (317) (326)
Foreclosures (19) (32) (72) (100) (196)
Charge-offs (47) (37) (40) (123) (99)
Restructuring-country-related assets
transferred to other assets - - - (310) -
Other, primarily payments (205) (303) (278) (360) (325)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF QUARTER $2,084 $2,222 $2,498 $2,886 $3,928
- ------------------------------------------------------========================================================================
</TABLE>
34
<PAGE>
<TABLE>
===============================================================================================================================
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE AND
STILL ACCRUING INTEREST
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993
----------------------------------- -----------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONACCRUAL ASSETS
Domestic consumer loans:
Residential first mortgages $ 359 $ 383 $ 426 $ 406 $ 359
Other consumer 49 41 45 53 52
Domestic commercial loans:
Commercial and industrial 352 236 372 457 539
Loans secured by real estate 412 588 553 570 742
Construction and development loans secured by real estate 672 724 819 1,037 1,545
Financial institutions 12 18 22 64 59
Lease financing 13 13 13 18 22
Agricultural 45 44 41 49 56
- --------------------------------------------------------------------------------------------------------------------------------
1,914 2,047 2,291 2,654 3,374
Foreign loans:
Commercial and industrial 95 97 119 139 356
Governments and official institutions 17 17 16 42 45
Banks and other financial institutions 10 8 9 11 64
Other 30 46 36 40 77
- --------------------------------------------------------------------------------------------------------------------------------
152 168 180 232 542
Other interest-bearing assets 18 7 27 - 12
- --------------------------------------------------------------------------------------------------------------------------------
$2,084/a/ $2,222/a/ $2,498/a/ $2,886/a/ $3,928
- ------------------------------------------------------------------==============================================================
RESTRUCTURED LOANS
Domestic commercial:
Commercial and industrial $ 79 $ 86 $ 86 $ 66 $ 79
Loans secured by real estate 11 13 12 21 6
Construction and development loans secured by real estate 2 2 6 10 16
Lease financing 1 1 1 1 1
Agricultural 1 1 1 - -
- --------------------------------------------------------------------------------------------------------------------------------
94 103 106 98 102
Foreign/b/ 36 36 36 36 36
- --------------------------------------------------------------------------------------------------------------------------------
$ 130 $ 139 $ 142 $ 134 $ 138
- ------------------------------------------------------------------==============================================================
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
Domestic consumer:
Residential first mortgages $ 91 $ 108 $ 121 $ 153 $ 220
Other consumer 147 152 169 175 185
Domestic commercial:
Commercial and industrial 76 19 3 20 51
Loans secured by real estate 70 122 64 138 125
Construction and development loans secured by real estate 34 96 113 86 67
Agricultural - - 7 - -
- --------------------------------------------------------------------------------------------------------------------------------
418 497 477 572 648
Foreign 2 1 5 6 13
- --------------------------------------------------------------------------------------------------------------------------------
$ 420 $ 498 $ 482 $ 578 $ 661
- ------------------------------------------------------------------==============================================================
</TABLE>
/a/ Excludes certain nonaccrual debt-restructuring par bonds and other
instruments issued by the governments of Brazil and Argentina that were
included in available-for-sale securities at their market value of $393
million at September 30, 1994 and $367 million at June 30, 1994. Also
excludes certain other nonaccrual loans and other instruments issued by
various governments of $44 million at September 30, 1994 and June 30, 1994,
$181 million at March 31, 1994, and $196 million at December 31, 1993 that
were included in other assets at the lower of cost or fair value.
/b/ Excludes debt restructurings with countries that have experienced liquidity
problems of $1.9 billion at September 30, 1994, June 30, 1994, and March 31,
1994, $2.4 billion at December 31, 1993, and $2.3 billion at September 30,
1993. Beginning in the first quarter of 1994, the majority of these
instruments were classified as either available-for-sale or held-to-maturity
securities. Prior to January 1, 1994, these instruments were classified as
loans.
35
<PAGE>
<TABLE>
===============================================================================================================================
INTEREST INCOME FOREGONE ON NONACCRUAL ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED
(IN MILLIONS) SEPTEMBER 30, 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
DOMESTIC
Interest income that would have been recognized had the assets
performed in accordance with their original terms $115
Less: Interest income included in the results of operations/a/ 35
- -------------------------------------------------------------------------------------------------------------------------------
Domestic interest income foregone 80
FOREIGN
Interest income that would have been recognized had the assets
performed in accordance with their original terms 10
Less: Interest income included in the results of operations/b/ 3
- -------------------------------------------------------------------------------------------------------------------------------
Foreign interest income foregone 7
- -------------------------------------------------------------------------------------------------------------------------------
$87
- ----------------------------------------------------------------------------------------------------------------------------===
</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 $386 million at September
30, 1994. Not included in interest income for the nine months ended
September 30, 1994 were interest payments of $35 million which, for
accounting purposes, were used to offset the principal balance of domestic
nonaccrual assets with carrying values totaling $632 million at September
30, 1994.
/b/ Interest income included in the results of foreign operations represents
interest payments recognized in interest income that related to foreign
nonaccrual assets with carrying values totaling $34 million at September
30, 1994. Not included in interest income for the nine months ended
September 30, 1994 were interest payments of $4 million which, for
accounting purposes, were used to offset the principal balance of foreign
nonaccrual assets with carrying values totaling $63 million at September
30, 1994.
36
<PAGE>
<TABLE>
================================================================================================================
CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
SEPTEMBER 30, 1994
---------------------------------------------------------------------------------
CUMULATIVE
CASH BOOK AS A
CONTRACTUAL INTEREST NONACCRUAL PERCENTAGE
PRINCIPAL CUMULATIVE APPLIED BOOK OF
(IN MILLIONS) BALANCE CHARGE-OFFS TO PRINCIPAL BALANCE/a/ CONTRACTUAL
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages $ 359 $ - $ - $ 359 100%
Other consumer 51 2 - 49 96
Commercial:
Commercial and industrial 599 188 55 356 59
Loans secured by real estate 578 74 92 412 71
Construction and development
loans secured by real estate 1,164 270 222 672 58
Financial institutions 29 14 3 12 41
Lease financing 20 6 1 13 65
Agricultural 61 13 3 45 74
- --------------------------------------------------------------------------------------------------------------
2,861 567 376 1,918 67
FOREIGN, EXCLUDING RESTRUCTURING-
COUNTRY-RELATED ASSETS
Commercial and industrial 162 45 22 95 59
Governments and official
institutions 17 - - 17 100
Banks and other financial
institutions 3 - - 3 100
Other 52 17 4 31 60
- --------------------------------------------------------------------------------------------------------------
234 62 26 146 62
- --------------------------------------------------------------------------------------------------------------
Total, excluding restructuring-
country-related assets 3,095 629 402 2,064 67
RESTRUCTURING-COUNTRY-RELATED
ASSETS 49 26 3 20 41
- --------------------------------------------------------------------------------------------------------------
$3,144 $655 $405 $2,084 66%
- -----------------------------------===========================================================================
- --------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------------------------------------
CASH INTEREST
PAYMENTS APPLIED
-------------------------------------------------------
AS INTEREST AS REDUCTION
INCOME OF PRINCIPAL TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages $ 9 $ - $ 9
Other consumer 1 - 1
Commercial:
Commercial and industrial 5 6 11
Loans secured by real estate 11 6 17
Construction and development
loans secured by real estate 7 22 29
Financial institutions - - -
Lease financing - 1 1
Agricultural 2 - 2
- --------------------------------------------------------------------------------------------------
35 35 70
FOREIGN, EXCLUDING RESTRUCTURING-
COUNTRY-RELATED ASSETS
Commercial and industrial 2 3 5
Governments and official institutions - - -
Banks and other financial institutions - - -
Other - 1 1
- --------------------------------------------------------------------------------------------------
2 4 6
- --------------------------------------------------------------------------------------------------
Total, excluding restructuring-
country-related assets 37 39 76
RESTRUCTURING-COUNTRY-RELATED ASSETS 1 - 1
- --------------------------------------------------------------------------------------------------
$38 $39 $77
- -----------------------------------------------===================================================
CASH YIELD ON TOTAL NONACCRUAL ASSETS 4.94%
__________________________________________________________________________________________________
</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.
37
<PAGE>
FOREIGN EXCHANGE AND OTHER DERIVATIVES
================================================================================
In the ordinary course of business, the Corporation enters into
various types of transactions that involve foreign exchange and
other derivative products with off-balance-sheet risk. Foreign
exchange and other derivative products include futures,
forwards, swaps, and option contracts, and are principally
linked to interest rates, foreign exchange rates, or the prices
of securities. Foreign exchange and other derivative
transactions are conducted with various types of
counterparties, including U.S. and foreign banks, nonbank
financial institutions, corporations, and middle market
customers. The following table is a summary of the notional or
contractual amounts, credit exposure amounts, and fair value
amounts associated with the Corporation's off-balance-sheet
trading and asset and liability management activities at
September 30, 1994. As illustrated below, the Corporation's
off-balance-sheet credit exposure with regard to foreign
exchange and other derivative products is a small fraction of
the respective notional or contractual amounts.
================================================================================
FOREIGN EXCHANGE AND OTHER DERIVATIVE PRODUCTS AT SEPTEMBER 30,1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTIONAL CREDIT FAIR
OR CONTRACT EXPOSURE VALUE
(IN BILLIONS) AMOUNT AMOUNT AMOUNT/a/
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADING
Foreign exchange contracts/b/ $ 771.2/c/ $ 5.3/d/ $ (0.7)
Interest rate swaps 340.9/c/ 1.9/de/ 0.6
Interest rate futures and forward contracts 204.0/c/ 0.2/d/ -
Interest rate options 72.7/c/ 0.2/d/ -
- --------------------------------------------------------------------------------------------------------------
$ 1,388.8/f/ $ 7.6 $ (0.1)
- --------------------------------------------------------======================================================
ASSET AND LIABILITY MANAGEMENT
Interest rate swaps $ 34.3/c/ $ 0.4 $ (0.5)
Interest rate futures and forward contracts 29.5/c/ - -/g/
Interest rate options 8.8/c/ - 0.1/g/
Other/h/ 1.6/c/ - 0.1
- --------------------------------------------------------------------------------------------------------------
$ 74.2/f/ $ 0.4 $ (0.3)
- --------------------------------------------------------======================================================
</TABLE>
/a/ Fair value amounts consist of net unrealized gains and losses, accrued
interest receivable or payable, and premiums paid or received. Such amounts
represent the net fair value of contracts with all counterparties. The fair
value 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.
/b/ Includes amounts related to foreign exchange spot, forward, future, and
option contracts and currency swaps.
/c/ Interest rate swaps, interest rate futures and forward contracts, and
interest rate options in both the trading and asset and liability management
portfolios include $12.5 billion, $0.6 billion, and $0.5 billion,
respectively, of intercompany hedging-related contracts. Both trading
foreign exchange contracts and other asset and liability management
contracts include $1.2 billion of intercompany hedging-related foreign
exchange forward contracts and currency swaps.
/d/ Amounts represent net unrealized gains on contracts with counterparties for
whom legally enforceable master netting agreements were in place and
effective at September 30, 1994 and gross unrealized gains on contracts with
other counterparties. Credit risk amounts in Note 9 of the Notes to
Consolidated Financial Statements on pages 12 and 13 do not give effect to
netting under legally enforceable master netting agreements. Accordingly,
these credit risk amounts differ from the credit exposure amounts detailed
above.
/e/ Includes the results of cross product netting of certain interest rate
derivatives and currency swaps.
/f/ Including intercompany hedging-related contracts of $18.3 billion in both
the trading and asset and liability management portfolios, the aggregate
notional or contract amounts of foreign exchange and other derivative
contracts outstanding at December 31, 1993 were $894.1 billion for the
trading portfolio and $64.5 billion for the asset and liability management
portfolio.
/g/ The fair value amounts for interest rate futures and forward contracts in
the asset and liability management portfolio include no gross unrealized
gains and gross unrealized losses of $11.4 million. The fair value amounts
for interest rate options in the asset and liability management portfolio
include gross unrealized gains of $64.8 million and no gross unrealized
losses.
/h/ Includes amounts related to foreign exchange forward contracts and currency
swaps.
The table on page 39 summarizes expected maturities and
weighted average interest rates associated with amounts to be
received or paid on asset and liability management interest
rate swaps at September 30, 1994. These swaps are designated as
accounting hedges and are used to modify the interest rate
characteristics of assets and liabilities. Excluding the
effects of the Continental merger, expected maturities and
weighted average interest rates associated with the
Corporation's asset and liability management interest rate swap
portfolio at September 30, 1994 were not significantly
different from those at year-end 1993. The table on page 39
reflects the combined post-Continental merger asset and
liability management interest rate swap portfolio at September
30, 1994.
38
<PAGE>
<TABLE>
=================================================================================================================
ASSET AND LIABILITY MANAGEMENT INTEREST RATE SWAPS AT SEPTEMBER 30, 1994/a/
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
More than More than More than More than More than More than
(IN BILLIONS) 0-1 1-2 2-3 3-4 4-5 5-10 10 Total
year years years years years years years
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS
RECEIVE FIXED:/b/
Notional amount $ 4.8 $ 2.2 $ 1.2 $ 0.8 $ 1.1 $ 8.4 $ 2.2 $20.7/c/
Weighted average receive rate 7.19% 6.69% 6.41% 7.65% 7.62% 6.22% 6.75% 6.69%
PAY FIXED:/b/
Notional amount 3.0 3.5 1.7 0.2 0.2 1.5 0.5 10.6
Weighted average pay rate 5.44% 4.68% 6.18% 6.61% 6.23% 4.95% 7.18% 5.36%
FORWARD RECEIVE FIXED:/d/
Notional amount - - 0.2 - - 0.7 0.2 1.1
Weighted average receive rate - - 5.93% - - 6.90% 6.66% 6.68%
FORWARD PAY FIXED:/d/
Notional amount - - 0.3 - - 0.8 - 1.1
Weighted average pay rate - - 6.28% - - 7.66% - 7.29%
BASIS SWAPS:/e/
Notional amount $ 0.4 $ 0.1 - - - $ 0.3 - $ 0.8
- -----------------------------------------------------------------------------------------------------------------
TOTAL NOTIONAL AMOUNT $34.3/f/
- ------------------------------------------------------------------------------------------------------------=====
</TABLE>
/a/ Includes intercompany hedging swaps.
/b/ The floating side of substantially all receive fixed and pay fixed swaps is
based on the one-, three-, or six-month London InterBank Offered Rate
(LIBOR). At September 30, 1994, the one-, three-, and six-month LIBOR rates
were 5.06 percent, 5.50 percent, and 5.75 percent, respectively.
/c/ Includes $0.6 billion of amortizing swaps.
/d/ Accrual of interest on forward swaps starts at a predetermined future date.
The majority of the forward swaps start accruing interest one to three years
after September 30, 1994.
/e/ Basis swaps are interest rate swaps in which both amounts paid and received
are based on floating rates. The Corporation's pay rates are primarily based
on a LIBOR or Prime index and its receive rates are primarily based on
LIBOR.
/f/ Includes $6.0 billion of interest rate swaps related to Continental.
Approximately 60 percent of the Corporation's hedging-related
interest rate futures and forward rate agreements outstanding at
September 30, 1994 mature within one year, while approximately 85
percent of its hedging-related option contracts mature within three
years. Excluding Continental, approximately 70 percent of the
Corporation's hedging-related interest rate futures and forward rate
agreements outstanding at September 30, 1994 mature within one year,
while approximately 85 percent of its hedging-related option
contracts mature within three years. Excluding Continental, the
above maturity distributions at September 30, 1994 were not
significantly different from those at year-end 1993. With respect to
the maturity distribution of Continental's hedging-related interest
rate futures contracts at September 30, 1994, approximately 30
percent mature within one year, approximately 40 percent mature
between one and two years, approximately 20 percent mature
between two and three years, and approximately 10 percent mature
after three years.
All of the Corporation's hedging-related foreign exchange forward
contracts outstanding at September 30, 1994 mature within 60 days.
At September 30, 1994, the maturity distribution of the
Corporation's hedging-related foreign exchange forward contracts was
substantially the same as at December 31, 1993. At both September
30, 1994 and December 31, 1993, the Corporation's hedging-related
foreign exchange forward contracts were denominated in various
currencies, most notably Hong Kong dollars and Spanish pesetas. The
Corporation's hedging-related currency swaps were not significant at
either September 30, 1994 or December 31, 1993.
For additional information concerning foreign exchange and other
derivative transactions and their associated credit risk amounts,
refer to Note 9 of the Notes to Consolidated Financial Statements
on pages 12 and 13.
39
<PAGE>
FUNDING AND CAPITAL
===============================================================================
LIQUIDITY Liquid assets consist of cash and due from banks, interest-bearing
deposits in banks, federal funds sold, securities purchased under
resale agreements, trading account assets, and available-for-sale
securities. At September 30, 1994, liquid assets totaled $40.7
billion, up $11.5 billion from $29.2 billion at December 31, 1993.
This growth in liquid assets can be primarily attributed to a $7.9
billion increase in available-for-sale-securities, largely as a
result of asset transfers made in connection with the previously
discussed first-quarter 1994 adoption of SFAS No. 115 and the
Continental merger. In addition, cash and due from banks and
interest-bearing deposits in banks increased $2.0 billion, and $1.9
billion, respectively.
- -------------------------------------------------------------------------------
CAPITAL At September 30, 1994, stockholders' equity totaled $18.9 billion,
up from $17.1 billion at December 31, 1993. Of this increase, $1.0
billion was due to year-to-date 1994 earnings net of preferred and
common stock dividends. In addition, common stockholders' equity and
preferred stock increased $0.6 billion and $0.4 billion,
respectively, primarily due to stock issuances in connection with
the Continental merger. These increases were partially offset by the
adoption of SFAS No. 115, which resulted in $201 million of net
unrealized losses on available-for-sale securities (net of related
income taxes) at September 30, 1994.
Upon consummation of the Continental merger on August 31, 1994, each
outstanding share of Continental's common stock was converted into
either BankAmerica Corporation's common stock or cash. The total
amount of common stock issued in connection with the Continental
merger was 21.5 million shares, valued at $985 million as of January
27, 1994, which included 11.8 million shares of treasury stock
purchased in anticipation of the merger at an average per-share
price of $42.43. In addition, an aggregate amount of approximately
$950 million was paid in cash to Continental common stockholders.
The Corporation's total and Tier 1 risk-based capital ratios
decreased 41 basis points and 37 basis points, respectively, between
December 31, 1993 and September 30, 1994. These declines were
primarily due to the increase in total risk weighted assets in
connection with the Continental merger. The Corporation's Tier 1
leverage ratio was 6.64 percent at both September 30, 1994 and
December 31, 1994.
40
<PAGE>
<TABLE>
===================================================================================================================================
RISK-BASED CAPITAL AND RISK-BASED CAPITAL RATIOS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993
------------------------------------------- -----------------------------
(DOLLAR AMOUNTS IN MILLIONS)/a/ SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL
Common stockholders' equity $ 15,763/b/ $ 14,324/b/ $ 14,136/b/ $ 14,165 $ 13,826
Perpetual preferred stock 3,368 2,979 2,979 2,979 2,979
Less: Goodwill, nongrandfathered core deposit and
other identifiable intangibles, and other deductions/c/ (5,589) (5,028) (5,060) (5,125) (5,291)
- -----------------------------------------------------------------------------------------------------------------------------------
TIER 1 CAPITAL 13,542 12,275 12,055 12,019 11,514
Eligible portion of the allowance for credit losses
(exclusive of allocated transfer risk reserve)/d/ 2,356 2,048 1,990 1,995 2,022
Hybrid capital instruments/e/ 337 478 562 568 582
Subordinated notes and debentures/f/ 5,558 4,946 4,699 4,422 4,477
Less: Other deductions (104) (91) (47) (37) (24)
- -----------------------------------------------------------------------------------------------------------------------------------
TIER 2 CAPITAL 8,147 7,381 7,204 6,948 7,057
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL $ 21,689 $ 19,656 $ 19,259 $ 18,967 $ 18,571
- -----------------------------------------------------------========================================================================
RISK WEIGHTED ASSETS $187,071 $162,372 $157,704 $158,015 $160,035
- -----------------------------------------------------------========================================================================
RISK-BASED CAPITAL RATIOS
Tier 1 capital 7.24% 7.56% 7.64% 7.61% 7.19%
Tier 2 capital 4.35 4.55 4.57 4.39 4.41
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL RATIO 11.59% 12.11% 12.21% 12.00% 11.60%
- -----------------------------------------------------------========================================================================
TIER 1 LEVERAGE RATIO/g/ 6.64%/h/ 6.55% 6.37% 6.64% 6.42%
===================================================================================================================================
</TABLE>
/a/ Due to the first-quarter 1993 adoption of SFAS No. 109, "Accounting for
Income Taxes," core deposit intangibles (CDI) and other identifiable
intangibles that are normally deducted from Tier 1 capital under the current
guidelines of the federal banking regulators were $518 million, $489
million, $500 million, $510 million, and $516 million higher at September
30, 1994, June 30, 1994, March 31, 1994, December 31, 1993, and September
30, 1993, respectively, with corresponding increases in deferred taxes. The
federal banking regulators have not issued final capital regulations on the
adoption of SFAS No. 109 and are currently considering whether such
increased intangibles should be deducted from capital. Management believes
that the increased amounts of CDI and other identifiable intangibles
resulting from the adoption of SFAS No. 109 do not pose a risk to the
Corporation's capital and should not be deducted from capital in determining
capital ratios. Pending final resolution of this issue by the banking
regulators, such amounts have not been deducted from capital in determining
the capital ratios shown above.
/b/ Excludes net unrealized losses on available-for-sale securities of $201
million, $210 million, and $252 million at September 30, 1994, June 30,
1994, and March 31, 1994, respectively, resulting from the adoption of SFAS
No. 115.
/c/ Includes nongrandfathered CDI and other identifiable intangibles acquired
after February 19, 1992 of $953 million and $110 million, respectively, at
September 30, 1994, $965 million and $63 million, respectively, at June 30,
1994, $985 million and $67 million, respectively, at March 31, 1994, $1,008
million and $71 million, respectively, at December 31, 1993, and $1,034
million and $84 million, respectively, at September 30, 1993, excluding tax
gross-ups due to the adoption of SFAS N0. 109. Also includes $28 million,
$24 million, $30 million, $35 million, and $51 million at September 30,
1994, June 30, 1994, March 31, 1994, December 31, 1993, and September 30,
1993, respectively, of the excess of the net book value over 90 percent of
the fair value of purchased mortgages 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 $104 million at September
30, 1994, $91 million at June 30, 1994, $47 million at March 31, 1994, $37
million at December 31, 1993, and $25 million at September 30, 1993.
/h/ The leverage ratio is based on period-end total assets rather than average
total assets as this ratio is more indicative of future leverage ratios. The
ratio using Tier 1 capital based on average total assets was 7.02% at
September 30, 1994.
41
<PAGE>
===============================================================================
INTEREST Because of the interest rate sensitivity of financial products,
RATE RISK fluctuations in interest rates expose the Corporation to potential
MANAGEMENT gains and losses. In an effort to limit its exposure to such losses,
the Corporation strives to manage the repricing characteristics of
its assets and liabilities. The Corporation evaluates its interest
rate risk exposure by analyzing the repricing characteristics of its
on- and off-balance-sheet positions. A summary of these
characteristics is shown on page 43 in the Accrual Book Risk
Positions table at September 30, 1994.
The table shows that, at September 30, 1994, in the one-year-or-less
categories, aggregate U.S. dollar-denominated liabilities exceeded
assets by $1 billion. While the Corporation strives to limit current
earnings sensitivity to interest rate movements, managers are
allowed, within approved limits, to take short-term 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 September 30, 1994, U.S. dollar-
denominated assets exceeded liabilities and equity by $1 billion.
The Corporation manages this term risk to preserve ongoing earnings
competitiveness and promote market price stability of its common
equity.
The Corporation also attempts to maintain an approximately neutral
overall strategic position to possible interest rate movements while
recognizing common equity as a long term source of funds. Both on-
balance-sheet securities and off-balance-sheet instruments are used
to manage exposure to interest rate risk. Selected off-balance-sheet
instruments, including futures, forward rate agreements, and swaps,
are designated as hedges by the Corporation to manage repricing
mismatches. At September 30, 1994, off-balance-sheet instruments
acquired for hedging purposes containing a short embedded option
component were insignificant. At September 30, 1994, the Corporation
held interest rate swap contracts with a gross notional value of $34
billion in support of these accrual book risk management activities.
The amount of fixed indexed amortizing swaps held at September 30,
1994 was less than two percent of the total asset and liability
management interest rate swaps portfolio.
At September 30, 1994, an imbalance in customer business, primarily
more deposit balances than loan assets, caused liabilities and
equity to exceed customer-related assets by $16 billion. This
structural imbalance and its related repricing mismatch effects were
mitigated by the Corporation's risk management activities. As shown
in the table on page 43, under-one-year securities and off-balance-
sheet risk management positions modified a $4 billion structural gap
mismatch exposure to ($1) billion. Over-one-year risk management
positions reduced the structural gap mismatch of $(20) billion by
$21 billion.
While the Accrual Book Risk Positions table on page 43 provides an
indication of the potential impact on the Corporation of a change in
interest rates, it does not fully depict the Corporation's exposure
to risks resulting from interest rate fluctuations. Certain assets
and liabilities have option-like characteristics that can affect the
Corporation's income through the exercise of these options as
interest rates change. The Corporation's exposure from these option-
like characteristics is separately evaluated and contained with net
purchased interest rate options in an effort to manage the magnitude
of potential gains or losses from changes in interest rates.
42
<PAGE>
<TABLE>
===================================================================================================================================
ACCRUAL BOOK RISK POSITIONS AT SEPTEMBER 30, 1994/a/
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
More than More than SUBTOTAL More than More than SUBTOTAL
0-3 3-6 6-12 less than 1-5 5 more than
(IN BILLIONS) months months months 1 YEAR years years 1 YEAR TOTAL
____________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STRUCTURAL GAP POSITION/b/ $ 7 $ 2 $(5) $ 4 $(7) $(13) $(20) $(16)
RISK MANAGEMENT POSITIONS/c/
Securities/d/ 2 1 2 5 5 6 11 16
Off-balance-sheet hedging
instruments (9) (4) 3 (10) 1 9 10 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total risk management positions (7) (3) 5 (5) 6 15 21 16
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL GAP POSITION $ - $(1) $ - $ (1) $(1) $ 2 $ 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 available-for-sale and held-to-maturity securities.
Gap positions with maturities less than one year are actively
managed, and as such, vary continuously and appreciably. As a
consequence, positions in place at quarter end are not necessarily
indicative of positions held throughout a quarter. Gap mismatches
with maturities in excess of one year (Term Book gaps) are more
stable. Management of these positions is focused on reducing
structural gap mismatches. At inception, off-balance-sheet
transactions reduce term mismatch risk. Occasionally, new customer
business reduces longer maturity structural mismatches, leaving an
excess of previously executed hedge contracts in a particular
maturity range. These management positions may be reversed depending
on the overall risk characteristics of the Term Book.
43
<PAGE>
OTHER INFORMATION
===============================================================================
ITEM 6. (a) Exhibits:
EXHIBITS AND
REPORTS ON Exhibit
FORM 8-K Number Exhibit
------ -------
10 BankAmerica Corporation Retirement Plan for
Nonofficer Directors, as amended*
27 Financial Data Schedule
--------------------------------------------------------------
*Management contract or compensatory plan, contract, or
arrangement.
(b) Reports on Form 8-K:
During the third quarter of 1994, the Parent filed reports on
Form 8-K dated July 18, 1994, July 20, 1994, August 11, 1994,
August 22, 1994 and August 31, 1994. The July 18, 1994 report
disclosed, pursuant to Item 5 of the report, certain
information on the approval by the Board of Governors of the
Federal Reserve System of the pending Continental acquisition.
The July 20, 1994 report filed, pursuant to Items 5 and 7 of
the report, a copy of the Parent's press release titled
"BankAmerica Second Quarter Earnings." The August 11, 1994
report filed, pursuant to Items 5 and 7 of the report, certain
historical and unaudited historical and pro forma combined
financial information for the Parent and Continental. The
August 22, 1994 report filed, pursuant to Items 5 and 7 of the
report, copies of certain documents relating to offerings of
the Parent's debt securities and a tax opinion relating to the
shelf registration for such debt securities. The August 31,
1994 report disclosed, pursuant to Items 2 and 7 of the report,
certain financial and other information in connection with the
consummation of the merger of Continental with and into the
Parent. After the third quarter of 1994, the Parent filed a
report on Form 8-K dated October 19, 1994. The October 19, 1994
report filed, pursuant to Items 5 and 7 of the report, a copy
of the Parent's press release titled "BankAmerica Third Quarter
Earnings."
44
<PAGE>
SIGNATURES
===============================================================================
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BANKAMERICA CORPORATION
Registrant
By Principal Financial Officer and
Duly Authorized Signatory:
/s/ Lewis W. Coleman
---------------------
LEWIS W. COLEMAN
Vice Chairman of the Board,
Chief Financial Officer and Treasurer
November 10, 1994
By Principal Accounting Officer and
Duly Authorized Signatory:
/s/ James H. Williams
---------------------
JAMES H. WILLIAMS
Executive Vice President
November 10, 1994
45
<PAGE>
[BankAmerica Corporation Logo Appears Here]
Other information about BankAmerica
Corporation may be found in its Quarterly
Report to Shareholders and its Annual
Report to Shareholders. These reports, as
well as additional copies of this Analytical
Review and Form 10-Q, may be
obtained from:
Corporate Public Relations #3124
Bank of America
P.O. Box 37000
San Francisco, CA 94137
(Recycled paper logo appears here.)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
10 BankAmerica Corporation Retirement Plan for
Nonofficer Directors, as amended*
27 Financial Data Schedule
- --------------------------------------------------------------------
*Management contract or compensatory plan, contract, or arrangement.
<PAGE>
EXHIBIT 10
Effective August 1, 1994
THE AMENDED AND RESTATED BANKAMERICA CORPORATION
RETIREMENT PLAN FOR NONOFFICER DIRECTORS
1. Purpose and Effective Date. The purpose of the BankAmerica
--------------------------
Corporation Retirement Plan for Nonofficer Directors is to promote the interests
of BankAmerica Corporation and its shareholders by providing retirement benefits
to nonofficer directors of BankAmerica Corporation in order to encourage their
continued service on the Board of Directors of BankAmerica Corporation.
The Plan was effective August 7, 1989. The Plan was amended March 2,
1992 and August 1, 1994.
2. Definitions. The following terms shall have the meanings set
-----------
forth below, if capitalized:
(a) "Annual Retainer" means (i) for Eligible Directors whose
Retirement occurred prior to August 1, 1994, the current annual retainer paid to
Board members for service on the Board as adjusted from time to time; (ii) for
Eligible Directors whose Retirement occurs on or after August 1, 1994, the
annual retainer paid to Board members for service on the Board as in effect at
the time of the Eligible Director's Retirement. In either case, the definition
does not include any additional amount paid for service on a Board committee or
as Board committee chairman or any amount specifically paid for attendance at
Board or at Board committee Meetings.
(b) "Board" means the Board of Directors of BankAmerica
Corporation.
(c) "Eligible Director" means a member of the Board (including an
advisory director) who is not, and has not been, an officer of BankAmerica
Corporation or any of its subsidiaries while serving on the Board or during the
ten years prior to election to the Board. In order to be eligible, a director
must also be a member of the Board on or after the effective date of the Plan.
(d) "Plan" means the BankAmerica Corporation Retirement Plan for
Nonofficer Directors, as amended from time to time.
(e) "Retirement" occurs when an Eligible Director (i) does not
stand for reelection because of the Board's mandatory retirement policy after
serving on the Board for sixty months or more; (ii) ceases to be a member of the
Board after serving on the Board for 120 or more months.
3. Retirement Payments. Upon his or her Retirement, an Eligible
-------------------
Director shall be paid each quarter an amount equal to one-fourth of the Annual
Retainer. The initial payment shall be made as of the last day of the calendar
quarter in which Retirement occurs and the payments shall continue each quarter
thereafter for a period equal to the number of years of service by the Eligible
Director on the Board prior to Retirement, not to
<PAGE>
exceed ten years. If an Eligible Director dies after completing the service
requirement for Retirement, but prior to receiving all retirement payments, any
remaining payments shall be made to such deceased director's surviving spouse.
If the deceased director has no surviving spouse, no further payments shall be
made.
4. Disability. If an Eligible Director ceases to serve on the Board
----------
as a result of disability, the Board in its sole discretion, may waive the
minimum service requirements or permit the commencement of retirement benefits
prior to age 65.
5. Gross Misconduct. If an Eligible Director ceases to serve on the
----------------
Board as a result of gross misconduct, as determined by the Board in its sole
discretion, any retirement benefits payable under the Plan to such Eligible
Director shall be immediately and irrevocably cancelled.
6. Amendment and Termination. The Board reserves the right to amend,
-------------------------
suspend or terminate this Plan at any time. However no such amendment,
suspension or termination shall adversely affect retirement payments to be made
to an Eligible Director who retires prior to such amendment, suspension or
termination.
7. Prohibition or Alienation. No director shall have the right to
-------------------------
alienate, assign, encumber, hypothecate, or pledge his or her interest in any
payments to be made under the Plan, voluntarily or involuntarily, and any
attempt to so dispose of any such interest shall be void. BankAmerica
Corporation shall have the right to set off against retirement payments under
the Plan any amounts due and owing from the Eligible Director to BankAmerica
Corporation and its subsidiaries or affiliates, to the extent permitted by law.
8. Unfunded Plan. The Plan is unfunded and BankAmerica Corporation
-------------
shall not be required to physically segregate any cash or establish any separate
account or accounts to fund any retirement payment to be made under the Plan.
9. Entire Plan. This document is a complete statement of the Plan
-----------
and as of its effective date supersedes all prior plans, proposals,
representations, promises, inducements, written or oral, relating to its subject
matter. BankAmerica Corporation shall not be bound by or liable to-any director
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.
10. Applicable Law. The Plan will be construed and enforced in
--------------
accordance with the laws of California.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1994 CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS, AVERAGE
BALANCES, INTEREST, AND AVERAGE RATES, NONACCRUAL ASSETS, RESTRUCTURED LOANS,
AND LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST, QUARTERLY CREDIT
LOSS EXPERIENCE, AND COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING.
Any item provided in the schedule, in accordance with the rules governing the
schedule, will not be subject to liability under the federal securities laws,
except to the extent that the financial statements and other information from
which the data were extracted violate the federal securities laws. Also,
pursuant to Item 601(c)(1)(iv) of Regulation S-K promulgated by the Securities
and Exchange Commission (SEC), the schedule shall not be deemed filed for
purposes of Section 11 of the Securities Act of 1933, Section 18 of the Exchange
Act of 1934 and Section 323 of the Trust Indenture Act, or otherwise be subject
to the liabilities of such sections, nor shall it be deemed a part of any
registration statement to which it relates.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 12,493
<INT-BEARING-DEPOSITS> 4,884
<FED-FUNDS-SOLD> 5,044
<TRADING-ASSETS> 7,103
<INVESTMENTS-HELD-FOR-SALE> 11,166
<INVESTMENTS-CARRYING> 8,700
<INVESTMENTS-MARKET> 8,018
<LOANS> 138,691
<ALLOWANCE> 3,625
<TOTAL-ASSETS> 214,230
<DEPOSITS> 152,666
<SHORT-TERM> 12,764
<LIABILITIES-OTHER> 14,761
<LONG-TERM> 15,109<F1>
0
3,368
<COMMON> 580
<OTHER-SE> 14,982
<TOTAL-LIABILITIES-AND-EQUITY> 214,230
<INTEREST-LOAN> 7,010
<INTEREST-INVEST> 1,040
<INTEREST-OTHER> 855<F2>
<INTEREST-TOTAL> 8,905
<INTEREST-DEPOSIT> 2,318
<INTEREST-EXPENSE> 3,375
<INTEREST-INCOME-NET> 5,530
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 5,543
<INCOME-PRETAX> 2,723
<INCOME-PRE-EXTRAORDINARY> 2,723
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,585
<EPS-PRIMARY> 3.95
<EPS-DILUTED> 3.93
<YIELD-ACTUAL> 4.49
<LOANS-NON> 2,066
<LOANS-PAST> 420
<LOANS-TROUBLED> 130
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,508
<CHARGE-OFFS> 772
<RECOVERIES> 338
<ALLOWANCE-CLOSE> 3,625
<ALLOWANCE-DOMESTIC> 0<F3>
<ALLOWANCE-FOREIGN> 0<F3>
<ALLOWANCE-UNALLOCATED> 1,246
<FN>
<F1>Includes subordinated capital notes of $605 million.
<F2>Includes interest income on trading account assets of $349 million.
<F3>These amounts are not reported in our interim filing.
</FN>
</TABLE>
