<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, 1997
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 ----- 693,467,827 shares outstanding on
September 30, 1997.*
*In addition, 81,173,357 shares were held in treasury.
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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
BankAmerica Corporation's Annual Report on Form 10-K for the year ended December
31, 1996, including the consolidated financial statements and notes thereto.
<PAGE>
BANKAMERICA CORPORATION ANALYTICAL REVIEW AND FORM 10-Q
[BANK AMERICA CORPORATION LOGO APPEARS HERE]
1997
3RD Q U A R T E R
<PAGE>
CONTENTS
<TABLE>
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<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............................................................................... 21
Business Sectors......................................................................... 24
Operating Leverage and Capital Management................................................ 27
Results of Operations:
Net Interest Income.................................................................... 29
Noninterest Income..................................................................... 32
Noninterest Expense.................................................................... 35
Income Taxes........................................................................... 36
Balance Sheet Review:.................................................................... 37
Credit Card Securitization............................................................. 38
Credit Risk Management:
Loan Portfolio Management.............................................................. 40
Domestic Consumer Loans.............................................................. 41
Domestic Commercial Loans............................................................ 42
Foreign Loans........................................................................ 42
Regional Foreign Exposures............................................................. 43
Allowance for Credit Losses............................................................ 45
Nonperforming Assets................................................................... 48
Interest Rate, Foreign Exchange and Commodity
Derivative Financial Instruments........................................................ 51
Interest Rate Risk Management............................................................ 52
Funding and Capital:
Liquidity Review....................................................................... 54
Capital Management..................................................................... 54
Forward-Looking Statements............................................................... 57
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Part II Item 6.
Other Information Exhibits and Reports on Form 8-K............................................................. 58
Signatures................................................................................... 59
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</TABLE>
1
<PAGE>
FINANCIAL STATEMENTS
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996 NINE MONTHS ENDED
-------------------------------- ----------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD -----------------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER 1997 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $3,522 $3,497 $3,423 $3,388 $3,371 $10,442 $9,975
Interest-bearing deposits in banks 107 105 99 145 95 311 308
Federal funds sold 14 9 8 7 9 31 22
Securities purchased under resale agreements 208 180 155 144 178 543 509
Trading account assets 323 298 269 270 268 890 731
Available-for-sale and held-to-maturity securities 277 270 286 284 285 833 876
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TOTAL INTEREST INCOME 4,451 4,359 4,240 4,238 4,206 13,050 12,421
INTEREST EXPENSE
Deposits 1,502 1,424 1,366 1,406 1,332 4,292 3,953
Federal funds purchased 11 19 13 20 17 43 59
Securities sold under repurchase agreements 227 178 149 155 201 554 540
Other short-term borrowings 268 287 275 254 243 830 629
Long-term debt 249 257 263 273 261 769 783
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TOTAL INTEREST EXPENSE 2,257 2,165 2,066 2,108 2,054 6,488 5,964
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NET INTEREST INCOME 2,194 2,194 2,174 2,130 2,152 6,562 6,457
PROVISION FOR CREDIT LOSSES 260 250 220 220 235 730 665
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NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,934 1,944 1,954 1,910 1,917 5,832 5,792
NONINTEREST INCOME
Deposit account fees 364 361 360 364 345 1,085 1,035
Credit card fees 96 93 87 94 92 276 261
Trust fees 62 61 57 57 53 180 172
Other fees and commissions 424 417 375 370 360 1,216 1,013
Trading income 223 218 188 134 153 629 496
Private equity investment activities 140 83 99 108 97 322 319
Net gain on sales of subsidiaries and operations 139 27 13 5 41 179 175
Net gain on sales of loans 53 44 59 20 25 156 69
Net gain on available-for-sale securities 33 14 20 20 7 67 41
Gain on issuance of subsidiary's stock - - - 147 - - -
Other income 136 124 127 180 146 387 332
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TOTAL NONINTEREST INCOME 1,670 1,442 1,385 1,499 1,319 4,497 3,913
NONINTEREST EXPENSE
Salaries 892 873 839 834 822 2,604 2,457
Employee benefits 177 189 189 167 191 555 606
Occupancy 192 183 186 193 188 561 564
Equipment 182 173 182 184 180 537 518
Communications 95 96 93 92 89 284 271
Amortization of intangibles 88 89 91 92 93 268 281
Professional services 107 82 75 95 87 264 248
Regulatory fees and related expenses 10 10 10 2 95 30 121
Restructuring charges - - - 280 - - -
Other expense 489 352 368 311 336 1,209 1,025
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TOTAL NONINTEREST EXPENSE 2,232 2,047 2,033 2,250 2,081 6,312 6,091
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INCOME BEFORE INCOME TAXES 1,372 1,339 1,306 1,159 1,155 4,017 3,614
PROVISION FOR INCOME TAXES 553 540 526 412 472 1,619 1,488
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NET INCOME $ 819 $ 799 $ 780 $ 747 $ 683 $2,398 $2,126
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EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $1.11 $1.07 $1.03 $0.96 $0.87 $3.20 $2.69
EARNINGS PER COMMON SHARE--ASSUMING FULL DILUTION 1.11 1.07 1.03 0.96 0.87 3.20 2.69
DIVIDENDS DECLARED PER COMMON SHARE 0.305 0.305 0.305 0.27 0.27 0.915 0.81
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</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
===================================================================================================================================
1997 1996
------------------------------------------ -----------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
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<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 13,854 $ 14,884 $ 13,561 $ 16,223 $ 13,619
Interest-bearing deposits in banks 5,368 7,037 6,390 5,708 5,829
Federal funds sold 48 270 153 134 306
Securities purchased under resale agreements 10,076 7,272 7,730 7,275 6,287
Trading account assets 16,351 16,765 12,931 12,205 14,000
Available-for-sale securities 12,408 11,959 11,532 12,113 11,717
Held-to-maturity securities 3,689 3,858 3,972 4,138 4,200
Loans 166,986 168,806 167,338 165,415 161,833
Less: Allowance for credit losses 3,504 3,563 3,538 3,523 3,511
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Net loans 163,482 165,243 163,800 161,892 158,322
Customers' acceptance liability 3,154 3,230 3,229 2,861 3,165
Accrued interest receivable 1,593 1,567 1,441 1,441 1,435
Goodwill, net 3,727 3,842 3,888 3,938 4,017
Identifiable intangibles, net 1,459 1,499 1,554 1,616 1,664
Unrealized gains on off-balance-sheet instruments 7,892 7,319 7,813 7,682 6,598
Premises and equipment, net 3,909 3,944 3,985 3,987 3,968
Other assets 10,510 9,674 7,925 9,540 7,826
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TOTAL ASSETS $257,520 $258,363 $249,904 $250,753 $242,953
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Interest-bearing $ 94,074 $ 83,308 $ 84,071 $ 84,133 $ 83,779
Noninterest-bearing 31,206 41,434 39,561 39,694 37,589
Deposits in foreign offices:
Interest-bearing 44,450 46,667 43,854 42,732 42,035
Noninterest-bearing 1,683 1,759 1,513 1,456 1,498
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Total deposits 171,413 173,168 168,999 168,015 164,901
Federal funds purchased 1,349 1,730 730 2,176 1,093
Securities sold under repurchase agreements 11,024 9,699 7,124 7,644 8,489
Other short-term borrowings 18,701 18,327 18,883 17,566 16,263
Acceptances outstanding 3,154 3,230 3,229 2,861 3,165
Accrued interest payable 1,023 958 921 879 868
Unrealized losses on off-balance-sheet instruments 7,541 7,157 7,473 7,633 6,458
Other liabilities 7,318 7,117 5,850 6,004 5,750
Long-term debt 14,198 14,736 14,725 15,785 15,454
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TOTAL LIABILITIES 235,721 236,122 227,934 228,563 222,441
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Corporation obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
junior subordinated deferrable interest debentures
of the corporation (trust preferred securities) 1,873 1,873 1,873 1,477 -
STOCKHOLDERS' EQUITY
Preferred stock 848 1,596 1,596 2,242 2,242
Common stock 1,210 1,210 605 605 605
Additional paid-in capital 7,947 7,872 8,473 8,467 8,458
Retained earnings 13,168 12,598 12,029 11,500 10,989
Net unrealized gain (loss) on available-for-sale
securities 108 13 (90) 32 (27)
Common stock in treasury, at cost (3,355) (2,921) (2,516) (2,133) (1,755)
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TOTAL STOCKHOLDERS' EQUITY 19,926 20,368 20,097 20,713 20,512
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $257,520 $258,363 $249,904 $250,753 $242,953
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</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
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NINE MONTHS ENDED SEPTEMBER 30
------------------------------
(IN MILLIONS) 1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,398 $ 2,126
Adjustments to net income to arrive at net cash used by operating activities:
Provision for credit losses 730 665
Net gain on sales of loans and subsidiaries and operations (335) (244)
Depreciation and amortization 656 665
Provision for deferred income taxes 293 466
Change in assets and liabilities net of effects from acquisitions
and pending dispositions:
(Increase) decrease in accrued interest receivable (152) 22
Increase in accrued interest payable 144 22
Increase in trading account assets (4,146) (4,484)
Increase in current income taxes payable 454 71
Deferred fees received from lending activities 121 187
Net cash used by loans held for sale (879) (553)
Other, net (557) (1,305)
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Net cash used by operating activities (1,273) (2,362)
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales proceeds 1,447 1,127
Maturities, prepayments, and calls 4,146 4,483
Purchases (5,811) (5,205)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls 687 934
Purchases (240) (515)
Proceeds from loan sales and securitizations 5,882 3,194
Purchases of loans (357) (2,407)
Purchases of premises and equipment (427) (479)
Proceeds from sales of other real estate owned 356 392
Net cash provided (used) by:
Loan originations and principal collections (7,514) (8,735)
Interest-bearing deposits in banks 520 (71)
Federal funds sold 86 415
Securities purchased under resale agreements (2,801) (1,325)
Other, net 90 198
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Net cash used by investing activities (3,936) (7,994)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 1,244 2,864
Principal payments and retirements of long-term debt (2,419) (2,442)
Net proceeds from issuance of trust preferred securities 396 -
Proceeds from issuance of common stock - 83
Proceeds from issuance of treasury stock 156 46
Preferred stock redeemed (1,394) (391)
Treasury stock purchased (1,487) (901)
Common stock dividends (642) (587)
Preferred stock dividends (86) (141)
Net cash provided (used) by:
Deposits 3,398 4,466
Federal funds purchased (827) (4,067)
Securities sold under repurchase agreements 3,380 2,106
Other short-term borrowings 1,135 8,636
Other, net (69) (18)
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Net cash provided by financing activities 2,785 9,654
Effect of exchange rate changes on cash and due from banks 55 9
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Net decrease in cash and due from banks (2,369) (693)
Cash and due from banks at beginning of period 16,223 14,312
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CASH AND DUE FROM BANKS AT END OF PERIOD $13,854 $13,619
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</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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1997 1996
------------------------------------ ---------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
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<S> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of quarter $ 1,596 $ 1,596 $ 2,242 $ 2,242 $ 2,242
Preferred stock redeemed (748) - (646) - -
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Balance, end of quarter 848 1,596 1,596 2,242 2,242
COMMON STOCK
Balance, beginning of quarter 1,210 605 605 605 605
Issuance of 387,314,462 shares of common stock to effect
a two-for-one common stock split - 605 - - -
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Balance, end of quarter 1,210 1,210 605 605 605
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of quarter 7,872 8,473 8,467 8,458 8,439
Common stock issued 18 1 - 5 8
Issuance of 387,314,462 shares of common stock to effect
a two-for-one common stock split - (605) - - -
Treasury stock issued 57 3 6 4 11
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Balance, end of quarter 7,947 7,872 8,473 8,467 8,458
RETAINED EARNINGS
Balance, beginning of quarter 12,598 12,029 11,500 10,989 10,544
Net income 819 799 780 747 683
Common stock dividends (212) (214) (216) (193) (194)
Preferred stock dividends (22) (30) (34) (44) (43)
Foreign currency translation adjustments,
net of related income taxes (15) 14 (1) 1 (1)
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Balance, end of quarter 13,168 12,598 12,029 11,500 10,989
NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE
SECURITIES
Balance, beginning of quarter 13 (90) 32 (27) (79)
Valuation adjustments, net of related income taxes 95 103 (122) 59 52
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Balance, end of quarter 108 13 (90) 32 (27)
COMMON STOCK IN TREASURY, AT COST
Balance, beginning of quarter (2,921) (2,516) (2,133) (1,755) (1,643)
Treasury stock purchased (525) (475) (475) (450) (200)
Treasury stock issued 112 71 94 74 98
Other (21) (1) (2) (2) (10)
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Balance, end of quarter (3,355) (2,921) (2,516) (2,133) (1,755)
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TOTAL STOCKHOLDERS' EQUITY $19,926 $20,368 $20,097 $20,713 $20,512
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</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1. The unaudited consolidated financial statements of
FINANCIAL STATEMENT BankAmerica Corporation and subsidiaries (BAC) are
PRESENTATION 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, 1996.
The unaudited consolidated financial statements of BAC
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), 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.
In June 1996, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS No. 125). The FASB subsequently
amended SFAS No. 125 in December 1996. As amended, SFAS
No. 125 applies to securities lending, repurchase
agreements, dollar rolls, and other similar secured
financing transactions occurring after December 31, 1997
and to all other transfers and servicing of financial
assets occurring after December 31, 1996. The adoption
of SFAS No. 125 did not and is not expected to have a
material effect on BAC's financial position or results
of operations.
On May 22, 1997, the stockholders of BAC approved a two-
for-one stock split, along with a proposal to increase
the authorized number of shares of common stock from 700
million to 1.4 billion shares. The stock split was
effective for stockholders of record at the close of
business on June 2, 1997. The stock split did not cause
any changes in the stated par value per share of $1.5625
or total stockholders' equity. A total of 387,314,462
shares of common stock were issued in connection with
the split, including 37,364,985 shares held in treasury.
As a result of the stock split, $605 million was
reclassified from additional paid-in capital to common
stock. All references to the number of common shares and
per common share amounts have been restated to reflect
the effects of the stock split.
Certain amounts in prior periods have been reclassified
to conform to the current presentation.
DERIVATIVE FINANCIAL INSTRUMENTS
BAC uses foreign exchange and interest rate derivative
financial instruments in both its trading and asset and
liability management activities. BAC uses derivative
commodity instruments solely in its trading activities.
6
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Trading Activities
Interest rate derivative financial instruments used in
BAC's trading activities are primarily swaps and
options. Foreign exchange financial instruments include
spot, futures, forward, swap, and option contracts.
Derivative commodity instruments include commodity
futures, forwards, swaps, and options. All of these
derivative instruments are carried at market value.
Market value for these instruments is determined based
on readily available market prices or by using pricing
models where no market price is available. Any realized
and unrealized gains and losses resulting from marking
these instruments to market are recognized immediately
in trading income.
Interest rate, foreign exchange, and commodity
derivative financial instruments, and their related
gains and losses, used for trading activities are
reported in the consolidated balance sheet in unrealized
gains (losses) on off-balance-sheet instruments, in the
consolidated statement of operations in trading income,
and in the consolidated statement of cash flows in cash
flows from operating activities.
Asset and Liability Management Activities
BAC uses various types of derivative financial
instruments to manage its interest rate and foreign
currency exposures. When these instruments meet certain
criteria, they qualify for hedge accounting treatment
and are accounted for on either a deferral, accrual, or
mark-to-market basis, depending on the nature of BAC's
hedge strategy and on the method used to account for the
hedged item. Hedge criteria include demonstrating how
the hedge will reduce risk, identifying the specific
asset, liability, firm commitment, or anticipated
transaction being hedged, and citing the time horizon
being hedged. For hedge accounting to continue, hedge
effectiveness tests are performed on an ongoing basis to
determine if the instrument continues to meet the
objectives of the hedge strategy.
Derivative financial instruments used for asset and
liability management activities are reported in the
consolidated balance sheet and consolidated statement of
operations as described below. For the consolidated
statement of cash flows, the cash flows from hedging
transactions are classified in the same category as the
cash flows from the items being hedged.
Deferral Accounting--BAC accounts for derivative
financial instruments on a deferral basis when the
market value of the hedging instrument fulfills the
objectives of the hedge strategy, and the carrying value
of the hedged item is other than fair value.
7
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
Interest Rate Contracts--BAC accounts for futures and
forward rate agreements used as hedges on a deferral
basis. Under deferral accounting, risk reduction is
assessed at the enterprise level. Hedge effectiveness
must be expected at the inception of the hedge and on an
ongoing basis. For interest rate futures, hedge
effectiveness at the inception of the hedge is assessed
through the probability that changes in the fair value
of the futures contract will offset the changes in the
fair value of the hedged item. There must be a clear
economic relationship between the price of the hedged
item and the futures contract and a high level of
correlation between these prices during the relevant
prior periods. On an ongoing basis, the ratio of the
cumulative changes in the fair value of the futures
contract and the cumulative changes in the fair value of
the hedged item is monitored. If a high level of
correlation is not being achieved, hedge accounting will
be terminated. For forward rate agreements, hedge
effectiveness at the inception of the hedge and on an
ongoing basis is assessed by matching the basis and
terms of the hedging instruments with those of the
underlying exposure. For hedges of existing assets or
liabilities, realized gains and losses on the hedging
instrument are recorded as an adjustment to the carrying
value of the hedged item and amortized to the interest
income or expense account related to the hedged item.
BAC hedges anticipated transactions involving the
replacement of deposits with interest-bearing deposits.
Realized and unrealized gains and losses on these
transactions are deferred and included in the
measurement of the subsequent transaction. For hedges of
an anticipated transaction to qualify for hedge
accounting, it must be probable that the transaction
will occur and the significant characteristics and
expected terms of the transaction must be identified.
Deferred gains and losses on interest rate contracts
used for hedging are reported as adjustments to the
carrying values of the hedged loans, deposits, and long-
term debt. The amortization of deferred gains and losses
is reported in the corresponding interest income and
interest expense accounts. Initial margin deposits
related to exchange-traded instruments are reported in
other assets. Fees and commissions received or paid are
deferred and recognized as an adjustment to the carrying
value of the hedged item, consistent with the
recognition of gains and losses on the hedging
instruments.
Foreign Exchange Contracts--To qualify for hedge
accounting, the foreign exchange contract must reduce
risk at the level of the specific transaction. Realized
and unrealized gains and losses on instruments that
hedge firm commitments are deferred and included in the
measurement of the subsequent transaction; however,
losses are deferred only to the extent of expected gains
on the future commitment. Fees and commissions received
or paid related to firm commitments are included in the
measurement of the transaction when it occurs. Realized
and unrealized gains and losses on instruments that
hedge net capital exposure are recorded in
stockholders' equity as foreign currency translation
adjustments.
8
<PAGE>
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Accrual Accounting--BAC accounts for derivative
financial instruments on an accrual basis when the cash
flows generated from the hedging instruments fulfill the
objective of the hedge strategy.
Under accrual accounting, interest income or expense on
the hedging instrument is accrued and recorded as an
adjustment to the interest income or expense related to
the hedged item. BAC accounts for certain interest rate
swaps and purchased interest rate option contracts (caps
and floors) used as hedges on an accrual basis. Both
interest rate swaps and purchased interest rate option
contracts must reduce risk at the level of the specific
transaction with effectiveness expected at the inception
of the hedge and on an ongoing basis. Hedge
effectiveness at the inception of the hedge and on an
ongoing basis for interest rate swaps is assessed by
matching the basis and terms of the hedging instruments
with those of the underlying exposure. Hedge
effectiveness at the inception of the hedge for
purchased interest rate option contracts is assessed
through the probability that changes in the fair value
of the purchased interest rate contract will offset the
changes in the fair value of the hedged item. There must
be a clear economic relationship between the reference
index of the purchased interest rate option contract and
the reference index of the hedged item as well as a high
level of correlation between these indexes during the
relevant prior periods. On an ongoing basis, the ratio
of the cumulative change in the price or interest rate
movements on the index of the hedged item and the
cumulative change in the price or interest rate
movements on the index of the purchased interest rate
option contract is monitored. If a high level of
correlation is not being achieved, hedge accounting will
be terminated.
Interest income or expense on derivative financial
instruments accounted for using accrual accounting is
reported in interest income--loans, interest expense--
deposits, and interest expense--long-term debt. Fees and
commissions received or paid on interest rate swaps are
deferred and amortized as an adjustment to the interest
income or expense related to the hedged item over the
term of the swap. Premiums paid for interest rate
options are deferred as a prepaid expense and are
amortized to interest income or expense over the term of
the option.
Mark-to-Market Accounting--BAC accounts for derivative
financial instruments on a mark-to-market basis when the
market value of the hedging instrument fulfills the
objectives of the hedge strategy, and the carrying value
of the hedged item is fair value. Market value for these
instruments is determined based on readily available
market prices or by using pricing models where no market
price is available. Under mark-to-market accounting,
realized and unrealized gains and losses on the hedging
instrument are reflected in the line items being hedged
and recorded in income when they occur in conjunction
with the gains and losses on the hedged item.
BAC accounts for certain interest rate swaps designated
as hedges of available-for-sale securities on a mark-to-
market basis. These interest rate swaps must reduce risk
at the level of the specific transaction, with
effectiveness expected at the inception of the hedge and
on an ongoing basis. Hedge effectiveness at the
inception of the hedge is assessed through the
probability that changes in the fair value of the
interest rate swap will offset the changes in the fair
value of the available-for-sale security. There must be
a clear economic relationship between the price of the
available-for-sale security and the interest rate swap
as well as a high level of correlation between these
prices during the relevant prior periods. On an ongoing
basis, the ratio of the cumulative change in the
9
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
fair value of the interest rate swap and the cumulative
change in the fair value of the available-for-sale
security is monitored. If a high level of correlation is
not being achieved, hedge accounting will be terminated.
The accrual of interest payable and interest receivable
on these interest rate swaps is reported in interest
income--available-for-sale securities. Changes in the
market values of these interest rate swaps, exclusive of
net interest accruals, are reported in stockholders'
equity on a net-of-tax basis.
If at any time a derivative financial instrument no
longer qualifies for hedge accounting treatment, it is
marked to market on a prospective basis and any
deferred gain or loss associated with the hedging
instrument is amortized over the original hedge period.
When an anticipated transaction is no longer likely to
occur, any deferred gain or loss associated with the
hedging instrument is recognized immediately in the
interest income or expense account related to the hedged
item. If the item being hedged is sold, extinguished,
terminated, or matures, hedge accounting is terminated.
In this situation, any deferred gain or loss associated
with the hedging instrument is treated as part of the
carrying value of the item being hedged and, therefore,
considered in calculating the gain or loss on the sold,
extinguished, terminated, or matured item. If the
related derivative contract is not terminated, it is
marked to market on a prospective basis.
- -------------------------------------------------------------------------------
NOTE 2. During the nine-month periods ended September 30, 1997
SUPPLEMENTAL and 1996, BAC made interest payments on deposits and
DISCLOSURE OF CASH other interest-bearing liabilities of $6,343 million and
FLOW INFORMATION $5,942 million, respectively, and made net income tax
payments of $939 million and $951 million, respectively.
In addition, during the same periods foreclosures took
place on loans with carrying values of $242 million and
$358 million, respectively.
During the nine-month period ended September 30, 1997,
BAC made payments on accrued liabilities of $18 million
related to common stock repurchased during 1996. At
September 30, 1997, BAC accrued a $6 million liability
related to common stock repurchased during the nine-
month period ended September 30, 1997.
- --------------------------------------------------------------------------------
NOTE 3. During the nine-month period ended September 30, 1997,
AVAILABLE-FOR-SALE BAC sold available-for-sale securities for aggregate
AND HELD-TO-MATURITY proceeds of $1,447 million, resulting in gross
SECURITIES AND realized gains of $80 million and gross realized
TRADING ACTIVITIES losses of $13 million. During the nine-month period
ended September 30, 1996, BAC sold available-for-sale
securities for aggregate proceeds of $1,127 million,
resulting in gross realized gains of $63 million and
gross realized losses of $22 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, 1997 $12,408 $12,251 $3,759 $3,689
June 30, 1997 11,959 11,959 3,655 3,858
March 31, 1997 11,532 11,701 3,666 3,972
December 31, 1996 12,113 12,059 3,920 4,138
September 30, 1996 11,717 11,765 3,892 4,200
</TABLE>
10
<PAGE>
================================================================================
The net unrealized gain on available-for-sale securities
at September 30, 1997 included a $14 million unrealized
gain on excess servicing assets primarily associated
with credit card securitizations, which are included in
other assets.
During the nine-month periods ended September 30, 1997
and 1996, trading income included net unrealized holding
gains on trading securities of $10 million and $28
million, respectively. These amounts exclude the net
unrealized trading results of the Parent's securities
broker and dealer subsidiaries.
- --------------------------------------------------------------------------------
NOTE 4. The trust preferred securities are issued by trusts all
TRUST PREFERRED of whose outstanding common securities are owned by the
SECURITIES Parent. Such common securities represent an aggregate
liquidation amount equal to 3 percent of the total
capital of each trust. The sole assets of the trusts are
junior subordinated deferrable interest debentures of
the Parent.
During the first quarter of 1997, BankAmerica Capital
III, a trust, all of whose outstanding common securities
($12 million liquidation amount) are owned by the
Parent, issued trust preferred securities (the Series 3
preferred securities) with an aggregate liquidation
amount of $400 million. The sole assets of the trust are
junior subordinated deferrable interest debentures
issued by the Parent having an aggregate principal
amount of $412 million (the Series 3 debentures). In
addition, the Parent has entered into an expense
agreement with the trust obligating the Parent to pay
any costs, expenses or liabilities of the trust, other
than obligations of the trust to pay amounts due
pursuant to the terms of the Series 3 preferred
securities.
The distribution rate for the Series 3 preferred
securities corresponds to the interest rate on the
Series 3 debentures, which is a floating rate adjusted
quarterly based on the three-month London Interbank
Offered Rate (LIBOR) for U.S. dollar deposits plus
0.57%. The interest payment dates are January 15, April
15, July 15, and October 15. The Parent has the right to
defer payment of interest on the Series 3 debentures at
any time or from time to time for an extension period
not exceeding 20 quarters. During any such extension
period, distributions on the Series 3 preferred
securities will also be deferred and the Parent's
ability to pay dividends on its common and preferred
stock will be restricted.
The Series 3 debentures have a stated maturity of
January 15, 2027, although the Parent may redeem the
Series 3 debentures prior to stated maturity (i) on or
after January 15, 2002 or (ii) prior to January 15, 2002
upon the occurrence of certain events relating to the
tax treatment of the trust or the Series 3 debentures or
relating to the capital treatment of the Series 3
preferred securities, in each case, at a redemption
price of 100% of the principal amount plus accrued
interest. The Series 3 preferred securities are subject
to mandatory redemption upon repayment of the Series 3
debentures at their stated maturity date or their
earlier redemption at a redemption price equal to their
liquidation amount plus accrued distributions to the
date fixed for redemption.
The Parent has issued a guarantee for the payment of
distributions and payments on liquidation or redemption
of the Series 3 preferred securities, but only to the
extent of funds held by the trust. The guarantee is a
junior subordinated obligation of the Parent.
11
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
In the third quarter and nine months ended September 30,
1997, distributions and amortization of deferred
issuance costs on all of the trust preferred securities
totaling $36 million and $107 million, respectively,
were included in noninterest expense in the consolidated
statement of operations.
For specific details on other trust preferred
securities, refer to Note 15 on page 64 of BAC's 1996
Annual Report to Shareholders.
- -------------------------------------------------------------------------------
NOTE 5. During the first quarter of 1997, BAC's Board of
STOCK REPURCHASE Directors authorized an amendment to its existing
PROGRAM stock repurchase program. The amended program enables
the Parent to buy back up to an additional $3.0 billion
of its common stock by the end of 1998 and to buy back
or redeem up to an additional $1.0 billion of its
preferred stock by the end of 1998.
During the nine months ended September 30, 1997, the
Parent repurchased 24.3 million shares of its common
stock under the amended and prior stock repurchase
programs at an average per-share price of $60.79. These
transactions reduced stockholders' equity by $1,475
million.
On January 15, 1997, the Parent redeemed all 11,250,000
outstanding shares of its 9% Cumulative Preferred Stock,
Series H, reducing stockholders' equity by $281 million.
The redemption price was equal to the stated value of
$25.00 per share, plus accrued and unpaid dividends to
the redemption date of $0.28125 per share. On February
15, 1997, the Parent redeemed all 14,600,000 outstanding
shares of its 8 3/8% Cumulative Preferred Stock, Series
K, reducing stockholders' equity by $365 million. The
redemption price was equal to the stated value of $25.00
per share, plus accrued and unpaid dividends to the
redemption date of $0.44201 per share.
On July 13, 1997, the Parent redeemed all 798,020
outstanding shares of its 8.16% Cumulative Preferred
Stock, Series L (Preferred Stock, Series L) reducing
stockholders' equity by $399 million. The shares were
represented by 15,960,392 depositary shares, each
corresponding to a one-twentieth interest in a share of
Preferred Stock, Series L. The redemption price was
$25.00 per depositary share, plus accrued and unpaid
dividends to the redemption date of $0.238 per
depositary share.
On September 30, 1997, the Parent redeemed all 696,847
outstanding shares of its 7 7/8% Cumulative Preferred
Stock, Series M (Preferred Stock, Series M) reducing
stockholders' equity by $349 million. The shares were
represented by 13,936,930 depositary shares, each
corresponding to a one-twentieth interest in a share of
Preferred Stock, Series M. The redemption price was
$25.00 per depositary share, plus accrued and unpaid
dividends to the redemption date of $0.15859 per
depositary share.
In October 1997, the Parent announced that it will
redeem all outstanding shares of its 8 1/2% Cumulative
Preferred Stock, Series N on December 15, 1997, which
will reduce stockholders' equity in the fourth quarter
of 1997 by $234 million.
The remaining buyback and redemption authorities for
common stock and preferred stock under the current
amended program totaled $2.3 billion and $0.4 billion,
respectively, at September 30, 1997.
12
<PAGE>
===============================================================================
NOTE 6. The following is a summary of the components of income
INCOME TAXES tax expense:
<TABLE>
<CAPTION>
1997 1996 NINE MONTHS ENDED
------------------------- ---------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD ------------------
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for income taxes
Federal $382 $ 359 $370 $265 $301 $1,111 $1,024
State and local 91 86 84 58 90 261 278
Foreign 80 95 72 89 81 247 186
- ---------------------------------------------------------------------------------------------------------
$553 $ 540 $526 $412 $472 $1,619 $1,488
- --------------------------------------------=============================================================
</TABLE>
BAC's estimated annual effective income tax rates for
the nine-month periods ended September 30, 1997 and 1996
were 40.3 percent and 41.2 percent, respectively. These
rates are higher than the federal statutory tax rate of
35.0 percent due principally to state income taxes.
- --------------------------------------------------------------------------------
NOTE 7. Earnings per common share have been computed based on
EARNINGS PER the following:
COMMON SHARE
<TABLE>
<CAPTION>
1997 1996 NINE MONTHS ENDED
------------------------------- ----------------------- SEPTEMBER 30
(DOLLAR AMOUNTS IN MILLIONS, THIRD SECOND FIRST FOURTH THIRD --------------------
SHARE AMOUNTS IN THOUSANDS) QUARTER QUARTER QUARTER QUARTER QUARTER 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income applicable to
common stock $797 $769 $746 $703 $640 $2,312 $1,985
Average number of common
shares outstanding 695,835 701,458 708,585/a/ 715,609/a/ 718,035/a/ 701,959 724,628/a/
Average number of common
and common equivalent
shares outstanding 718,384 719,514 726,800/a/ 731,022/a/ 731,343/a/ 721,566 737,733/a/
Average number of common
shares outstanding--
assuming full dilution 719,532 722,179 726,800/a/ 732,416/a/ 731,770/a/ 722,837 738,683/a/
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Restated to reflect a two-for-one stock split effective June 2, 1997.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS
No. 128), which is effective for periods ending after
December 15, 1997. BAC expects to adopt SFAS No. 128 in
the fourth quarter of 1997. At that time, BAC will be
required to change the method currently used to compute
earnings per share and to restate all prior periods
presented. SFAS No. 128 eliminates primary earnings per
share and earnings per common share, assuming full
dilution, and requires the presentation of basic and
diluted earnings per share. As a result, under the new
requirements, BAC's computation of earnings per common
and common equivalent share will be replaced by earnings
per common share, which excludes any dilutive effects of
outstanding stock options and warrants. Also, BAC's
computation of earnings per common share, assuming full
dilution, will be replaced with diluted earnings per
share and will be based on the average market price of
BAC's common stock for the period. Had SFAS No. 128 been
in effect, it would have resulted in an increase in
earnings per common share of $0.03 for the third quarter
of 1997, $0.03 for the second quarter of 1997, $0.02 for
the first quarter of 1997, $0.02 for the fourth quarter
of 1996, and $0.02 for the third quarter of 1996 as well
as an increase of $0.09 and $0.05 for the nine months
ended September 30, 1997 and 1996, respectively. Per
share amounts for prior periods reflect a two-for-one
stock split effective June 2, 1997. The impact of SFAS
No. 128 on converting earnings per common share,
assuming full dilution, to diluted earnings per share
for the aforementioned periods is not material.
13
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
NOTE 8. In the ordinary course of business, BAC enters into
OFF-BALANCE-SHEET various types of transactions that involve
TRANSACTIONS credit-related financial instruments and derivative
financial instruments that contain off-balance-sheet
risk. Credit-related financial instruments are typically
customer-driven, while derivative financial instruments
are entered into both on behalf of customers and for
BAC's own account in managing interest rate and foreign
exchange risk.
CREDIT-RELATED FINANCIAL INSTRUMENTS
A summary of the contractual amounts of each significant
class of credit-related financial instruments
outstanding appears in the table below. The contractual
amounts of these instruments are not recorded as assets
or liabilities on the balance sheet. These amounts
represent the amounts at risk should the contract be
fully drawn upon, the client default, and the value of
any existing collateral become worthless.
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------
(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 $ 37,222 $ 38,028 $ 37,917 $ 36,897 $37,271
Other commitments to extend credit/a/ 109,971 106,590 101,128 100,234 92,965
Standby letters of credit/b/ 18,305 18,680 18,954 17,092 16,486
Commercial letters of credit 3,354 4,186 3,677 4,064 3,833
- ------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents agreements to extend credit to customers for which BAC may have
received fees. These commitments have specified interest rates and generally
have fixed expiration dates and may be terminated by BAC if certain
conditions of the contract are violated.
/b/ Net of participations sold of $3,306 million at September 30, 1997, $2,907
million at June 30, 1997, $3,102 million at March 31, 1997, $2,999 million
at December 31, 1996, and $2,940 million at September 30, 1996.
INTEREST RATE, FOREIGN EXCHANGE, AND COMMODITY
DERIVATIVE FINANCIAL INSTRUMENTS
The tables on page 15 summarize the notional and credit
risk amounts for each significant class of interest
rate, foreign exchange and commodity derivative
financial instruments outstanding in BAC's trading and
asset and liability management portfolios. These tables
should be read in conjunction with the descriptions of
such products and their risks included on pages 38
through 44 and 72 through 78 of BAC's 1996 Annual Report
to Shareholders.
14
<PAGE>
================================================================================
<TABLE>
<CAPTION>
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE
FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING
PURPOSES
- -------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 DECEMBER 31, 1996
--------------------------- --------------------------
NOTIONAL CREDIT NOTIONAL CREDIT
(IN MILLIONS) AMOUNT RISK/a/ AMOUNT RISK/a/
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $ 456,784 $1,973/b/ $ 442,160 $2,968/b/
Futures and forward rate contracts:
Commitments to purchase 146,063 36 138,381 34
Commitments to sell 147,597 88 182,065 280
Written options 30,562 -/c/ 32,679 -/c/
Purchased options 40,358 294 40,805 373
- -------------------------------------------------------------------------------------------------------------------------------
821,364 2,391 836,090 3,655
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts 597,299 4,083 612,767 2,670
Written options 40,789 -/c/ 24,840 -/c/
Purchased options 37,823 428 23,272 319
Currency swaps 29,418 871 27,589 951
- -------------------------------------------------------------------------------------------------------------------------------
705,329 5,382 688,468 3,940
Stock index options and commodity contracts 4,192 119 1,561 87
- -------------------------------------------------------------------------------------------------------------------------------
$1,530,885/d/ $7,892 $1,526,119/e/ $7,682
- --------------------------------------------------------------=================================================================
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE
FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND
LIABILITY MANAGEMENT PURPOSES
- -------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 DECEMBER 31, 1996
--------------------------- ---------------------------
NOTIONAL CREDIT NOTIONAL CREDIT
(IN MILLIONS) AMOUNT RISK/a/ AMOUNT RISK/a/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $ 50,030 $ 96 $ 46,445 $128
Futures and forward rate contracts 74,094 - 58,467 -
Purchased options 16,642 49 10,957 81
- --------------------------------------------------------------------------------------------------------------------------------
140,766 145 115,869 209
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts 1,810 - 1,746 -
Currency swaps 780 - 673 -
- --------------------------------------------------------------------------------------------------------------------------------
2,590 - 2,419 -
- --------------------------------------------------------------------------------------------------------------------------------
$143,356/d/ $145 $118,288/e/ $209
- ----------------------------------------------------------------================================================================
</TABLE>
/a/ Credit risk represents current replacement cost after the effects of
master netting agreements.
/b/ Includes the effects of cross product netting of certain interest rate
derivatives and currency swaps.
/c/ Interest rate and foreign exchange options written have no credit risk.
/d/ Interest rate swaps and interest rate options in both the trading and asset
and liability management portfolios include $14.2 billion and $0.7 billion,
respectively, of intercompany hedging-related contracts. Foreign exchange
contracts in both the trading and asset and liability management portfolios
include $2.4 billion of intercompany hedging-related contracts.
/e/ Interest rate swaps and interest rate options in both the trading and asset
and liability management portfolios include $13.9 billion and $0.7 billion,
respectively, of intercompany hedging-related contracts. Foreign exchange
contracts in both the trading and asset and liability management portfolios
include $2.4 billion of intercompany hedging-related contracts.
15
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
For most contracts, notional amounts are used solely to
determine cash flows to be exchanged. However, certain
foreign exchange contracts are designed for principal
amounts to be exchanged on a common settlement date. The
notional or contract amounts associated with interest
rate, foreign exchange and commodity derivative
financial instruments are not recorded as assets or
liabilities on the balance sheet and do not represent
the potential for gain or loss associated with such
transactions. Credit risk represents unrealized gains on
foreign exchange and derivatives contracts. It is the
amount of loss that BAC would suffer 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 period
after the effects of master netting agreements.
The tables on page 17 summarize the average and period-
end fair values of each significant class of interest
rate, foreign exchange and commodity derivative
financial instruments outstanding in BAC's trading
portfolio and the period-end fair values for each
significant class of interest rate and foreign exchange
derivative financial instruments outstanding in BAC's
asset and liability management portfolio. Fair value
amounts consist of unrealized gains and losses, accrued
interest receivable and payable, and premiums paid or
received, and take into account master netting
agreements. The fair value amounts for the trading
portfolio are disaggregated by gross unrealized gains
(assets) and gross unrealized losses (liabilities),
while the fair value amounts for the asset and liability
management portfolio are shown on a net basis. Fair
value amounts were generally calculated using discounted
cash flow models based on current market yields for
similar instruments and the maturity of each instrument.
16
<PAGE>
================================================================================
<TABLE>
<CAPTION>
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES
-----------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------- ----------------------------
AVERAGE AVERAGE
FAIR VALUE FAIR VALUE
FOR THE PERIOD-END FOR THE YEAR-END
(IN MILLIONS) PERIOD ENDED/a/ FAIR VALUE YEAR ENDED/a/ FAIR VALUE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps:
Assets $ 2,338 $ 1,973 $ 2,956 $ 2,968
Liabilities (2,080) (1,867) (2,661) (2,820)
Futures and forward rate contracts:
Assets 158 124 335 314
Liabilities (147) (106) (331) (329)
Written options (279) (279) (221) (300)
Purchased options 311 294 307 373
----------------------------------------------------------------------------------------------------------
301 139 385 206
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts:
Assets 4,172 4,083 2,358 2,670
Liabilities (4,127) (3,863) (2,709) (2,842)
Written options (642) (554) (333) (369)
Purchased options 510 428 283 319
Currency swaps:
Assets 1,094 871 1,137 951
Liabilities (910) (756) (1,308) (937)
----------------------------------------------------------------------------------------------------------
97 209 (572) (208)
STOCK INDEX OPTIONS AND COMMODITY
CONTRACTS
Assets 58 119 58 87
Liabilities (54) (116) (25) (36)
----------------------------------------------------------------------------------------------------------
4 3 33 51
----------------------------------------------------------------------------------------------------------
$ 402 $ 351 $ (154) $ 49
--------------------------------------------==============================================================
/a/ Average fair value amounts are calculated based on monthly balances.
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES
----------------------------------------------------------------------------------------------------------
(IN MILLIONS) SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST RATE CONTRACTS/a/
Interest rate swaps $(542) $(369)
Futures and forward rate contracts (16) (26)
Purchased options (11) (4)
----------------------------------------------------------------------------------------------------------
(569) (399)
FOREIGN EXCHANGE CONTRACTS/a/
Spot, forward, and futures contracts - -
Currency swaps (97) (63)
----------------------------------------------------------------------------------------------------------
(97) (63)
----------------------------------------------------------------------------------------------------------
$(666) $(462)
-------------------------------------------------------------------------=================================
/a/ Bracketed amounts reflect net liability positions.
</TABLE>
17
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
================================================================================
Trading Activities
Trading income represents the net amount earned from
BAC's trading activities, which include entering into
transactions to meet customer demand and taking
positions for BAC's own account in a diverse range of
financial instruments and markets. The profitability of
these trading activities depends largely on the volume
and diversity of the transactions BAC executes, the
level of risk it is willing to assume, and the
volatility of price and rate movements. Trading income,
as disclosed in BAC's consolidated statement of
operations, does not include the net interest income
derived from interest rate, foreign exchange, and
commodity derivative financial instruments associated
with trading activities. However, the trading-related
net interest income amounts are presented in the table
below as they are considered in evaluating the overall
profitability of those activities.
<TABLE>
<CAPTION>
TRADING-RELATED INCOME
- ------------------------------------------------------------------------------------------------------------
1997 1996 NINE MONTHS ENDED
------------------------------- ------------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD -----------------
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TRADING INCOME
Interest rate $ 24 $ 17 $ 12 $ 19 $ 17 $ 53 $ 37
Foreign exchange 106 107 92 64 64 305 252
Debt instruments 93 94 84 51 72 271 207
- ------------------------------------------------------------------------------------------------------------
$223 $218 $188 $134 $153 $629 $496
- ---------------------------------===========================================================================
OTHER TRADING-RELATED INCOME/a/
Interest rate $ 6 $ 12 $ 10 $ 13 $ 5 $ 28 18
Foreign exchange 1 2 4 3 4 7 17
Debt instruments 49 47 50 53 52 146 155
- ------------------------------------------------------------------------------------------------------------
$ 56 $ 61 $ 64 $ 69 $ 61 $181 $190
- ---------------------------------===========================================================================
</TABLE>
/a/ Primarily includes the net interest revenue and expense associated with
these contracts.
To reflect the business purpose and use of the financial
contracts into which BAC enters, trading income and the
related net interest revenue or expense associated with
such contracts have been allocated into three broad
functional categories: interest rate trading, foreign
exchange trading, and debt instruments trading. Trading-
related income from interest rate instruments primarily
includes the results from transactions using interest
rate and currency swaps, interest rate futures, option
contracts, and forward rate agreements, as well as cash
instruments used in the management of this function.
Foreign exchange trading-related income primarily
includes the results from transactions using foreign
exchange spot, forward, futures, and option contracts.
Trading-related income from debt instruments primarily
represents the results from trading activities in
various debt securities, including U.S. government and
government agency securities, foreign government
securities, mortgage-backed securities, municipal bonds,
and corporate debt.
ASSET AND LIABILITY MANAGEMENT ACTIVITIES
BAC uses interest rate and foreign exchange derivative
financial instruments to manage interest rate risk
related to specific assets and liabilities, primarily
fixed rate and adjustable rate residential mortgages,
long-term debt, and deposits. Foreign exchange
derivative financial instruments are used to hedge net
capital exposure and
18
<PAGE>
================================================================================
foreign currency exposures. For a detailed description
of BAC's asset and liability management objectives and
strategies used to achieve those objectives, refer to
pages 76 through 78 of BAC's 1996 Annual Report to
Shareholders.
The expected maturities and weighted average interest
rates associated with BAC's asset and liability
management interest rate swap portfolio at September 30,
1997 were not significantly different from those at
year-end 1996.
- --------------------------------------------------------------------------------
NOTE 9. BAC recorded a pre-tax restructuring charge of $280
RESTRUCTURING million in the fourth quarter of 1996 as a result of
CHARGES decisions to implement a number of restructurings of
its business activities. The charge covered
approximately $196 million for severance payments,
approximately $72 million for premises, primarily
reflecting the planned closure of 120 branches, and
approximately $12 million for other costs affected by
the actions. Management expects that the projects
relating to these restructurings will be implemented in
1997 and completed by the end of 1998.
The severance payments will reflect an estimated
reduction of 3,700 positions due to the restructuring of
BAC's business activities. During 1997, 522 positions,
723 positions, and 364 positions were reduced during the
first, second, and third quarters, respectively,
reflecting a remaining balance of 2,091 positions at
September 30, 1997. Following is a summary of changes in
restructuring charges through the third quarter of 1997:
<TABLE>
<CAPTION>
(IN MILLIONS) SEVERANCE PREMISES OTHER/a/ TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $196 $72 $12 $280
Payments 34 6 1 41
- -------------------------------------------------------------------------------------------
Balance at March 31, 1997 162 66 11 239
Payments 24 9 1 34
- -------------------------------------------------------------------------------------------
Balance at June 30, 1997 138 57 10 205
Payments 18 16 1 35
- -------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 $120 $41 $ 9 $170
- ------------------------------------------------===========================================
</TABLE>
/a/ Includes equipment write-offs and other miscellaneous costs.
19
<PAGE>
===============================================================================
[THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
===============================================================================
The following is a summary of third-quarter 1997
financial information for BankAmerica Corporation and
subsidiaries (BAC).
. BAC reported third-quarter 1997 earnings per share
of $1.11, an increase of 28 percent from $0.87 for
the same period a year ago. The per share results
include the effects of a two-for-one stock split
which was effective June 2, 1997. Net income for the
third quarter of 1997 was $819 million, up 20
percent from $683 million for the third quarter of
1996.
. The return on average common equity was 16.82
percent, an increase of 266 basis points from the
amount reported in the third quarter of 1996.
. BAC continued to effectively manage its capital
through the following activities since the end of
the second quarter:
- Completed the sale of the consumer finance
subsidiary, Security Pacific Financial Services
Inc. (SPFS);
- Completed the Robertson Stephens and Company
acquisition on October 1;
- Decisions to exit Midwest retail facilities and
to sell BA Housing Services, both of which were
formally announced on October 15;
- Securitized $750 million of credit card
receivables;
- Sold $3.2 billion of residential first
mortgages;
- Redeemed its Series L and M preferred stock;
and also announced in October that it will
redeem Series N preferred stock which will
reduce stockholders' equity by $234 million.
. Net interest income was up $42 million from the
third quarter of 1996. BAC's net interest margin for
the third quarter of 1997 was 4.06 percent, down 11
basis points from the comparable period a year ago.
. Noninterest income increased $351 million from the
third quarter of 1996. Included in noninterest
income for the third quarter of 1997 was a $246
million gain associated with the previously
announced sale of SPFS. The effect of this gain was
partially offset by charges of approximately $112
million for asset dispositions, personnel expenses,
and other costs associated primarily with the
decision to exit Midwest retail facilities.
Excluding the effects of these items, noninterest
income would have been $1,536 million, or an
increase of $217 million over the same period in
1996.
21
<PAGE>
===============================================================================
. Noninterest expense was $2,232 million, an increase of
$151 million from the third quarter of 1996. Included in
noninterest expense for the third quarter of 1997 were
charges associated with multiple legal matters, writedowns
on corporate real estate, and contributions to the BA
Foundation. Included in noninterest expense for the third
quarter of 1996 was a one-time assessment of $82 million
associated with the recapitalization of the Savings
Association Insurance Fund (SAIF). Without these items,
noninterest expense would have been $2,092 million for the
third quarter of 1997 compared to $1,999 million for the
third quarter of last year, or an increase of $93 million.
. Nonaccrual assets were $930 million at September 30, 1997,
an increase of $69 million, or 8 percent, from their June
30, 1997 level, but decreased $189 million, or 17 percent,
from their September 30, 1996 level.
. The provision for credit losses was $260 million, up $10
million from the previous quarter and $25 million from the
third quarter of 1996. Net credit losses were $259 million
for the third quarter of 1997, an increase of $35 million
and $33 million from the second quarter of 1997 and the
third quarter of 1996, respectively.
. In connection with BAC's ongoing efforts to effectively
manage capital, BAC repurchased 7.5 million shares of its
common stock during the third quarter of 1997 at an average
per-share price of $70.22, which reduced stockholders'
equity by $525 million.
. On July 14, 1997, BAC redeemed all outstanding shares of
its 8.16% Cumulative Preferred Stock, Series L, which
reduced stockholders' equity by $399 million. In addition,
on September 30, 1997, BAC redeemed all outstanding shares
of its 7 7/8% Cumulative Preferred Stock, Series M, which
reduced stockholders' equity by $349 million.
22
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
====================================================================================================================================
1997 1996 NINE MONTHS ENDED
-------------------------------- --------------------- SEPTEMBER 30
(DOLLAR AMOUNTS IN MILLIONS, THIRD SECOND FIRST FOURTH THIRD -------------------
EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER/a/ QUARTER/a,b/ QUARTER/a,c/ 1997 1996/a,c/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Interest income $ 4,451 $ 4,359 $ 4,240 $ 4,238 $ 4,206 $13,050 $ 12,421
Interest expense 2,257 2,165 2,066 2,108 2,054 6,488 5,964
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,194 2,194 2,174 2,130 2,152 6,562 6,457
Provision for credit losses 260 250 220 220 235 730 665
Noninterest income 1,670 1,442 1,385 1,499 1,319 4,497 3,913
Noninterest expense 2,232 2,047 2,033 2,250 2,081 6,312 6,091
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,372 1,339 1,306 1,159 1,155 4,017 3,614
Provision for income taxes 553 540 526 412 472 1,619 1,488
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 819 $ 799 $ 780 $ 747 $ 683 $ 2,398 $ 2,126
- ----------------------------------------------------===============================================================================
PER SHARE DATA
Earnings per common and common equivalent share $ 1.11 $ 1.07 $ 1.03 $ 0.96 $ 0.87 $ 3.20 $ 2.69
Earnings per common share -- assuming full dilution 1.11 1.07 1.03 0.96 0.87 3.20 2.69
Dividends declared per common share 0.305 0.305 0.305 0.27 0.27 0.915 0.81
- -----------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
Book value per common share at period end $ 27.51 $ 26.88 $ 26.25 $ 26.00 $ 25.46 $ 27.51 $ 25.46
Common stock price range:
High 77-7/8 69 61-7/8 51-15/16 42-5/8 77-7/8 42-5/8
Low 64-9/16 49-9/16 47-11/16 41-1/16 36 47-11/16 29-3/8
Closing common stock price 73-5/16 64-9/16 50-7/16 49-7/8 41-1/16 73-5/16 41-1/16
Average number of common and common
equivalent shares outstanding (in thousands) 718,384 719,514 726,800 731,022 731,343 721,566 737,733
Average number of common shares outstanding
-- assuming full dilution (in thousands) 719,532 722,179 726,800 732,416 731,770 722,837 738,683
Number of common shares outstanding at period
end (in thousands) 693,468 698,407 704,708 710,534 717,651 693,468 717,651
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END
Loans $166,986 $168,806 $167,338 $165,415 $161,833 $166,986 $161,833
Total assets 257,520 258,363 249,904 250,753 242,953 257,520 242,953
Deposits 171,413 173,168 168,999 168,015 164,901 171,413 164,901
Long-term debt 14,198 14,736 14,725 15,785 15,454 14,198 15,454
Common equity 19,078 18,772 18,501 18,471 18,270 19,078 18,270
Total equity 19,926 20,368 20,097 20,713 20,512 19,926 20,512
- -----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Expense to revenue/d/ 52.79% 52.93% 53.53% 54.01% 54.47% 53.08% 55.13%
Rate of return (based on net income) on:
Average common equity 16.82 16.73 16.50 15.24 14.16 16.69 14.92
Average total equity 16.23 15.99 15.70 14.42 13.44 15.98 14.09
Average total assets 1.26 1.26 1.25 1.21 1.12 1.26 1.18
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Ratio of common equity to total assets 7.41% 7.27% 7.40% 7.37% 7.52% 7.41% 7.52%
Ratio of total equity to total assets 7.74 7.88 8.04 8.26 8.44 7.74 8.44
Ratio of average total equity to average total
assets 7.78 7.86 7.99 8.40 8.29 7.88 8.39
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Share and per share amounts and stock prices have been restated to reflect
a two-for-one stock split effective June 2, 1997.
/b/ Includes the income statement effect of a $147 million nontaxable gain from
the initial public offering of BA Merchant Services, Inc. (BAMS) common
stock and a $280 million pre-tax restructuring charge.
/c/ Includes the income statement effect of a one-time SAIF assessment that
increased noninterest expense by $82 million.
/d/ Excludes net other real estate owned expense, amortization of intangibles,
expenses associated with trust preferred securities, the effects of a one-
time assessment for SAIF in the third quarter of 1996, a restructuring
charge and gain on the initial public offering of BAMS common stock incurred
in the fourth quarter of 1996, a third-quarter 1997 gain on the sale of
SPFS, and charges incurred in the third quarter of 1997 associated with the
decision to exit Midwest retail facilities and with multiple legal matters,
writedowns on corporate real estate, and contributions to the BA Foundation.
23
<PAGE>
BUSINESS SECTORS
===============================================================================
<TABLE>
<CAPTION>
SELECTED BUSINESS SECTOR DATA
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30/a/
------------------------------------------------------------------------------------------
U.S. CORPORATE AND
TOTAL CONSUMER BANKING/c/ INTERNATIONAL BANKING MIDDLE MARKET BANKING
----------------- ------------------ --------------------- ---------------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net interest income $6,562 $6,457 $4,154 $4,117 $1,147 $1,066 $ 663 $617
Noninterest income 4,497 3,913 2,184 1,777 1,762 1,625 167 156
Noninterest expense 6,312 6,091 3,827 3,784 1,552 1,467 381 373
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE THE PROVISIONS FOR
CREDIT LOSSES AND INCOME TAXES 4,747 4,279 2,511 2,110 1,357 1,224 449 400
Provision for credit losses 730 665 677 716 121 (20) (5) (21)
Provision for income taxes 1,619 1,488 783 633 473 498 192 172
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 2,398 2,126 1,051 761 763 746 262 249
Preferred stock dividends 86 141 40 65 27 44 10 16
- -----------------------------------------------------------------------------------------------------------------------------------
Net income attributable to
common equity $2,312 $1,985 $1,011 $ 696 $ 736 $ 702 $ 252 $233
- ---------------------------------------============================================================================================
SELECTED AVERAGE
BALANCE SHEET COMPONENTS
Loans 166,112 $157,421 $84,137 $82,007 $45,521 $41,697 $21,451 $19,101
Earning assets 213,725 202,303 85,001 82,801 78,365 72,008 21,513 19,154
Total assets 254,872 240,636 94,262 93,359 104,183 93,798 24,862 22,373
Deposits 168,588 161,123 99,219 96,180 48,418 44,622 7,526 6,899
Common equity 18,523 17,777 8,526 8,189 5,792 5,492 2,129 1,994
SELECTED FINANCIAL RATIOS
Return on average common equity 16.69% 14.92% 15.85% 11.35% 17.00% 17.09% 15.82% 15.60%
Expense to revenue/b/ 53.08 55.13 56.92 58.95 49.80 52.90 42.00 45.85
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For management reporting purposes, BAC segregates its
operations into five primary business or operating
sectors. BAC determines its business sector results
based on an internal management reporting system that
allocates certain revenues, expenses, assets, and
liabilities to each business. Furthermore, for internal
business sector monitoring, the unallocated allowance
for credit losses and related provision for credit
losses are assigned to the businesses. Equity is
assigned to each business on a risk-adjusted basis
taking into account goodwill and tax-effected
identifiable intangibles. While BAC manages its
interest-rate risk hedging activities centrally, the
effects of hedging are generally allocated to the
businesses through a transfer pricing process. As a
result, the effects of hedging interest rate risk are
reflected in the appropriate business sectors.
The information set forth in the tables on pages 24 and
25 reflects the condensed income statements and selected
average balance sheet line items and financial ratios by
business sector. The information presented does not
necessarily represent the business sectors' financial
condition and results of operations as if they were
independent entities. Results from prior periods are
restated for changes in sector composition and in
allocation and assignment methodologies to provide
comparability. For a detailed discussion of the
composition of each business sector, refer to pages 19
through 22 of BAC's 1996 Annual Report to Shareholders.
Consumer Banking--Consumer Banking's net income for the
first nine months of 1997 was up $290 million, or 38
percent, from the amount for the same period last year.
Net interest income increased primarily due to higher
volumes on consumer installment and consumer lease
financing loans. Partially offsetting these volume
increases were reductions in
24
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
NINE MONTHS ENDED SEPTEMBER 30/a/
-----------------------------------------------------------------------
COMMERCIAL REAL ESTATE WEALTH MANAGEMENT ALL OTHER
---------------------- ----------------- ----------------
(DOLLAR AMOUNTS IN MILLIONS) 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net interest income $336 $ 298 $138 $129 $124 $230
Noninterest income 27 25 290 275 67 55
Noninterest expense 85 80 343 322 124 65
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE THE PROVISIONS FOR
CREDIT LOSSES AND INCOME TAXES 278 243 85 82 67 220
Provision for credit losses (64) (13) - 1 1 2
Provision for income taxes 150 100 34 37 (13) 48
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income 192 156 51 44 79 170
Preferred stock dividends 3 7 3 4 3 5
- ------------------------------------------------------------------------------------------------------------------------------------
Net income attributable to
common equity $189 $149 $ 48 $ 40 $ 76 $165
- -----------------------------------------------------------------=================================================================
SELECTED AVERAGE
BALANCE SHEET COMPONENTS
Loans $9,224 $ 9,795 $4,724 $4,222 $ 1,055 $ 599
Earning assets 9,253 9,809 4,850 4,323 14,743 14,208
Total assets 9,615 10,203 5,654 5,073 16,296 15,830
Deposits 2,292 2,067 7,298 6,962 3,835 4,393
Common equity 746 845 579 555 751 702
Selected Financial Ratios
Return on average common equity 33.94% 23.63% 11.00% 9.61% NM NM
Expense to revenue/b/ 25.86 29.18 75.59 75.98 NM NM
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ For comparability purposes, both 1997 and 1996 amounts reflect BAC's
business-sector allocation methodologies at September 30, 1997.
/b/ Excludes net other real estate owned expense, amortization of intangibles,
expenses associated with trust preferred securities, the effects of a one-
time assessment for SAIF in the third quarter of 1996, a third-quarter 1997
gain on the sale of SPFS, and charges incurred in the third quarter of 1997
associated with the decision to exit Midwest retail facilities and with
multiple legal matters, writedowns on corporate real estate, and
contributions to the BA Foundation.
/c/ Includes the income statement effect of the previously discussed one-time
SAIF assessment.
NM - Not meaningful.
residential real estate and credit card loans as a
result of continued sales of residential mortgages and
securitizations of credit card receivables. Noninterest
income increased due to higher revenues from service
charges on deposit accounts and from ATM fees in
California, larger gains on the sales of residential
first mortgages, and higher loan servicing revenue. The
increase in loan servicing revenue resulted primarily
from the effects of Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS No. 125). Also contributing to the
increase in noninterest income was a $246 million gain
associated with the previously announced sale of SPFS,
which was partially offset by charges of approximately
$112 million primarily associated with the decision to
exit Midwest retail facilities. Noninterest income for
the first nine months of 1996 included an $82 million
gain from the sale of a Hong Kong consumer and
commercial finance subsidiary. Noninterest expense for
1997 included charges connected with writedowns on
corporate real estate and contributions to the BA
Foundation, while 1996's noninterest expense included a
one-time assessment of $82 million for the
recapitalization of the SAIF. The increases in net
interest income and noninterest income, coupled with
BAC's efforts to keep noninterest expense at targeted
levels, resulted in an expense-to-revenue ratio of 56.92
percent, a 203 basis point improvement from the same
25
<PAGE>
================================================================================
period a year ago. Average loan outstandings grew
$2 billion, or 3 percent, from September 30, 1996,
reflecting growth in manufactured housing loans,
consumer auto loans, and lease financing, while a
reduction in residential real estate loans partly offset
this increase.
U.S. Corporate and International Banking--U.S. Corporate
and International Banking's net income for the first
nine months of 1997 increased $17 million, or 2 percent,
from the amount reported for the same period a year ago.
Higher net interest and noninterest income levels were
offset by increases in noninterest expense and the
provision for credit losses. The increase in net
interest income resulted from higher earning asset
balances. Noninterest income was up $137 million
predominantly due to improved foreign exchange and
trading account profits, higher securities gains and
lower foreign exchange hedging losses, and increased
gains on the sales of loans and other assets. Lower
commitment fees partially offset the increases in
noninterest income. In addition, noninterest income in
1996 included a $43 million gain on the liquidation of
an Australian subsidiary and a $39 million gain that
resulted from a reduction of BAC's equity interest in
KorAm Bank, an Asian investment. The increase in the
provision for credit losses was primarily related to an
increase in loans placed on nonaccrual status and to the
currency devaluation in Southeast Asia. The increases in
net interest income and noninterest income, coupled with
BAC's effort to keep noninterest expense at targeted
levels, resulted in an expense-to-revenue ratio of
49.80 percent, a 310 basis point improvement from the
same period a year ago.
Middle Market Banking--Middle Market Banking's net
income for the first nine months of 1997 increased $13
million, or 5 percent, from the same period a year ago.
Net interest income was up due to higher loan volumes
and included a $9 million interest recovery during 1997.
Commercial Real Estate--Net income in the commercial
real estate sector increased $36 million, or 23 percent,
from the first nine months of 1996, largely due to an
increase in net interest income coupled with a reduction
in the provision for credit losses. Included in net
interest income for 1997 was an interest recovery of $22
million. Improved credit quality of commercial real
estate loans caused the decrease in the provision for
credit losses.
Wealth Management--Wealth Management's net income was
$51 million for the first nine months of 1997, an
increase of $7 million, or 16 percent, from the same
period a year ago. Noninterest income increased
primarily due to higher trust fees, which were partially
offset by lower mutual fund and annuity income.
Noninterest expense was up during the first nine months
of 1997 due to higher compensation and consultant
expenses.
All Other--This sector includes the results from
corporate asset and liability management activities
(investment securities, federal funds purchased and
sold, institutional and brokered deposits and
intermediate debt), along with any residual differences
between actual centrally managed external hedging
results and the transfer of interest rate risk hedging
to the appropriate business sectors. Also included in
this sector are the residual income and expenses related
to BAC's Institutional Trust and Securities Services
(ITSS) business, which the corporation had substantially
divested by the end of the first quarter of 1996.
This sector's net income for the first nine months of
1997 decreased $91 million from the amount reported for
the comparable period a year ago. Net interest income
decreased $106 million due to lower results from
corporate liquidity management activities. Noninterest
income for the first nine months of 1996 included a $50
million pre-tax gain associated with the divestiture of
the ITSS business. The increase in noninterest expense
was primarily related to charges associated with
multiple legal matters in 1997. In addition, noninterest
expense in 1996 included expenses associated with the
ITSS business.
26
<PAGE>
OPERATING LEVERAGE AND CAPITAL MANAGEMENT
================================================================================
BAC continued to demonstrate effective management of
operating leverage in the third quarter and nine months
ended September 30, 1997. Operating leverage is achieved
when the rate of revenue growth exceeds that of
expenses. As shown in the table on page 28, revenue for
the third quarter and nine months ended September 30,
1997 increased 11 percent and 7 percent, respectively,
while noninterest expense increased 7 percent and
4 percent, respectively, from the same periods in 1996.
For a detailed discussion of the increases in net
interest income, noninterest income and expense, refer
to pages 29 and 32 through 36.
Capital management objectives are achieved when the
rates of growth in common shares outstanding and
preferred stock dividends are below that of net income.
As a result of BAC's stock repurchase program, the
average number of common shares outstanding, assuming
full dilution, decreased 2 percent in the third quarter
and nine months ended September 30, 1997 from the
comparable periods in the prior year. Additionally,
preferred stock dividends decreased 49 percent and
39 percent for the third quarter and nine months ended
September 30, 1997, respectively, compared to the same
periods in 1996. However, the decrease in preferred
stock dividends is partially offset by the after-tax
effect of noninterest expense related to expenses on
trust preferred securities.
By increasing revenues, effectively managing expenses,
and taking strategic capital management steps, BAC
reported increases in net income for the third quarter
and nine months ended September 30, 1997 of 20 percent
and 13 percent, respectively, from the comparable
periods last year. In addition, the rate of return on
average common equity increased 266 basis points and
177 basis points for the third quarter and nine months
ended September 30, 1997, respectively, from the same
periods in 1996.
27
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
OPERATING LEVERAGE AND CAPITAL MANAGEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30
(DOLLAR AMOUNTS IN MILLIONS, ------------------ PERCENTAGE ------------------ PERCENTAGE
EXCEPT PER SHARE DATA) 1997 1996 CHANGE 1997 1996 CHANGE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING LEVERAGE COMPONENTS
Net interest income $2,194 $2,152 2% $ 6,562 $6,457 2%
Noninterest income 1,670 1,319 27 4,497 3,913 15
Total revenue 3,864 3,471 11 11,059 10,370 7
Noninterest expense 2,232 2,081 7 6,312 6,091 4
Operating income/a/ 1,632 1,390 17 4,747 4,279 11
Provision for credit losses 260 235 11 730 665 10
Provision for income taxes 553 472 17 1,619 1,488 9
CAPITAL MANAGEMENT COMPONENTS
Net income 819 683 20 2,398 2,126 13
Preferred stock dividends 22 43 (49) 86 141 (39)
Net income applicable to common stock 797 640 25 2,312 1,985 16
Average number of common shares outstanding --
assuming full dilution (in thousands) 719,532 731,770/b/ (2) 722,837 738,683/b/ (2)
Earnings per common share --
assuming full dilution $ 1.11 $ 0.87/b/ 28 $ 3.20 $ 2.69/b/ 19
Average common equity 18,787 17,963 5 18,523 17,777 4
Rate of return on average common equity 16.82% 14.16% 266bp 16.69% 14.92% 177bp
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents net income before the provisions for credit losses and income
taxes.
/b/ Restated to reflect a two-for-one stock split effective June 2, 1997.
bp - Basis points.
28
<PAGE>
RESULTS OF OPERATIONS
================================================================================
NET INTEREST Taxable-equivalent net interest income for the third
INCOME quarter and the first nine months of 1997 was $2,203
million and $6,583 million, respectively, up $46 million
and $115 million from the corresponding periods of 1996.
The increases primarily resulted from growth in earning
assets, partially offset by an increase in the cost of
funds. Excluding the effects of credit card
securitizations, taxable-equivalent net interest income
would have increased $93 million and $237 million in the
third quarter and first nine months of 1997,
respectively, from the comparable 1996 periods.
Average earning assets totaled $216.2 billion and $213.7
billion in the third quarter and first nine months of
1997, respectively, up $9.5 billion and $11.4 billion
from the same periods in 1996. The increases were
largely attributable to growth in most segments of the
loan portfolio as average loans increased $6.1 billion
and $8.7 billion from the third quarter and first nine
months of 1996, respectively. In addition, trading
account assets rose $4.0 billion and $3.1 billion from
the third quarter and first nine months of 1996,
respectively.
BAC's net interest margin for the third quarter and
first nine months of 1997 was 4.06 percent and 4.11
percent, respectively, down 11 and 15 basis points from
the comparable periods a year ago. The yield on average
earning assets for the third quarter of 1997 increased
9 basis points from the third quarter of 1996. This
increase reflects higher yields on: securities purchased
under resale agreements due to the netting of certain
positions with securities sold under repurchase
agreements; construction and development loans secured
by real estate due to a higher level of interest
recoveries; and loans for purchasing or carrying
securities due to an increase in fees. The yield on
average earning assets for the first nine months of 1997
decreased 3 basis points from the comparable period a
year ago. This decrease was primarily due to lower
prevailing market rates and an increase in lower
yielding trading portfolio assets, partially offset by
the above items that increased the yield for the third
quarter of 1997. The cost of funds for the third quarter
and first nine months of 1997 increased from the third
quarter and first nine months of 1996 primarily due to
increased rates on domestic interest-bearing deposits,
the largest component of interest-bearing liabilities.
In addition, BAC has experienced a shift in the mix of
liabilities toward wholesale funding sources, including
foreign interest-bearing deposits and domestic purchased
funds, which are more costly than traditional core
deposits.
BAC's net interest income and margin include the
recognition of hedging with certain on- and off-balance
sheet financial instruments. The recognition of hedging
with derivative financial instruments reduced BAC's net
interest income results by approximately $30 million and
$65 million in the third quarter and first nine months
of 1997, compared with an approximate decrease of $5
million and an approximate increase of $25 million,
respectively, in the corresponding periods of 1996.
29
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
- ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1997 THIRD QUARTER 1996
--------------------------------- --------------------------------
(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 $ 6,282 $ 107 6.79% $ 5,518 $ 95 6.86%
Federal funds sold 1,037 14 5.65 664 9 5.38
Securities purchased under resale agreements 9,930 208 8.29/f/ 11,793 178 6.01
Trading account assets 17,316 325 7.44 13,270 269 8.06
Available-for-sale securities/c,d/ 11,984 209 6.95 11,373 210 7.34
Held-to-maturity securities/d/ 3,753 69 7.35 4,221 78 7.40
Domestic loans:
Consumer-residential first mortgages 34,935 643 7.36 38,291 715 7.46
Consumer-residential junior mortgages 14,955 318 8.44 14,469 311 8.56
Consumer-credit card 7,635 283 14.80 8,967 324 14.43
Other consumer 20,642 493 9.47 17,635 438 9.88
Commercial and industrial 33,627 683 8.05 32,790 636 7.73
Commercial loans secured by real estate 12,743 298 9.36 11,696 254 8.69
Financial institutions 3,171 39 4.93 2,742 31 4.51
Lease financing 2,699 38 5.58 2,106 32 5.92
Construction and development loans
secured by real estate 2,280 82 14.21/g/ 2,649 82 12.25
Loans for purchasing or carrying securities 2,035 59 11.45/h/ 1,167 19 6.51
Agricultural 1,834 40 8.72 1,574 34 8.50
Other 1,562 26 6.54 1,141 19 6.91
------- ----- ------- ------
Total domestic loans 138,118 3,002 8.65 135,227 2,895 8.54
Foreign loans 27,734 526 7.52 24,552 477 7.73
------- ----- ------- ------
Total loans/c/ 165,852 3,528 8.46 159,779 3,372 8.41
------- ----- ------- ------
Total earning assets 216,154 $4,460 8.21 206,618 $4,211 8.12
====== ======
Nonearning assets 44,758 40,684
Less: Allowance for credit losses 3,532 3,533
------- -------
TOTAL ASSETS $257,380 $243,769
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic interest-bearing deposits:
Transaction $ 5,110 $ 22 1.70% $ 13,091 $ 40 1.20%
Savings 11,726 61 2.08 12,903 66 2.04
Money market 40,343 289 2.84 27,732 225 3.24
Time 30,388 437 5.71 30,367 392 5.13
------- ----- ------- ------
Total domestic interest-bearing deposits 87,567 809 3.67 84,093 723 3.42
Foreign interest-bearing deposits:
Banks located in foreign countries 13,308 207 6.18 12,120 173 5.68
Governments and official institutions 11,475 160 5.52 10,630 139 5.20
Time, savings, and other 21,229 326 6.09 18,992 297 6.22
------- ----- ------- ------
Total foreign interest-bearing deposits 46,012 693 5.87 41,742 609 5.80
------- ----- ------- ------
Total interest-bearing deposits 133,579 1,502 4.40 125,835 1,332 4.21
Federal funds purchased 795 11 5.40 1,225 17 5.33
Securities sold under repurchase agreements 12,435 227 7.25/f/ 13,471 201 5.92
Other short-term borrowings 17,941 268 5.91 16,104 243 6.01
Long-term debt 14,183 249 6.96 15,174 261 6.84
------- ----- ------- ------
TOTAL INTEREST-BEARING LIABILITIES 178,933 $2,257 5.00 171,809 $2,054 4.76
====== ======
Domestic noninterest-bearing deposits 35,040 34,081
Foreign noninterest-bearing deposits 1,660 1,598
Other noninterest-bearing liabilities 19,851 16,076
------- -------
Total liabilities 235,484 223,564
Trust preferred securities/e/ 1,873 -
Stockholders' equity 20,023 20,205
------- -------
Total Liabilities and Stockholders' Equity $257,380 $243,769
======= =======
Interest income as a percentage of average earning assets 8.21% 8.12%
Interest expense as a percentage of average earning assets (4.15) (3.95)
----- -----
NET INTEREST MARGIN 4.06% 4.17%
===== =====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
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 $ 6,326 $ 311 6.58% $ 5,662 $ 308 7.26%
Federal funds sold 753 31 5.55 545 22 5.39
Securities purchased under resale agreements 9,674 543 7.50/f/ 10,753 509 6.33
Trading account assets 15,315 895 7.81 12,257 733 7.99
Available-for-sale securities/c,d/ 11,619 612 7.02 11,256 638 7.56
Held-to-maturity securities/d/ 3,926 228 7.74 4,409 246 7.44
Domestic loans:
Consumer-residential first mortgages 35,961 1,995 7.40 37,666 2,111 7.47
Consumer-residential junior mortgages 14,909 947 8.49 14,143 913 8.62
Consumer-credit card 8,084 887 14.62 9,003 988 14.62
Other consumer 20,325 1,470 9.67 17,043 1,263 9.90
Commercial and industrial 33,964 2,007 7.90 32,775 1,912 7.80
Commercial loans secured by real estate 12,574 846 8.97 11,282 749 8.85
Financial institutions 3,104 115 4.94 2,856 95 4.44
Lease financing 2,741 115 5.63 2,000 96 6.40
Construction and development loans
secured by real estate 2,263 226 13.35/g/ 2,955 240 10.85
Loans for purchasing or carrying securities 1,905 132 9.28/h/ 1,171 58 6.64
Agricultural 1,637 107 8.73 1,599 105 8.76
Other 1,433 67 6.24 1,153 58 6.77
-------- ------- -------- -------
Total domestic loans 138,900 8,914 8.57 133,646 8,588 8.58
Foreign loans 27,212 1,537 7.55 23,775 1,388 7.80
-------- ------- -------- -------
Total loans/c/ 166,112 10,451 8.40 157,421 9,976 8.46
-------- ------- -------- -------
Total earning assets 213,725 $13,071 8.17 202,303 $12,432 8.20
======= =======
Nonearning assets 44,691 41,858
Less: Allowance for credit losses 3,544 3,525
-------- --------
TOTAL ASSETS $254,872 $240,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic interest-bearing deposits:
Transaction $ 5,797 $ 67 1.54% $ 13,178 $ 119 1.20%
Savings 11,942 184 2.06 13,003 199 2.05
Money market 37,232 816 2.93 27,796 662 3.18
Time 30,125 1,235 5.48 30,057 1,130 5.02
-------- ------- -------- -------
Total domestic interest-bearing deposits 85,096 2,302 3.62 84,034 2,110 3.36
Foreign interest-bearing deposits:
Banks located in foreign countries 13,234 583 5.89 13,169 581 5.89
Governments and official institutions 11,152 451 5.40 9,440 372 5.26
Time, savings, and other 21,115 956 6.06 18,858 890 6.31
-------- ------- -------- -------
Total foreign interest-bearing deposits 45,501 1,990 5.85 41,467 1,843 5.94
-------- ------- -------- -------
Total interest-bearing deposits 130,597 4,292 4.39 125,501 3,953 4.21
Federal funds purchased 1,070 43 5.38 1,472 59 5.32
Securities sold under repurchase agreements 11,046 554 6.71/f/ 12,117 540 5.95
Other short-term borrowings 18,405 830 6.03 13,780 629 6.10
Long-term debt 14,836 769 6.93 15,265 783 6.86
-------- ------- -------- -------
Total interest-bearing liabilities 175,954 $ 6,488 4.93 168,135 $ 5,964 4.74
======= =======
Domestic noninterest-bearing deposits 36,289 34,025
Foreign noninterest-bearing deposits 1,702 1,597
Other noninterest-bearing liabilities 19,003 16,725
-------- --------
Total liabilities 232,948 220,482
Trust preferred securities/e/ 1,852 -
Stockholders' equity 20,072 20,154
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $254,872 $240,636
======== ========
Interest income as a percentage of average
earning assets 8.17% 8.20%
Interest expense as a percentage of average
earning assets (4.06) (3.94)
----- -----
Net Interest Margin 4.11% 4.26%
===== =====
- ------------------------------------------------------------------------------------------------------------------------------------
</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 40 percent.
/c/ Average balances include nonaccrual assets.
/d/ Refer to the table on page 39 of the Balance Sheet Review section for more
detail on available-for-sale and held-to-maturity securities.
/e/ Trust preferred securities represent corporation obligated mandatorily
redeemable preferred securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures of the corporation. Related
expenses are included in noninterest expense.
/f/ Rates reflect a higher level of offsetting average balances between
securities purchased under resale agreements and securities sold under
repurchase agreements during the third quarter and first nine months of 1997
as compared to the same periods in 1996.
/g/ Rates reflect a higher level of interest recoveries on nonaccrual loans
during the third quarter and first nine months of 1997 as compared to the
same periods in 1996.
/h/ Rates reflect an increase in fees during the third quarter and first nine
months of 1997 as compared to the same periods in 1996.
31
<PAGE>
================================================================================
NONINTEREST Noninterest income for the third quarter and first nine
INCOME months of 1997 was $1,670 million and $4,497 million,
respectively, representing increases of $351 million and
$584 million from the comparable periods in 1996.
Noninterest income for the third quarter of 1997
included a $246 million pre-tax gain associated with the
previously announced sale of SPFS. The effect of this
gain was partially offset by charges of approximately
$112 million for asset dispositions, personnel expenses,
and other costs associated primarily with the decision
to exit Midwest retail facilities. In addition,
noninterest income for the second quarter of 1996
included an $82 million pre-tax gain from the sale of a
Hong Kong consumer and commercial finance subsidiary.
Furthermore, noninterest income for the first quarter of
1996 included a $50 million pre-tax gain associated with
the divestiture of BAC's ITSS business. Excluding the
above items, noninterest income would have increased
$217 million, or 16 percent, and $582 million, or 15
percent, in the third quarter and first nine months of
1997, respectively, from the comparable periods last
year. The increase reflected growth in fees and
commissions, trading income, and other noninterest
income.
Fees and commissions, the largest component of
noninterest income, for the third quarter and first nine
months of 1997 increased by $96 million and $276
million, respectively, from the same periods a year ago.
The growth in fees and commissions of 11 percent during
both the current quarter and first nine months of 1997
over last year reflects BAC's continued focus on
expanding its fee-generating activities. Revenues earned
from retail deposit account fees rose $12 million and
$46 million for the third quarter and first nine months
of 1997, respectively, compared with the corresponding
periods in 1996, primarily due to an increase in the
volume of fee-generating accounts. Other fees and
commissions rose $64 million and $203 million for the
third quarter and first nine months of 1997,
respectively, from the comparable periods in the prior
year. These increases were primarily attributable to
increased revenues from loan fees and charges as well as
ATM fees. Loan fees and charges are reported net of
amortization expense and valuation adjustments on
mortgage servicing assets and, commencing the first
quarter of 1997, other consumer loan servicing assets,
which are recognized in connection with the requirements
of SFAS No. 125. The increase in loan fees and charges
resulted primarily from the effects of SFAS No. 125 as
well as higher revenues from late payment and overlimit
charges on credit card accounts. These increases were
partially offset by an increase in the amortization
expense and valuation adjustments on servicing assets.
The growth in ATM fees was largely attributable to
expanded transaction volume as well as surcharges levied
on nonbank customers.
Trading income increased $70 million, or 46 percent, and
$133 million, or 27 percent, in the third quarter and
first nine months of 1997, respectively, from the
comparable periods a year ago. The improved performance
for the first nine months of 1997 was largely
attributable to BAC's trading activities in foreign
exchange and emerging market debt securities in the
second and third quarters of 1997, in addition to
investments in domestic debt securities in the first
quarter of 1997. For more information on the functional
components of trading income, refer to Note 8 of the
Notes to Consolidated Financial Statements on pages 14
through 19.
32
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
NONINTEREST INCOME
- ------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30
-------------------- ------------------
(IN MILLIONS) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEES AND COMMISSIONS
Deposit account fees:
Retail $ 273 $ 261 $ 816 $ 770
Commercial 91 84 269 265
Credit card fees:
Membership 5 6 16 23
Other 91 86 260 238
Trust fees:
Corporate and employee benefit 2 2 7 15
Personal and other 60 51 173 157
Other fees and commissions:
Loan fees and charges 162 92 448 258
Off-balance-sheet credit-related instrument fees 78 91 230 264
Financial services fees 57 64 150 152
Mutual fund and annuity commissions 17 23 69 75
Other 110 90 319 264
- ------------------------------------------------------------------------------------------------------------------------------
946 850 2,757 2,481
- ------------------------------------------------------------------------------------------------------------------------------
TRADING INCOME 223 153 629 496
- ------------------------------------------------------------------------------------------------------------------------------
OTHER NONINTEREST INCOME
Private equity investment activities 140 97 322 319
Net gain on sales of subsidiaries and operations 139 41 179 175
Net gain on sales of loans 53 25 156 69
Net gain on available-for-sale securities 33 7 67 41
Other income 136 146 387 332
- ------------------------------------------------------------------------------------------------------------------------------
501 316 1,111 936
- ------------------------------------------------------------------------------------------------------------------------------
$1,670 $1,319 $4,497 $3,913
- -----------------------------------------------------------------------=======================================================
</TABLE>
Other noninterest income totaled $501 million and $1,111
million in the third quarter and first nine months of
1997, respectively, representing increases of $185
million from the third quarter of last year and $175
million from the first nine months of 1996. Excluding
the items discussed on the previous page, other
noninterest income would have increased $51 million, or
16 percent, in the third quarter of 1997, and would have
increased $173 million, or 22 percent, in the first nine
months of 1997 compared to the same periods last year.
These increases included higher income related to
private equity investment activities, net gain on sales
of loans, and net gain on available-for-sale securities,
partially offset by a third quarter 1997 decrease in net
gain on sales of subsidiaries and operations.
Income related to private equity investment activities
increased $43 million and $3 million in the third
quarter and first nine months of 1997, respectively,
from the same periods in the previous year. The
increases reflected higher realized capital gains which
were mainly related to the sale of an investment from
the venture capital portfolio during the third quarter
of 1997.
33
<PAGE>
===============================================================================
Net gain on sales of loans was higher by $28 million and
$87 million for the third quarter and first nine months
of 1997, respectively, compared to the same periods in
1996. The increases were largely due to growth in the
sales of residential mortgages and commercial and
industrial loans.
Net gain on available-for-sale securities grew $26
million in the third quarter and first nine months of
1997 in comparison to the corresponding periods last
year. The growth in each period primarily reflected
improved venture capital results in the third quarter of
1997 compared to the same quarter last year.
Other income declined $10 million in the third quarter
of 1997 and increased $55 million in the first nine
months of 1997 from the amounts reported a year ago.
Other income for the third quarter of 1996 included a
$43 million gain on the liquidation of an Australian
subsidiary. The growth in the first nine months of 1997
included higher income related to equity investments in
affiliates and joint ventures, and other earnings.
Net gain on sales of subsidiaries and operations
increased $98 million in the third quarter of 1997 from
the corresponding period in 1996. Excluding the SPFS
transaction and the Midwest retail decision discussed on
page 32, net gain on sales of subsidiaries and
operations would have decreased $36 million in the third
quarter of 1997 from the comparable period last year.
The decline in the current quarter was mainly due to a
$39 million gain in the third quarter of 1996 that
resulted from a reduction of BAC's equity interest in
KorAm Bank, an Asian investment.
34
<PAGE>
===============================================================================
NONINTEREST Noninterest expense for the third quarter and first
EXPENSE nine months of 1997 was $2,232 million and $6,312
million, respectively, representing increases of $151
million and $221 million, respectively, from the
corresponding periods in 1996. Noninterest expense in
the third quarter and first nine months of 1997 included
expenses associated with trust preferred securities of
$36 million and $107 million, respectively. Noninterest
expense for third quarter 1997 included charges
associated with multiple legal matters, writedowns on
corporate real estate, and contributions to the BA
Foundation. Included in noninterest expense for the
third quarter of 1996 was a one-time assessment of $82
million associated with the recapitalization of the
SAIF. Excluding these items, noninterest expense would
have increased $57 million, or 3 percent, and $56
million, or less than one percent, in the third quarter
and first nine months of 1997, respectively, from the
comparable periods in 1996. The increases mainly reflect
higher personnel expense, partially offset by a decline
in other noninterest expense compared to the same
periods a year ago.
Personnel expense, the largest component of noninterest
expense, was $1,069 million in the third quarter of
1997, up $56 million, or 6 percent, from the same
quarter last year. Personnel expense was $3,159 million
in the first nine months of 1997, up $96 million, or
approximately 3 percent, from the comparable period last
year. The increases from the corresponding periods in
1996 were primarily associated with variable pay related
to incentive plans and other compensation. BAC's staff
level on a full-time-equivalent (FTE) basis was
approximately 76,000 at September 30, 1997, down from
approximately 78,200 at September 30, 1996. FTE is a
measurement equal to one full-time employee working a
standard day. BAC had approximately 89,500 employees,
both full-time and part-time, at September 30, 1997,
down from approximately 92,700 at September 30, 1996.
Other noninterest expense was $789 million and $2,055
million in the third quarter and first nine months of
1997, respectively. Excluding the expenses described
above, other noninterest expense would have been $613
million in the third quarter of 1997, a decrease of $5
million over the same quarter last year, mainly
reflecting a decline in other real estate owned,
advertising, and other expenses which was partially
offset by higher professional service fees as well as an
increase in other expenses. Excluding the expenses
described above, other noninterest expense would have
been $1,808 million in the first nine months of 1997,
down $55 million over the comparable period in 1996. The
decrease in the first nine months of 1997 was mainly due
to a decline in advertising expenditures and other
expenses compared to the corresponding period in the
prior year.
BAC's noninterest expense for the third quarter of 1997
and for several preceding quarters has included charges
incurred in connection with making its computer systems
year 2000 compliant. BAC expects to continue incurring
charges related to this project through the year 2000,
however, none of these costs are expected to materially
impact its results of operations in any one period. In
addition, a significant portion of these costs are not
expected to be incremental to BAC but instead will
constitute a reassignment of existing internal systems
technology resources. BAC believes that its plans for
dealing with the year 2000 issue will result in timely
and adequate modifications of its systems and
technology. Ultimately, the potential impact of the year
2000 issue will depend not only on the corrective
measures BAC undertakes, but also on the way in which
the year 2000 issue is addressed by governmental
agencies, businesses, and other entities who provide
data to, or receive data from, BAC, or whose financial
condition or operational capability is important to BAC
as borrowers, suppliers, or customers. Therefore, BAC is
communicating with these parties to ensure they are
aware of the year 2000 issue, to learn how they are
addressing it, and to evaluate any likely impact on BAC.
35
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
THIRD QUARTER SEPTEMBER 30
----------------------- ------------------------
(IN MILLIONS) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERSONNEL
Salaries $ 892 $ 822 $2,604 $2,457
Employee benefits 177 191 555 606
- --------------------------------------------------------------------------------------------------------------------------------
1,069 1,013 3,159 3,063
- --------------------------------------------------------------------------------------------------------------------------------
OCCUPANCY AND EQUIPMENT
Occupancy 192 188 561 564
Equipment 182 180 537 518
- --------------------------------------------------------------------------------------------------------------------------------
374 368 1,098 1,082
- --------------------------------------------------------------------------------------------------------------------------------
OTHER NONINTEREST EXPENSE
Communications 95 89 284 271
Amortization of intangibles 88 93 268 281
Professional services 107 87 264 248
Regulatory fees and related expenses 10 95 30 121
Other expense 489 336 1,209 1,025
- --------------------------------------------------------------------------------------------------------------------------------
789 700 2,055 1,946
- --------------------------------------------------------------------------------------------------------------------------------
$2,232 $2,081 $6,312 $6,091
- --------------------------------------------------------------==================================================================
Full-time-equivalent staff at period end 76,000 78,200
Employees at period end 89,500 92,700
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME The provision for income taxes was $553 million and
TAXES $1,619 million for the third quarter and first nine
months of 1997, respectively, reflecting a forecasted
annual effective income tax rate of 40.3 percent. The
provision for income taxes for the third quarter and
first nine months of 1996 was $472 million and $1,488
million, respectively, which had reflected a forecasted
annual effective income tax rate of 41.2 percent.
For further information concerning BAC's provision for
federal, state, and foreign income taxes for the most
recent five quarters, refer to Note 6 of the Notes to
Consolidated Financial Statements on page 13.
36
<PAGE>
BALANCE SHEET REVIEW
===============================================================================
Interest-earning assets totaled $215 billion at
September 30, 1997, up $8 billion, or 4 percent, from
year-end 1996. Growth in interest-earning assets,
primarily trading account assets, securities purchased
under resale agreements, and loans, was funded primarily
by increases in securities sold under repurchase
agreements, and other short-term borrowings.
Total deposits at September 30, 1997 was $171.4 billion,
an increase of $3.4 billion from December 31, 1996.
The growth was partially attributable to a $1.7 billion
increase in foreign interest-bearing deposits that
resulted from BAC's continued participation in selected
global markets. Also contributing to the growth was a
$1.5 billion increase in total domestic deposits due to
an increase in money market accounts. Interest-bearing
domestic deposits increased and noninterest-bearing
domestic deposits decreased by approximately $9 billion,
respectively, at September 30, 1997 from year-end 1996
due to a transfer from noninterest-bearing domestic
deposits. The transfer occurred as part of an initiative
to reduce reserve requirements on noninterest-bearing
deposits at the Federal Reserve Bank. Excluding this
transfer, the balances of the interest-bearing and
noninterest-bearing domestic deposits would have been
approximately $85 billion and $40 billion, respectively,
at September 30, 1997.
In June 1996, the Financial Accounting Standards Board
(FASB) issued SFAS No. 125. The FASB subsequently
amended SFAS No. 125 in December 1996. As amended, SFAS
No. 125 applies to securities lending, repurchase
agreements, dollar rolls, and other similar secured
financing transactions occurring after December 31, 1997
and to all other transfers and servicing of financial
assets occurring after December 31, 1996. The adoption
of SFAS No. 125 did not and is not expected to have a
material effect on BAC's financial position or results
of operations.
37
<PAGE>
===============================================================================
CREDIT CARD BAC securitized and sold $2,971 million in credit card
SECURITIZATION receivables since mid-1996. The securitizations affect,
among other things, the manner and time period in which
revenue is reported in the statement of operations. The
amounts that would otherwise be included in net interest
revenue are instead included in noninterest income as
fees and commissions, net of any credit losses on the
securitized portion of the credit card portfolio.
The table below shows the impact of the securitization
of credit card receivables on BAC's results of
operations and financial position as of September 30,
1997. The table includes the effects of the adoption of
SFAS No. 125, which requires the recognition of gains
and amortized cost resulting from the securitization
transactions.
<TABLE>
<CAPTION>
===================================================================================================================================
IMPACT OF CREDIT CARD SECURITIZATION
- ----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997/a/
--------------------------------------------------------------
BEFORE
CREDIT CARD CREDIT CARD
(DOLLAR AMOUNTS IN MILLIONS) SECURITIZATION SECURITIZATION REPORTED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS
Net interest income $ 6,694 $ (132) $ 6,562
Credit card fees 301 (25) 276
Other noninterest income 4,100 121/b/ 4,221
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenue 11,095 (36) 11,059
Noninterest expense 6,312 - 6,312
- ----------------------------------------------------------------------------------------------------------------------------------
Income before provision for credit
losses and income taxes 4,783 (36) 4,747
Provision for credit losses 817 (87)/c/ 730
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 3,966 $ 51 $ 4,017
- --------------------------------------------------------------------------========================================================
Net interest margin 4.16% (0.05)% 4.11%
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END
Credit card loans outstanding $ 10,021 $(2,971) $ 7,050
Total assets 260,491 (2,971) 257,520
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Credit card loans 9,860 (1,776) 8,084
Earning assets 215,501 (1,776) 213,725
Total assets 256,648 (1,776) 254,872
- ----------------------------------------------------------------------------------------------------------------------------------
Net credit losses - credit card portfolio 448 (87) 361
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Annualized ratio of net credit losses on credit card loan
to average credit card loans outstanding 6.07% (0.09)% 5.98%
Delinquent credit card loan ratio/d/ 2.76 (0.04) 2.72
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes the impact of credit card securitization transactions since
mid-1996. There were credit card securitizations of $750 million during the
third quarter of 1997, $750 million during the second quarter of 1997, and
$1,471 million during the last half of 1996.
/b/ Includes a $51 million gain, net of amortized cost, associated with the
continued application of SFAS No. 125.
/c/ Represents the investors' share of charge-offs.
/d/ 60 days or more past due.
38
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES - AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
- --------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1997
--------------------------------------------------------------------
RATE
RATE BASED ON
BASED ON AMORTIZED
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ FAIR VALUE/b/ COST/b/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities $ 1,383 $ 22 6.41% 6.40%
Mortgage-backed securities 7,360 126 6.82 6.88
Other domestic securities 864 12 5.30 5.89
Foreign securities 2,377/c/ 49 8.25/d/ 7.97/d/
- --------------------------------------------------------------------------------------------------------------------------------
$11,984 $209 6.95% 6.98%
- -------------------------------------------------------------===================================================================
<CAPTION>
THIRD QUARTER 1996
- --------------------------------------------------------------------------------------------------------------------------------
RATE
RATE BASED ON
BASED ON AMORTIZED
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ FAIR VALUE/b/ COST/b/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities $ 1,559 $ 26 6.69% 6.59%
Mortgage-backed securities 5,995 103 6.91 6.82
Other domestic securities 753 11 5.64 6.57
Foreign securities 3,066/c/ 70 8.96/d/ 8.54/d/
- --------------------------------------------------------------------------------------------------------------------------------
$11,373 $210 7.34% 7.25%
- ----------------------------------------------------------------================================================================
<CAPTION>
THIRD QUARTER 1997 THIRD QUARTER 1996
---------------------------------- ---------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
U.S. Treasury and other government
agency securities $ 12 $ -/e/ 2.18% $ 16 $ -/e/ 4.65%
Mortgage-backed securities 1,989 37 7.45 2,262 43 7.59
State, county, and municipal securities 324 6 7.97 408 7 7.33
Other domestic securities 54 1 6.88 66 1 6.75
Foreign securities 1,374 25 7.13 1,469 27 7.18
- --------------------------------------------------------------------------------------------------------------------------------
$3,753 $69 7.35% $4,221 $78 7.40%
- --------------------------------------------------==============================================================================
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------------
1997
--------------------------------------------------------------------
RATE
RATE BASED ON
BASED ON AMORTIZED
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ FAIR VALUE/b/ COST/b/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities $ 1,418 $ 70 6.61% 6.52%
Mortgage-backed securities 6,771 347 6.84 6.85
Other domestic securities 890 38 5.66 6.32
Foreign securities 2,540/c/ 157 8.23/d/ 7.92/d/
- --------------------------------------------------------------------------------------------------------------------------------
$11,619 $612 7.02% 7.01%
- -------------------------------------------------------------===================================================================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------------------------------------
1996
-------------------------------------------------------------------
RATE
RATE BASED ON
BASED ON AMORTIZED
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ FAIR VALUE/b/ COST/b/
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities $ 1,471 $ 74 6.72% 6.69%
Mortgage-backed securities 6,217 317 6.81 6.79
Other domestic securities 740 32 5.72 6.69
Foreign securities 2,828/c/ 215 10.14/d/ 9.58/d/
- --------------------------------------------------------------------------------------------------------------------------------
$11,256 $638 7.56% 7.51%
- -------------------------------------------------------------==================================================================
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------------------------------------------
1997 1996
----------------------------------- -------------------------------
(DOLLAR AMOUNTS IN MILLIONS) BALANCE/a/ INTEREST/b/ RATE/b/ BALANCE/a/ INTEREST/b/ RATE/b/
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
U.S. Treasury and other government
agency securities $ 12 $ 1 5.67% $ 38 $ 1 4.86%
Mortgage-backed securities 2,059 115 7.46 2,347 134 7.60
State, county, and municipal securities 367 21 7.62 421 24 7.58
Other domestic securities 55 3 6.85 112 6 7.31
Foreign securities 1,433 88 8.22 1,491 81 7.23
- -------------------------------------------------------------------------------------------------------------------------------
$3,926 $228 7.74% $ 4,409 $246 7.44%
- --------------------------------------------------=============================================================================
</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 40 percent.
/c/ Average balances include nonaccrual assets.
/d/ Rates reflect interest received on nonaccrual debt-restructuring par bonds.
/e/ Amount rounds to less than $0.5 million.
39
<PAGE>
CREDIT RISK MANAGEMENT
===============================================================================
LOAN PORTFOLIO Total loans at September 30, 1997 were up $1.6
MANAGEMENT billion, or 1 percent, from year-end 1996. This
growth occurred in the domestic commercial and
foreign portfolios.
<TABLE>
<CAPTION>
==========================================================================================================================
LOAN OUTSTANDINGS
- --------------------------------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------- ------------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages $ 34,279 $ 35,709 $ 35,881 $ 37,459 $ 37,445
Residential junior mortgages 14,915 15,154 14,857 14,743 14,525
Other installment 18,432 18,410 17,863 16,979 15,998
Credit card 7,050/a/ 7,624/a/ 8,365/a/ 8,707/a/ 9,021/a/
Other individual lines of credit 1,939 1,961 1,939 1,948 1,845
Other 442 413 391 401 303
- --------------------------------------------------------------------------------------------------------------------------
77,057 79,271 79,296 80,237 79,137
Commercial:
Commercial and industrial 34,082 34,266 34,554 33,404 33,076
Loans secured by real estate 12,833 12,669 12,445 12,488 12,062
Financial institutions 3,452 2,947 3,232 3,109 2,537
Lease financing 2,700 2,809 2,790 2,542 2,682
Construction and development loans
secured by real estate 2,257 2,262 2,261 2,252 2,530
Loans for purchasing or carrying securities 2,000 2,616 2,447 1,941 1,328
Agricultural 1,774 1,560 1,475 1,696 1,561
Other 1,745 1,738 1,450 1,270 1,253
- --------------------------------------------------------------------------------------------------------------------------
60,843 60,867 60,654 58,702 57,029
- --------------------------------------------------------------------------------------------------------------------------
137,900 140,138 139,950 138,939 136,166
Foreign
Commercial and industrial 18,260 17,762 17,540 16,394 16,257
Banks and other financial institutions 4,295 4,818 3,526 3,958 3,480
Governments and official institutions 861 851 1,008 970 943
Other 5,670 5,237 5,314 5,154 4,987
- --------------------------------------------------------------------------------------------------------------------------
29,086 28,668 27,388 26,476 25,667
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 166,986 168,806 167,338 165,415 161,833
Less: Allowance for credit losses 3,504 3,563 3,538 3,523 3,511
- --------------------------------------------------------------------------------------------------------------------------
$163,482 $165,243 $163,800 $161,892 $158,322
- -------------------------------------------------=========================================================================
</TABLE>
/a/ Excludes outstanding securitized credit card receivables of $2,971 million
at September 30, 1997, $2,221 million at June 30, 1997, $1,471 million at
March 31, 1997 and December 31, 1996, and $500 million at September 30,
1996. There were credit card securitizations of $750 million during the
third quarter of 1997, $750 million during the second quarter of 1997, and
$1,471 million during the last half of 1996.
Domestic Consumer Loans--During the nine months ended
September 30, 1997, domestic consumer loans decreased by
$3.2 billion. This decrease reflected a decline of $3.2
billion in residential first mortgages and a decline of
$1.7 billion in credit card receivables, partially
offset by an increase in other installment loans of $1.5
billion.
Growth in residential first mortgages was more than
offset by the sale of $8.3 billion of mortgages from the
portfolio, resulting in a net decrease of $3.2 billion
for the nine months ended September 30, 1997.
40
<PAGE>
================================================================================
Credit card receivables decreased $1.7 billion during
the nine months ended September 30, 1997, mainly due to
securitizations of credit card receivables.
Other installment loans increased $2.1 billion due to
continued growth in manufactured housing in the 13
states in the southeastern region of the U.S. and auto
loans and leases in California during the nine months
ended September 30, 1997. This increase was partially
offset by a decrease in installment loans due to the
sale of SPFS, resulting in a net increase of $1.5
billion for the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
=================================================================================================================================
DOMESTIC CONSUMER LOANS BY GEOGRAPHIC AREA AND LOAN TYPE AS OF SEPTEMBER 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL RESIDENTIAL
FIRST JUNIOR CREDIT MANUFACTURED OTHER TOTAL
(IN MILLIONS) MORTGAGES MORTGAGES CARD HOUSING AUTO CONSUMER CONSUMER
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
California $24,714 $ 9,972 $2,495 $ 926 $2,848 $2,199 $43,154
Washington 1,246 1,971 1,249 356 1,591 700 7,113
Arizona 892 1,001 278 263 579 128 3,141
Texas 771 111 316 708 821 319 3,046
Oregon 936 561 228 154 263 94 2,236
Other/a/ 5,720 1,299 2,484 6,746 1,157 961 18,367
- ---------------------------------------------------------------------------------------------------------------------------------
$34,279 $14,915 $7,050 $9,153 $7,259 $4,401 $77,057
- ---------------------------------------==========================================================================================
</TABLE>
/a/ No other state individually exceeded 2 percent of total domestic consumer
loans.
Delinquent domestic consumer loans that are 60 days or
more past due totaled $801 million at September 30,
1997, a decrease of $73 million from the December 31,
1996 level. The decrease was a result of a lower level
of delinquencies in most loan categories, primarily in
residential first mortgages and residential junior
mortgages. Partially offsetting this decrease was an
increase in delinquencies related to manufactured
housing. At September 30, 1997, the delinquency ratio
for credit cards increased 5 basis points to 2.72
percent from the June 30, 1997 ratio. This increase
reflected the decline in credit card outstandings as a
result of credit card securitizations.
<TABLE>
<CAPTION>
==================================================================================================================================
DOMESTIC CONSUMER LOAN DELINQUENCY INFORMATION/a/
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------- ------------------------
(DOLLAR AMOUNTS IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DELINQUENT CONSUMER LOANS
Residential first mortgages $431 $422 $463 $477 $518
Residential junior mortgages 44 59 61 62 64
Credit card 192 204 216 206 207
Other 134 126 122 129 113
- ----------------------------------------------------------------------------------------------------------------------------------
$801 $811 $862 $874 $902
- -------------------------------------------------------------=====================================================================
DELINQUENT CONSUMER LOAN RATIOS/b/
Residential first mortgages 1.26% 1.18% 1.29% 1.27% 1.38%
Residential junior mortgages 0.29 0.39 0.41 0.42 0.44
Credit card 2.72 2.67 2.58 2.36 2.29
Other 0.65 0.61 0.60 0.67 0.63
Total 1.04 1.02 1.09 1.09 1.14
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ 60 days or more past due.
/b/ Ratios represent delinquent balances expressed as a percentage of total
loans for that loan category.
41
<PAGE>
===============================================================================
Domestic Commercial Loans--Domestic commercial loans
increased $2.1 billion, or 3.6 percent, during the nine
months ended September 30, 1997, reflecting growth in
all commercial loan categories. Commercial and
industrial loans increased $0.7 billion, loans secured
by real estate increased $0.3 billion, and loans to
financial institutions increased $0.3 billion. The
growth in commercial and industrial loans primarily
reflected BAC's efforts to diversify its market share as
well as to increased loan demand from large corporate
and middle market borrowers in various industries
throughout the United States.
<TABLE>
<CAPTION>
===================================================================================================================================
DOMESTIC COMMERCIAL LOANS SECURED BY REAL ESTATE BY GEOGRAPHIC AREA AND PROJECT TYPE AT
SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
LIGHT APARTMENT &
(IN MILLIONS) OFFICE INDUSTRY CONDOMINIUM RETAIL HOTEL OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
California $1,548 $1,468 $ 984 $1,354 $156 $ 810 $ 6,320
Washington 747 358 410 374 144 518 2,551
Nevada 159 89 243 122 99 198 910
Oregon 98 64 198 119 22 76 577
Arizona 87 60 144 92 48 98 529
Texas 24 54 122 13 - 59 272
Illinois 55 36 95 29 - 45 260
Other/a/ 570 237 166 191 75 175 1,414
- ----------------------------------------------------------------------------------------------------------------------------------
$3,288 $2,366 $2,362 $2,294 $544 $1,979 $12,833
- --------------------------------------------------------==========================================================================
</TABLE>
/a/ 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, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
APARTMENT & LIGHT
(IN MILLIONS) SUBDIVISION CONDOMINIUM RETAIL OFFICE INDUSTRY HOTEL OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $201 $100 $179 $ 85 $ 43 $ 17 $ 35 $ 660
Washington 203 85 46 71 16 23 50 494
Nevada 74 99 13 20 60 51 31 348
Arizona 52 50 19 7 18 1 30 177
Texas 44 61 27 6 10 1 3 152
Oregon 16 30 32 11 6 4 7 106
Illinois 10 24 11 10 7 - 2 64
Florida - - 59 - 1 - - 60
New York - - 12 - - - 41 53
Other/a/ 5 33 53 7 14 17 14 143
- ------------------------------------------------------------------------------------------------------------------------------------
$605 $482 $451 $217 $175 $114 $213 $2,257
- --------------------------------------------========================================================================================
</TABLE>
/a/ No other state individually exceeded 2 percent of total domestic
construction and development loans.
Foreign Loans--BAC has selectively expanded its lending
activities in the Pacific Rim as well as in certain
countries in Latin America. As a result, total foreign
loans increased $2.6 billion, or 10 percent, between
year-end 1996 and September 30, 1997, primarily
reflecting an increase in commercial and industrial
loans of $1.9 billion, an increase in loans to banks and
other financial institutions of $0.3 billion, and an
increase in other loans of $0.5 billion.
42
<PAGE>
================================================================================
REGIONAL FOREIGN In connection with its efforts to maintain a diversified
EXPOSURES portfolio, BAC limits its exposure to any one geographic
region or country and monitors this exposure on a
continuous basis. The table on page 44 sets forth selected
cross-border regional exposures of BAC as of September 30,
1997, including net local currency assets. Exposure
represents loans, securities including restructured debt,
and other monetary assets, and also includes net local
currency monetary assets that have not been funded through
local currency borrowings. The table is different than
previous quarters' disclosures, which were limited to
emerging market exposures. This new table was adopted to
portray a more comprehensive picture of BAC's foreign
exposures in selected regions.
As part of its efforts to monitor these regional
exposures, BAC manages its currency risks, including its
local currency activities in these foreign countries. The
result of this foreign currency management is that BAC's
net unhedged position in any given foreign currency is
typically significantly smaller than the amounts set forth
as net local currency outstandings in the table. For
additional information concerning risk management, refer
to pages 39 through page 44 of BAC's 1996 Annual Report to
Shareholders.
43
<PAGE>
<TABLE>
<CAPTION>
REGIONAL FOREIGN EXPOSURES
- ------------------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1997
-------------------------------------------------------------------------------------------------------
CROSS-BORDER LOANS OTHER
TOTAL --------------------- NET LOCAL --------------------------
CROSS-BORDER MEDIUM- AND CURRENCY MEDIUM- AND
REGION/COUNTRY OUTSTANDINGS/a/ SHORT-TERM LONG-TERM OUTSTANDINGS/b/ SECURITIES/c/ SHORT-TERM/d/ LONG-TERM
- ------------------------------------------------------------------------------------------------------------------------------------
ASIA
China $ 703 $ 398 $ 53 $ 1 $ - $ 234 $ 17
Hong Kong 2,237 461 184 1,279 - 178 135
India 1,227 172 230 504 - 298 23
Indonesia 685 201 219 56 - 209 -
Japan 3,219 413 214 1,462 - 1,120 10
Korea 3,208 613 96 317 - 2,054 128
Malaysia 732 183 75 434 - 22 18
Pakistan 348 3 7 313 - 25 -
Philippines 520 215 63 - 54 172 16
Singapore 1,105 371 28 547 - 116 43
Taiwan 1,224 519 171 415 - 116 3
Thailand 1,000 452 197 209 - 138 4
Other 55 37 9 5 - 4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total 16,263 4,038 1,546 5,542 54 4,686 397
CENTRAL AND EASTERN EUROPE
Russia Federation 540 9 5 - - 526 -
Other 440 101 59 10 - 269 1
- ------------------------------------------------------------------------------------------------------------------------------------
Total 980 110 64 10 - 795 1
LATIN AMERICA
Argentina 1,234 225 147 70 91 672 29
Brazil 2,081 694 183 780 14 365 45
Chile 1,098 157 513 417 - 7 4
Colombia 667 206 284 144 19 7 7
Mexico 3,188 453 884/e/ 144 1,213 414 80
Venezuela 335 23 - - 255 40 17
Other 155 1 4 - 89 59 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total 8,758 1,759 2,015 1,555 1,681 1,564 184
- ------------------------------------------------------------------------------------------------------------------------------------
Total $26,001 $5,907/f/ $3,625/f/ $7,107 $1,735 $7,045 $582
- ----------------------------------==================================================================================================
</TABLE>
/a/ Includes the following assets with borrowers in a foreign country: loans,
accrued interest, acceptances, interest-bearing deposits in banks, trading
account assets, available-for-sale and held-to-maturity securities, other
interest-earning investments and other monetary assets. Amounts also include
local currency outstandings that are not funded by local currency
borrowings, and available-for-sale and held-to-maturity securities that are
collateralized by U.S. Treasury securities.
/b/ Represents local currency assets in a foreign country that are not funded by
local currency borrowings. These amounts do not necessarily reflect the
results of BAC's foreign currency management activities and therefore, BAC's
net foreign exchange exposures in the respective currencies are typically
significantly smaller.
/c/ Amounts represent available-for-sale and held-to-maturity securities and
include securities that are collateralized by U.S. Treasury securities as
follows: Mexico - $1,020 million; Venezuela - $232 million; Philippines -
$22 million; and Latin America Other - $89 million. Held-to-maturity
securities amounted to $1,082 million with a fair value of $1,102 million.
/d/ Includes the following assets with borrowers in a foreign country; accrued
interest receivable, acceptances, interest-bearing deposits in banks,
trading account assets, other interest-earning investments and other short-
term monetary assets.
/e/ Includes a $30 million loan that is collateralized by zero-coupon U.S.
Treasury securities.
/f/ Total loans include nonaccrual loans of $58 million.
44
<PAGE>
================================================================================
ALLOWANCE FOR The allowance for credit losses at September 30, 1997
CREDIT LOSSES was $3,504 million, or 2.10 percent of loans
outstanding, compared with $3,523 million, or 2.13
percent, at December 31, 1996. The ratio of the
allowance for credit losses to total nonaccrual assets
was 377 percent at September 30, 1997, up from 315
percent at December 31, 1996.
Management develops the allowance for credit losses
using a "building block approach" for various portfolio
segments. Significant loans, particularly those
considered to be impaired, are individually analyzed,
while other loans are analyzed by portfolio segment. In
establishing the allowance for the portfolio segments,
credit officers include results obtained from
statistical models using historical loan performance
data. While management has allocated the allowance to
various portfolio segments, it is general in nature and
is available for the loan portfolio in its entirety.
<TABLE>
<CAPTION>
=================================================================================================================================
COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------
(IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special mention and classified:
Historical loss experience component $ 318 $ 316 $ 334 $ 349 $ 393
Credit management allocated component 398 370 404 426 375
- ---------------------------------------------------------------------------------------------------------------------------------
Total special mention and classified 716 686 738 775 768
Other:
Domestic consumer 1,469 1,523 1,475 1,414 1,366
Domestic commercial 279 262 240 252 255
Foreign 388 310 309 300 288
- ---------------------------------------------------------------------------------------------------------------------------------
Total allocated 2,852 2,781 2,762 2,741 2,677
Unallocated 652 782 776 782 834
- ---------------------------------------------------------------------------------------------------------------------------------
$3,504 $3,563 $3,538 $3,523 $3,511
- ---------------------------------------------------------========================================================================
</TABLE>
Net credit losses for the third quarter of 1997 amounted
to $259 million, an increase of $33 million from the
same period a year ago. Net credit losses for the first
nine months of 1997 amounted to $687 million, a decrease
of $24 million from the comparable period in 1996. These
changes were largely in the domestic consumer and
commercial portfolios.
Domestic consumer net credit losses for the third
quarter and first nine months of 1997 increased $22
million and $61 million, respectively, from the
comparable periods in 1996. This increase was primarily
in the credit card and consumer installment portfolios.
The growth in the consumer portfolio, primarily
manufactured housing loans, resulted in higher charge-
offs in the consumer installment category. Higher levels
of personal bankruptcy filings contributed to the
increased charge-offs in the credit card portfolio.
Partially offsetting these increases were decreases in
net credit losses on residential first and junior
mortgages.
45
<PAGE>
================================================================================
Domestic commercial net credit losses for the third
quarter of 1997 totaled $44 million, an increase of $17
million from the amount reported in the third quarter of
1996. This increase was primarily attributable to higher
net credit losses on commercial and industrial loans,
partially offset by lower net credit losses related to
construction and development loans. Domestic commercial
net credit losses for the first nine months of 1997
totaled $49 million, a decrease of $99 million from the
comparable period in 1996. This decrease was primarily
related to significantly lower net charge-offs on loans
to financial institutions as well as construction and
development loans, partially offset by higher net
charge-offs on commercial and industrial loans.
In the foreign portfolio, there were net credit
recoveries for the third quarter of 1997 compared to a
net credit loss in the same period a year ago. Net
credit recoveries for the first nine months of 1997 were
lower by $14 million from the comparable period in 1996.
46
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
QUARTERLY CREDIT LOSS EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 NINE MONTHS ENDED
------------------------------ ------------------- SEPTEMBER 30
THIRD SECOND FIRST FOURTH THIRD -----------------
(DOLLAR AMOUNTS IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
Balance, beginning of period $3,563 $3,538 $3,523 $3,511 $3,495 $3,523 $3,554
Credit losses
Domestic consumer:
Residential first mortgages 4 7 7 7 12 18 35
Residential junior mortgages 10 13 13 17 17 36 53
Credit card 132 134 124 114 119 390 349
Other installment 99 85 104 108 90 288 246
Other individual lines of credit 21 22 21 20 20 64 59
Other 6 5 5 4 4 16 11
Domestic commercial:
Commercial and industrial 52 24 16 20 20 92 110
Loans secured by real estate 3 2 1 3 5 6 19
Financial institutions - - - - - - 46
Lease financing 1 - - - 1 1 1
Construction and development loans secured
by real estate 5 - 1 2 17 6 59
Loans for purchasing or carrying securities - - - - - - -
Agricultural - - - 2 - - 1
Foreign 4 9 2 15 18 15 24
- ---------------------------------------------------------------------------------------------------------------------------------
Total credit losses 337 301 294 312 323 932 1,013
CREDIT LOSS RECOVERIES
Domestic consumer:
Residential first mortgages - - - - 1 - 1
Residential junior mortgages 3 5 4 5 4 12 12
Credit card 10 10 9 10 8 29 27
Other installment 36 36 45 44 48 117 119
Other individual lines of credit 2 2 2 3 2 6 7
Other 1 1 1 - 1 3 3
Domestic commercial:
Commercial and industrial 6 5 16 20 11 27 60
Loans secured by real estate 1 2 2 6 3 5 9
Financial institutions - - - - - - 2
Lease financing 1 - 1 - 1 2 3
Construction and development loans secured
by real estate 4 8 3 1 1 15 10
Loans for purchasing or carrying securities 4 - - - - 4 1
Agricultural 1 1 1 1 - 3 3
Foreign 9 7 6 15 17 22 45
- ---------------------------------------------------------------------------------------------------------------------------------
Total credit loss recoveries 78 77 90 105 97 245 302
- ---------------------------------------------------------------------------------------------------------------------------------
Total net credit losses 259 224 204 207 226 687 711
Provision for credit losses 260 250 220 220 235 730 665
Other net additions (deductions) (60)/a/ (1) (1) (1) 7 (62)/a/ 3
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, End of Period $3,504 $3,563 $3,538 $3,523 $3,511 $3,504 $3,511
- --------------------------------------------------------=========================================================================
ANNUALIZED RATIO OF NET CREDIT LOSSES (RECOVERIES)
TO AVERAGE LOAN OUTSTANDINGS
Domestic consumer:
Residential first mortgages 0.05% 0.08% 0.08% 0.07% 0.12% 0.07% 0.12%
Residential junior mortgages 0.20 0.23 0.27 0.35 0.35 0.23 0.38
Credit card 6.32 6.07 5.57 4.95 4.95 5.98 4.78
Other installment 1.35 1.08 1.36 1.54 1.08 1.26 1.14
Other individual lines of credit 3.99 3.98 3.89 3.67 3.81 3.95 3.77
Other 4.77 3.64 3.91 3.58 3.28 4.13 3.54
Domestic commercial:
Commercial and industrial 0.54 0.23 - - 0.11 0.26 0.20
Loans secured by real estate 0.07 - (0.05) (0.04) 0.07 0.01 0.12
Financial institutions - - - - - - 2.08
Lease financing - - (0.09) - - (0.02) (0.12)
Construction and development loans secured
by real estate 0.20 (1.47) (0.38) 0.24 2.34 (0.55) 2.20
Loans for purchasing or carrying securities (0.71) - - - - (0.30) (0.12)
Agricultural (0.24) (0.12) (0.28) 0.03 - (0.22) (0.18)
Total domestic 0.76 0.64 0.61 0.60 0.66 0.67 0.73
Foreign (0.08) 0.04 (0.06) - 0.01 (0.03) (0.12)
Total 0.62 0.54 0.50 0.51 0.56 0.55 0.60
Ratio of Allowance to Loans at Quarter End 2.10 2.11 2.11 2.13 2.17 2.10 2.17
Earnings Coverage of Net Credit Losses/b/ 6.30x 7.08x 7.49x 6.65x 6.15x 6.91x 6.02x
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents the deduction in the provision for credit losses related to the
sale of SPFS.
/b/ 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.
47
<PAGE>
================================================================================
NONPERFORMING Total nonaccrual assets increased $69 million, or 8
ASSETS percent, from their June 30, 1997 level, but decreased
$188 million, or 17 percent, between year-end 1996 and
September 30, 1997. The increase for the quarter
resulted from loans being placed on nonaccrual status,
primarily domestic commercial loans and foreign loans.
These foreign loans were mainly with borrowers in
Southeast Asia.
The year-to-date decrease occurred primarily in
commercial and construction loans secured by real estate
and commercial and industrial loans. These decreases
resulted primarily from full or partial payments, sales
of nonaccrual loans, and the restoration of nonaccrual
loans to accrual status.
BAC's nonperforming asset ratios reflected improvement
in the credit quality of its portfolios during the first
nine months of 1997. At September 30, 1997, the ratio of
nonaccrual loans to total loans was 0.56 percent, down
from 0.66 percent at December 31, 1996. In addition, the
ratio of nonperforming assets (comprised of nonaccrual
assets and other real estate owned) to total assets
declined 15 basis points from year-end 1996 to 0.44
percent at September 30, 1997.
For further information concerning nonaccrual assets,
refer to the tables below and on pages 48 and 49.
<TABLE>
<CAPTION>
====================================================================================================================================
ANALYSIS OF CHANGE IN NONACCRUAL ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------ --------------------------
THIRD SECOND FIRST FOURTH THIRD
(IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter $861 $1,030 $1,118 $1,119 $1,488
Additions:
Loans placed on nonaccrual status 244 103 108 119 66
Leases acquired - - - - 34
Other/a/ - - - 144 -
Deductions:
Sales (26) (103) (3) (33) (4)
Restored to accrual status (31) (38) (75) (34) (229)
Foreclosures - (1) (8) (3) (5)
Charge-offs (47) (20) (10) (19) (51)
Other, primarily payments (71) (110) (100) (175) (180)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF QUARTER $930 $ 861 $1,030 $1,118 $1,119
- -----------------------------------------------------------=========================================================================
</TABLE>
/a/ Reflects the effect of a change in the past due period on nonaccrual loans.
During the fourth quarter of 1996, BAC changed the past due period for
nonaccrual residential real estate loans and consumer loans that were
collateralized by junior mortgages on residential real estate. The maximum
period loans can be past due before being placed on nonaccrual status was
reduced from 180 days to 90 days.
48
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------- ------------------------
(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/a/ $ 335 $318 $ 347 $ 354 $ 233
Residential junior mortgages/a/ 41 54 60 59 55
Other consumer 2 1 2 2 3
Domestic commercial loans:
Commercial and industrial 188 203 251 241 323
Loans secured by real estate 136 120 147 206 229
Financial institutions 45 - - - 5
Lease financing 8 2 2 1 1
Construction and development loans secured
by real estate 39 59 104 95 119
Agricultural 22 23 23 28 28
- ---------------------------------------------------------------------------------------------------------------------------------
816 780 936 986 996
Foreign loans, primarily commercial 114 81 89 109 122
Other interest-bearing assets - - 5 23 1
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 930 $861 $1,030 $1,118/b/ $1,119/b/
- ------------------------------------------------------------=====================================================================
RESTRUCTURED LOANS
Domestic commercial:
Commercial and industrial $ 5 $ 18 $ 21 $ 25 $ 21
Loans secured by real estate 268 268 257 255 236
Construction and development loans secured by real
estate 11 15 16 16 16
Agricultural 1 1 1 1 -
- ---------------------------------------------------------------------------------------------------------------------------------
285 302 295 297 273
Foreign/c/ - - - 5 1
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 285 $302 $ 295 $ 302 $ 274
- ------------------------------------------------------------=====================================================================
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING
INTEREST
Domestic consumer:
Residential first mortgages/a/ $ - $ - $ - $ - $ 145
Residential junior mortgages/a/ - - - - 8
Other consumer 177 190 189 186 179
Domestic commercial:
Commercial and industrial 12 15 13 29 11
Loans secured by real estate 4 7 12 5 9
Construction and development loans secured by real
estate 1 1 1 12 4
Agricultural - - 1 1 4
- ---------------------------------------------------------------------------------------------------------------------------------
194 213 216 233 360
Foreign 3 1 2 2 3
- ---------------------------------------------------------------------------------------------------------------------------------
Total $ 197 $214 $ 218 $ 235 $ 363
- ------------------------------------------------------------=====================================================================
</TABLE>
/a/ Reflects the effect of a change in the past due period on nonaccrual loans.
During the fourth quarter of 1996, BAC changed the past due period for
nonaccrual residential real estate loans and consumer loans that were
collateralized by junior mortgages on residential real estate. The maximum
period loans can be past due before being placed on nonaccrual status was
reduced from 180 days to 90 days.
/b/ Excludes certain nonaccrual debt-restructuring par bonds and other
instruments that were included in available-for-sale and held-to-maturity
securities of $67 million at December 31, 1996, and $62 million at September
30, 1996. There were no such amounts in 1997.
/c/ Excludes debt restructurings with countries that have experienced liquidity
problems of $1.4 billion at September 30, 1997, $1.5 billion at June 30,
1997, $1.5 billion at March 31, 1997, and $1.6 billion at each quarter ended
in 1996. The majority of these instruments was classified as either
available-for-sale or held-to-maturity securities.
49
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
INTEREST INCOME FOREGONE ON NONACCRUAL ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
(IN MILLIONS) SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
DOMESTIC
Interest income that would have been recognized had the assets
performed in accordance with their original terms $136
Less: Interest income included in the results of operations 42
- -----------------------------------------------------------------------------------------------------------------------------------
Domestic interest income foregone 94
FOREIGN
Interest income that would have been recognized had the assets
performed in accordance with their original terms 13
Less: Interest income included in the results of operations 3
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign interest income foregone 10
- -----------------------------------------------------------------------------------------------------------------------------------
$104
- -------------------------------------------------------------------------------------------------------------------------------====
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE/a/
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997
---------------------------------------------------------------------------------
CUMULATIVE BOOK AS A
CONTRACTUAL INTEREST NONACCRUAL PERCENTAGE
PRINCIPAL CUMULATIVE APPLIED BOOK OF
(DOLLAR AMOUNTS IN MILLIONS) BALANCE CHARGE-OFFS TO PRINCIPAL BALANCE CONTRACTUAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages $ 336 $ 1 $ - $335 100%
Residential junior mortgages 41 - - 41 100
Other consumer 5 2 1 2 40
Commercial:
Commercial and industrial 515 282 45 188 37
Loans secured by real estate 241 83 22 136 56
Financial institutions 97 51 1 45 46
Lease financing 8 - - 8 100
Construction and development
loans secured by real estate 66 20 7 39 59
Agricultural 36 7 7 22 61
- -----------------------------------------------------------------------------------------------------------------------------------
1,345 446 83 816 61
FOREIGN, PRIMARILY COMMERCIAL 211 83 14 114 54
Other interest-bearing assets - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
$1,556 $529 $97 $930 60%
- -------------------------------------------------------============================================================================
Cash yield on average total
nonaccrual book balance
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
---------------------------------------------
CASH INTEREST
AVERAGE PAYMENTS APPLIED
NONACCRUAL -------------------------------
BOOK AS INTEREST
(DOLLAR AMOUNTS IN MILLIONS) BALANCE INCOME OTHER/b/ TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages $338 $ 12 $ - $ 12
Residential junior mortgages 51 1 - 1
Other consumer 2 - - -
Commercial:
Commercial and industrial 203 9 8 17
Loans secured by real estate 149 12 4 16
Financial institutions 5 - - -
Lease financing 4 - - -
Construction and development
loans secured by real estate 70 6 1 7
Agricultural 23 2 2 4
- ----------------------------------------------------------------------------------------------------------------------------------
845 42 15 57
FOREIGN, PRIMARILY COMMERCIAL 92 3 3 6
Other interest-bearing assets 6 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
$943 $45 $18 $63
- -------------------------------------------------------------------------------------------=======================================
Cash yield on average total nonaccrual book balance 8.96%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes information related to all nonaccrual loans including those that
are fully charged off or otherwise have a book balance of zero.
/b/ Primarily represents cash interest payments applied to principal. Also
includes cash interest payments accounted for as credit loss recoveries,
which are recorded as increases to the allowance for credit losses.
50
<PAGE>
INTEREST RATE, FOREIGN EXCHANGE AND COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS
================================================================================
BAC uses interest rate and foreign exchange derivative
financial instruments in both its trading and its asset
and liability management activities. BAC uses commodity
derivative financial instruments solely in its trading
activities. Interest rate, foreign exchange and
commodity derivative financial instruments include
swaps, futures, forwards, and option contracts, all of
which derive their value from underlying interest rates,
foreign exchange rates, commodity values, or equity
instruments. Certain transactions involve standardized
contracts executed on organized exchanges, while others
are negotiated over the counter, with the terms tailored
to meet the needs of BAC and its customers.
In meeting the needs of its global customers, BAC uses
its expertise to execute transactions to aid these
customers in managing their risk exposures to interest
rates, exchange rates, prices of securities, and
financial or commodity indexes. Counterparties to BAC's
interest rate, foreign exchange and commodity derivative
transactions generally include U.S. and foreign banks,
nonbank financial institutions, corporations, domestic
and foreign governments, and asset managers.
BAC generates trading revenue by executing transactions
to support customers' risk management needs, by
efficiently managing the positions that result from
these transactions, and by making markets in a wide
variety of products.
As an end user, BAC employs foreign exchange derivative
financial instruments to hedge foreign exchange risk and
interest rate derivative financial instruments to hedge
interest rate risk and foreign exchange risk in
connection with its own asset and liability management
activities. More specifically, BAC primarily uses
interest rate derivative financial instruments to manage
the interest rate risk associated with its assets and
liabilities, primarily residential loans, long-term
debt, and deposits.
Similar to on-balance-sheet financial instruments, such
as loans and investment securities, off-balance-sheet
financial instruments expose BAC to various types of
risk. These risks include credit risk (the possibility
of loss from the failure of a borrower or counterparty
to fully perform under the terms of a credit-related
contract), operational risk (the possibility of
unexpected losses attributable to human error, systems
failures, fraud, or inadequate internal controls and
procedures), market risk (the possibility of loss
arising from adverse changes in market rates and prices,
such as interest rates and foreign currency exchange
rates), and liquidity risk (the possibility that BAC's
cash flows may not be adequate to fund operations and
meet commitments on a timely and cost-effective basis).
For a detailed discussion of these risks and how they
are managed, refer to pages 38 through 44 of BAC's 1996
Annual Report to Shareholders.
For additional information concerning interest rate,
foreign exchange and commodity derivative financial
instruments, including their respective notional, credit
risk, and fair value amounts, refer to Note 8 of the
Notes to Consolidated Financial Statements on pages 13
through 18.
51
<PAGE>
INTEREST RATE RISK MANAGEMENT
================================================================================
BAC's banking activities other than trading include
lending, accepting deposits, investing in securities,
and issuing debt as needed to fund assets. BAC's
governing objective in interest rate risk management for
these activities is to minimize the potential for
significant loss as a result of changes in market
conditions. BAC measures interest rate risk in terms of
potential impact on both its economic value and reported
earnings. Economic value calculations measure the
changes in the present value of net future cash flows.
BAC measures its exposure to reported earnings
variability by estimating the potential effect of
changes in interest rates on projected net interest
income over a three-year period.
There are three sources of interest rate risk. These are
gap mismatches, options mismatches, and index
mismatches. To minimize exposure to declines in economic
value due to gap mismatches, BAC's policy is to minimize
the duration difference between its assets and
liabilities. This asset and liability management policy
protects against losses of economic value in the event
of major upward and downward yield curve shifts. BAC
uses an internally developed model to translate the
mismatch in each repricing period (i.e., the "gap") into
a one-year mismatch with the same economic risk.
[INTEREST RATE RISK GRAPHIC GOES HERE]
<TABLE>
<CAPTION>
Net Interest Rate Risk Position (plot point graph in non-Edgar version)
(in billions of dollars) 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 9/30/97
<S> <C> <C> <C> <C> <C> <C>
Net Interest Rate Risk Position $(6.9) $1.0 $(2.8) $0.0 $(1.9) $(1.6)
</TABLE>
Graph indicates the composite net asset (+) or net
liability (-) repricing position measured across the
entire maturity mismatch profile and expressed as a one-
year mismatch position bearing the same aggregate level
of risk.
For example, a six-month gap of $200 million is treated
as having approximately the same economic risk as a one-
year gap of $100 million. As shown in the graph above,
BAC's net one-year position has been essentially
balanced throughout the last five years.
Gap mismatches result from timing differences in the
repricing of assets, liabilities, and off-balance-sheet
instruments. Expected interest rate sensitivity of
individual categories of assets and liabilities as of
September 30, 1997 is shown in the table on page 52.
52
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
INTEREST RATE SENSITIVITY BY REPRICING OR MATURITY DATES
- ---------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997
--------------------------------------------------------------------------
OVER
(IN BILLIONS) 0-6 MONTHS >6-12 MONTHS >1-5 YEARS 5 YEARS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC ASSETS
Federal funds sold and securities
purchased under resale agreements $2.0 $ - $ - $ - $ 2.0
Trading account securities 1.8 - - - 1.8
Loans:
Prime indexed 15.7 - - - 15.7
Adjustable rate residential first mortgages 7.3 4.1 8.8 3.9 24.1
Other loans, net 46.0 7.5 20.3 11.1 84.9
Other assets 16.1 0.7 16.0 8.4 41.2
- ---------------------------------------------------------------------------------------------------------------------------------
Domestic Assets 88.9 12.3 45.1 23.4 169.7
- ---------------------------------------------------------------------------------------------------------------------------------
DOMESTIC LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic deposits (65.3) (9.0) (20.2) (19.5) (114.0)
Other short-term borrowings (11.4) (1.0) (0.4) (0.1) (12.9)
Long-term debt and subordinated capital notes (10.5) (0.2) (3.7) (5.4) (19.8)
Other liabilities and stockholders' equity (8.4) (0.2) (12.5) (14.5) (35.6)
- ---------------------------------------------------------------------------------------------------------------------------------
Domestic Liabilities and Stockholders' Equity (95.6) (10.4) (36.8) (39.5) (182.3)
Offshore Funding Books, net (1.1) 0.7 (0.2) 0.6 -
- ---------------------------------------------------------------------------------------------------------------------------------
Core Gap Before Risk Management Positions (7.8) 2.6 8.1 (15.5) (12.6)
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE RISK MANAGEMENT POSITIONS
Investment securities/a/ 1.5 1.0 4.1 6.0 12.6
Off-balance-sheet financial instruments/b/ 3.0 (5.4) (5.4) 7.8 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Rate Risk Management Positions 4.5 (4.4) (1.3) 13.8 12.6
- ---------------------------------------------------------------------------------------------------------------------------------
Net Gap (3.3) (1.8) 6.8 (1.7) -
- ---------------------------------------------------------------------------------------------------------------------------------
Cumulative Gap $(3.3) $(5.1) $1.7 $ - $ -
- ------------------------------------------------------------=====================================================================
</TABLE>
/a/ Available-for-sale and held-to-maturity securities.
/b/ Represents the repricing effect of off-balance-sheet positions, which
include interest rate swaps, futures contracts, and similar
agreements.
At September 30, 1997, BAC had a "core" imbalance before
risk management positions as liabilities and equity
exceeded assets by approximately $13 billion. BAC's risk
management activities eliminated this imbalance while
containing the size of net gap mismatches in individual
repricing periods. Investment securities and "receive
fixed" swaps essentially neutralized core gaps beyond
five years. For additional information concerning gap,
options, and index mismatches, refer to pages 43
through 44 of BAC's 1996 Annual Report to Shareholders.
53
<PAGE>
FUNDING AND CAPITAL
================================================================================
LIQUIDITY BAC's liquid assets consist of cash and due from banks,
REVIEW interest-bearing deposits in banks, federal funds sold,
securities purchased under resale agreements, trading
account assets, and available-for-sale securities.
Liquid assets totaled $58.1 billion at September 30,
1997, up $4.4 billion, or 8 percent, from year-end 1996.
The increase in liquid assets was primarily attributable
to increases in trading account assets and securities
purchased under resale agreements, which were offset
primarily by a decrease in cash and due from banks.
The ongoing operations of BAC resulted in cash inflows
of $4.5 billion and $13.1 billion for the first nine
months of 1997 and 1996, from deposits and short-term
borrowings. During the same periods, BAC's liquidity was
enhanced by proceeds from sales of loans, totaling $5.9
billion and $3.2 billion, respectively. In addition,
total sales, maturities, prepayments, and calls of
securities exceeded total purchases, resulting in cash
inflows of $0.2 billion and $0.8 billion, respectively.
Total loan originations and purchases exceeded total
principal collections, resulting in cash outflows of
$7.9 billion and $11.1 billion for the first nine months
of 1997 and 1996. In addition, for the first nine months
of 1997 and 1996, BankAmerica Corporation (the Parent)
paid dividends of $728 million, to its preferred and
common stockholders. During the same periods of 1997 and
1996, the Parent repurchased common and redeemed
preferred stock for a total of $2,881 million and $1,292
million, respectively.
- --------------------------------------------------------------------------------
CAPITAL In May 1997, BAC's shareholders approved a two-for-one
MANAGEMENT stock split of its common stock effective June 2, 1997.
As a result of the stock split, each shareholder of
record at close of business on June 2, 1997 received one
additional share of common stock for each share of
common stock then owned. In addition, the number of
authorized shares of common stock was increased from
700 million to 1.4 billion common shares, par value
$1.5625 per share. For additional information regarding
the common stock split, refer to Note 1 of the Notes to
Consolidated Financial Statements on page 6.
At September 30, 1997, total stockholders' equity
amounted to $19.9 billion, a decrease of $0.8 billion
from year-end 1996 primarily due to a decline in
preferred stock of $1.4 billion offset by an increase in
common equity of $0.6 billion.
The decline in BAC's preferred stock of $1.4 billion
resulted from the redemptions of all 11,250,000
outstanding shares of its 9% Cumulative Preferred Stock,
Series H, on January 15, 1997; all 14,600,000 shares of
its 8 3/8% Cumulative Preferred Stock, Series K
(Preferred Stock, Series K) on February 15, 1997; all
798,020 outstanding shares of its 8.16% Cumulative
Preferred Stock, Series L (Preferred Stock, Series L) on
July 14, 1997; and all 696,847 outstanding shares of its
7 7/8% Cumulative Preferred Stock, Series M (Preferred
Stock, Series M) on September 30, 1997. Remaining
redemption authority for preferred stock under the
current amended repurchase program totaled $0.4 billion
at September 30, 1997. For additional information
regarding the preferred stock component of the stock
repurchase program, refer to Note 5 of the Notes to
Consolidated Financial Statements on page 12.
54
<PAGE>
================================================================================
Common equity increased $0.6 billion during the first
nine months of 1997 due to earnings in excess of common
and preferred stock dividends of $1.7 billion and to
shares issued in connection with restricted stock bonus
plans and other employee benefit related plans of
$0.3 billion. Partially offsetting these increases was a
reduction of $1.5 billion due to repurchases of common
stock.
During the first nine months of 1997, BAC repurchased
24.3 million shares of its common stock at an average
price per share of $60.79 reflecting the corporation's
ongoing efforts to effectively manage capital. This
included the repurchase of 7.5 million shares during the
third quarter of 1997 at an average price per share of
$70.22, which reduced third-quarter equity by
$0.5 billion. The shares were repurchased on the open
market over 60 trading days and represented
approximately 7 percent of the total volume of BAC
common stock traded on those days. Remaining buyback
authority for common stock under the current amended
repurchase program totaled $2.3 billion at September 30,
1997. For additional information regarding the stock
repurchase program, refer to Note 5 of the Notes to
Consolidated Financial Statements on page 12.
On May 19, 1997, employees were granted their second
option awards through BAC's employee stock option
program introduced in 1996. Under the program, employees
will be granted additional options every six months for
the next two years. BAC is authorized to grant options
to its employees for up to 70,200,000 shares of common
stock. All options granted have been included in the
calculation of earnings per share.
The Federal Reserve has announced that certain
cumulative preferred securities having the
characteristics of trust preferred securities qualify as
minority interest, which is included in Tier 1 capital
for bank holding companies. Such Tier 1 capital
treatment, together with the Parent's ability to deduct,
for federal income tax purposes, interest payable on the
related debentures, provide the Parent with a more cost-
effective means of obtaining capital for bank regulatory
purposes than if the Parent were to issue preferred
stock. Proceeds from trust preferred securities have
been used to redeem preferred stock, thereby reducing
preferred dividends and resulting in an increase in net
income available to common shareholders. During the
first quarter of 1997, BAC issued trust preferred
securities totaling $396 million, net of $4 million of
deferred debt issuance costs. For additional information
regarding trust preferred securities, refer to Note 4 of
the Notes to Consolidated Financial Statements on pages
11 and 12.
BAC's risk-based capital ratios continued to exceed
regulatory guidelines for "well-capitalized" status.
BAC's Tier 1 and total risk-based capital ratios at
September 30, 1997 decreased 13 basis points and
19 basis points, respectively, from year-end 1996. These
decreases are primarily due to a 5.2 billion increase in
risk-weighted assets combined with the redemption of the
Preferred Stock, Series K, of $365 million, the
redemption of the Preferred Stock, Series L, of
$399 million, and the redemption of the Preferred Stock,
Series M, of $349 million. These were partially offset
by an increase in retained earnings and the increase of
$396 million of trust preferred securities. The ratios
at year-end 1996 represented a temporary increase from
targeted levels due to the issuance of trust preferred
securities. BAC's Tier 1 leverage ratio was 7.17 percent
at September 30, 1997, 27 basis points lower than
7.44 percent at December 31, 1996, primarily due to an
increase in BAC's quarterly average total assets.
55
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
RISK-BASED CAPITAL, RISK-WEIGHTED ASSETS, AND RISK-BASED CAPITAL RATIOS
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996
----------------------------------------- -----------------------
(DOLLAR AMOUNTS IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL
Common stockholders' equity $ 18,970 $ 18,759 $ 18,591 $ 18,439 $ 18,297
Qualified perpetual preferred stock 848 1,197 1,596 1,961 2,242
Minority interest/a/ 1,975 1,967 1,964 1,566 -
Less: Goodwill, nongrandfathered core deposit and
other identifiable intangibles, and other
deductions/b/ (4,632) (4,778) (4,832) (4,922) (5,007)
- ---------------------------------------------------------------------------------------------------------------------------------
Tier 1 risk-based capital 17,161 17,145 17,319 17,044 15,532
Eligible portion of the allowance for credit losses 2,822 2,791 2,778 2,758 2,673
Hybrid capital instruments 71 71 142 142 142
Subordinated notes and debentures 6,270 6,140 6,248 6,169 6,001
Less: Other deductions (205) (196) (188) (184) (174)
- ---------------------------------------------------------------------------------------------------------------------------------
Tier 2 risk-based capital 8,958 8,806 8,980 8,885 8,642
- ---------------------------------------------------------------------------------------------------------------------------------
Total 26,119 25,951 26,299 25,929 24,174
Less: Investments in unconsolidated banking
and finance subsidiaries (48) (50) (48) (49) (49)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL $ 26,071 $ 25,901 $ 26,251 $ 25,880 $ 24,125
- ---------------------------------------------------------========================================================================
RISK-WEIGHTED ASSETS
Balance sheet assets:
Trading account assets $ 6,821 $ 6,846 $ 6,653 $ 6,022 $ 5,257
Available-for-sale and held-to-maturity securities 4,703 3,358 4,953 5,121 4,812
Loans 140,158 139,457 141,317 139,412 137,360
Other assets 19,673 19,887 17,221 18,711 17,435
- ---------------------------------------------------------------------------------------------------------------------------------
Total balance sheet assets 171,355 169,548 170,144 169,266 164,864
- ---------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet items:
Unused commitments 31,070 30,089 28,455 28,368 26,721
Standby letters of credit 15,061 15,414 15,613 15,021 14,518
Foreign exchange and derivatives contracts 4,911 4,885 4,669 4,662 4,535
Other 2,260 2,213 2,190 2,166 1,990
- ---------------------------------------------------------------------------------------------------------------------------------
Total off-balance-sheet items 53,302 52,601 50,927 50,217 47,764
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-WEIGHTED ASSETS $224,657 $222,149 $221,071 $219,483 $212,628
- ---------------------------------------------------------========================================================================
Risk-Based Capital Ratios
Tier 1 Capital Ratio 7.64%/c/ 7.72% 7.83% 7.77% 7.30%
Total Capital Ratio 11.60/c/ 11.66 11.87 11.79 11.35
Tier 1 Leverage Ratio 7.17/c/ 7.22 7.36 7.44 6.90
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents trust preferred securities and BAMS minority interest of $1,873
million and $102 million, respectively, at September 30, 1997, $1,873
million and $94 million, respectively, at June 30, 1997, $1,873 million and
$91 million, respectively, at March 31, 1997, and $1,477 million and $89
million, respectively, at December 31, 1996.
/b/ Includes nongrandfathered core deposit and other identifiable intangibles
acquired after February 19, 1992 of $688 million and $59 million,
respectively, at September 30, 1997, $705 million and $63 million,
respectively, at June 30, 1997, $739 million and $65 million, respectively,
at March 31, 1997, $772 million and $67 million, respectively, at December
31, 1996, and $795 million and $69 million, respectively, at September 30,
1996. Also includes $18 million at June 30, 1997 and $8 million at December
31, 1996 of the excess of the net book value over 90 percent of the fair
value of mortgage servicing assets. There were no such excess amounts at
September 30, 1997, March 31, 1997 and September 30, 1996.
/c/ Current FRB regulations regarding bank holding companies engaged in
securities underwriting and dealing activities through Section 20
subsidiaries require that these ratios exclude Section 20 subsidiary
activities. Effective October 31, 1997, this restriction will no longer
apply. If Section 20 subsidiary activities were included, BAC's Tier 1 risk-
based capital ratio, total risk-based capital ratio, and Tier 1 leverage
ratio would be 7.65%, 11.68%, and 6.85%, respectively, at September 30,
1997.
56
<PAGE>
FORWARD-LOOKING STATEMENTS
================================================================================
This report contains forward-looking statements, usually
consisting of the words "estimate," "project," "expect,"
or similar expressions. These statements are subject to
uncertainties that could cause actual results to differ
materially. The uncertainties include those discussed in
this report, particularly in "Noninterest Expense" on
pages 35 and 36, as well as those discussed in "Forward-
Looking Statements" on pages 20 and 21 of BAC's report
on Form 10-K for the year ended December 31, 1996.
Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of
the date hereof.
57
<PAGE>
OTHER INFORMATION
================================================================================
ITEM 6. (a) Exhibits:
EXHIBITS AND
REPORTS ON EXHIBIT
FORM 8-K NUMBER EXHIBIT
------- -------
10 Description of BankAmerica Corporation's
confidential voting policy (incorporated
by reference to paragraph entitled
"Confidential Voting" on page 40 of
BankAmerica Corporation's Proxy Statement
dated March 24, 1997, File No. 1-7377).
12.a Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends.
12.b Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule
--------------------------------------------------------
(b) Reports on Form 8-K:
During the third quarter of 1997, the Parent filed a
report on Form 8-K dated July 16, 1997. The report
filed, pursuant to Items 5 and 7 of the report, a copy
of the Parent's press release titled "BankAmerica Second
Quarter Earnings." After the third quarter of 1997, the
Parent filed reports on Form 8-K dated October 1, 1997
and October 15, 1997. The October 1 report disclosed,
pursuant to Item 5 of the report, the closing of the
previously announced acquisition by BankAmerica
Corporation of Robertson Stephens & Company. The October
15 report filed, pursuant to Items 5 and 7 of the
report, a copy of the Parent's press release titled
"BankAmerica Third Quarter Earnings."
58
<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/ MICHAEL E. O'NEILL
------------------------------------
MICHAEL E. O'NEILL
Vice Chairman and
Chief Financial Officer
November 13, 1997
By Chief Accounting Officer and
Duly Authorized Signatory:
/s/ JOHN J. HIGGINS
------------------------------------
JOHN J. HIGGINS
Executive Vice President
and Chief Accounting Officer
November 13, 1997
59
<PAGE>
[BankAmerica Logo appears here]
BankAmerica
Other information about
BankAmerica Corporation may be
found in its Annual Report to
Shareholders. This report, as well as
additional copies of this Analytical
Review and Form 10-Q,
may be obtained from:
Bank of America
Corporate Secretary's Office #13018
P. O. Box 37000
San Francisco, CA 94137
Information Online -- To keep
current online via the Internet,
visit BankAmerica Corporation's
home page on the World Wide Web
(http://www.bankamerica.com)
to view the latest information about
the corporation and its products and
services, or apply for a loan or credit
card. Corporate disclosure documents
filed with the Securities and Exchange
Commission by BankAmerica
Corporation and other companies
can be obtained from the Securities
and Exchange Commission's home
page on the World Wide Web
(http://www.sec.gov).
NL-9 11/97 [Recycled Recycled
Paper Paper
logo
appears
here]
<PAGE>
GRAPHICS APPENDIX INDEX
<TABLE>
<CAPTION>
BankAmerica Corporation
Third Quarter 1997 10-Q
page reference Description of omitted graphic
- ----------------------- -----------------------------------------------
<S> <C>
52 Net Interest Rate Risk
Position
(Plot point graph in non-EDGAR
version)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Reference Description
- --------- -----------
10 Description of BankAmerica Corporation's confidential voting
policy (incorporated by reference to paragraph entitled
"Confidential Voting" on page 40 of BankAmerica Corporation's
Proxy Statement dated March 24, 1997, File No. 1-7377).
12.a Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
12.b Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule
<PAGE>
EXHIBIT 12(A)
Page 1 of 2
BankAmerica Corporation
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months
Ended
September 30 Year Ended December 31
-------------------- ---------------------------------------------------
(dollar amounts in millions) 1997 1996 1996 1995 1994 1993 1992
EXCLUDING INTEREST ON DEPOSITS
Fixed charges:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest expense (other than
interest on deposits) $2,196 $2,011 $2,713 $2,455 $1,505 $1,215 $1,126
Interest payments on trust
preferred securities (see
footnote /a/) 107 - 7 - - - -
Interest factor in rent
expense 91 95 125 120 109 112 95
Other 1 - - - 3 2 1
==================== ===================================================
$2,395 $2,106 $2,845 $2,575 $1,617 $1,329 $1,222
==================== ===================================================
Earnings:
Income from operations $2,398 $2,126 $2,873 $2,664 $2,176 $1,954 $1,492
Applicable income taxes 1,619 1,488 1,900 1,903 1,541 1,474 1,190
Fixed charges 2,395 2,106 2,845 2,575 1,617 1,329 1,222
Other (43) - (9) (12) (55) (39) (14)
==================== ===================================================
$6,369 $5,720 $7,609 $7,130 $5,279 $4,718 $3,890
==================== ===================================================
RATIO OF EARNINGS TO FIXED CHARGES,
EXCLUDING INTEREST ON DEPOSITS 2.66 2.72 2.67 2.77 3.26 3.55 3.18
INCLUDING INTEREST ON DEPOSITS
Fixed charges:
Interest expense $6,488 $5,964 $8,072 $7,378 $4,842 $4,186 $4,895
Interest payments on trust
preferred securities (see
footnote /a/) 107 - 7 - - - -
Interest factor in rent
expense 91 95 125 120 109 112 95
Other 1 - - - 3 2 1
==================== ===================================================
$6,687 $6,059 $8,204 $7,498 $4,954 $4,300 $4,991
==================== ===================================================
Earnings:
Income from operations $2,398 $2,126 $2,873 $2,664 $2,176 $1,954 $1,492
Applicable income taxes 1,619 1,488 1,900 1,903 1,541 1,474 1,190
Fixed charges 6,687 6,059 8,204 7,498 4,954 4,300 4,991
Other (43) - (9) (12) (55) (39) (14)
==================== ===================================================
$10,661 $9,673 $12,968 $12,053 $8,616 $7,689 $7,659
==================== ===================================================
RATIO OF EARNINGS TO FIXED CHARGES,
INCLUDING INTEREST ON DEPOSITS 1.59 1.60 1.58 1.61 1.74 1.79 1.53
</TABLE>
/a/ Trust preferred securities represent corporation obligated mandatorily
redeemable preferred securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures of the corporation.
<PAGE>
EXHIBIT 12(A)
Page 2 of 2
BankAmerica Corporation
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
<TABLE>
<CAPTION>
Nine Months
Ended
September 30 Year Ended December 31
---------------------- --------------------------------------------------
(dollar amounts in millions) 1997 1996 1996 1995 1994 1993 1992
EXCLUDING INTEREST ON DEPOSITS
Fixed charges and preferred dividends:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest expense (other than interest on
deposits) $2,196 $2,011 $2,713 $2,455 $1,505 $1,215 $1,126
Interest payments on trust preferred
securities (see footnote /a/) 107 - 7 - - - -
Interest factor in rent expense 91 95 125 120 109 112 95
Preferred dividend requirements (see
footnote /b/) 144 240 307 389 424 423 304
Other 1 - - - 3 2 1
---------------------- --------------------------------------------------
$2,539 $2,346 $3,152 $2,964 $2,041 $1,752 $1,526
====================== ==================================================
Earnings:
Income from operations $2,398 $2,126 $2,873 $2,664 $2,176 $1,954 $1,492
Applicable income taxes 1,619 1,488 1,900 1,903 1,541 1,474 1,190
Fixed charges, excluding preferred
dividend requirements 2,395 2,106 2,845 2,575 1,617 1,329 1,222
Other (43) - (9) (12) (55) (39) (14)
---------------------- --------------------------------------------------
$6,369 $5,720 $7,609 $7,130 $5,279 $4,718 $3,890
====================== ==================================================
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
DIVIDENDS, EXCLUDING INTEREST ON DEPOSITS 2.51 2.44 2.41 2.41 2.59 2.69 2.55
INCLUDING INTEREST ON DEPOSITS
Fixed charges and preferred dividends:
Interest expense $6,488 $5,964 $8,072 $7,378 $4,842 $4,186 $4,895
Interest payments on trust preferred
securities (see footnote /a/) 107 - 7 - - - -
Interest factor in rent expense 91 95 125 120 109 112 95
Preferred dividend requirements (see
footnote /b/) 144 240 307 389 424 423 304
Other 1 - - - 3 2 1
---------------------- --------------------------------------------------
$6,831 $6,299 $8,511 $7,887 $5,378 $4,723 $5,295
====================== ==================================================
Earnings:
Income from operations $2,398 $2,126 $2,873 $2,664 $2,176 $1,954 $1,492
Applicable income taxes 1,619 1,488 1,900 1,903 1,541 1,474 1,190
Fixed charges, excluding preferred
dividend requirements 6,687 6,059 8,204 7,498 4,954 4,300 4,991
Other (43) - (9) (12) (55) (39) (14)
====================== ==================================================
$10,661 $9,673 $12,968 $12,053 $8,616 $7,689 $7,659
====================== ==================================================
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
DIVIDENDS, INCLUDING INTEREST ON DEPOSITS 1.56 1.54 1.52 1.53 1.60 1.63 1.45
</TABLE>
/a/ Trust preferred securities represent corporation obligated mandatorily
redeemable preferred securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures of the corporation.
/b/ Preferred stock dividend requirements represent pretax earnings necessary to
cover preferred stock dividends declared during the nine months ended
September 30, 1997 and 1996 and the years ended December 31, 1996, 1995,
1994, 1993, and 1992 of $86 million, $141 million, $185 million, $227
million, $248 million, $241 million, and $169 million, respectively.
2
<PAGE>
EXHIBIT 12(B)
Page 1 of 2
BankAmerica Corporation
Historical and Pro Forma Combined Ratio of Earnings
to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends is computed by dividing earnings by the sum of fixed charges
and preferred stock dividend requirements. Earnings consist primarily of
income (loss) before income taxes adjusted for fixed charges. Fixed charges
consist primarily of interest expense on short- and long-term borrowings and
one-third (the portion deemed representative of the interest factor) of net
rents under long-term leases.
The following table sets forth (i) the historical ratios of earnings to
fixed charges and the ratios of earnings to combined fixed charges and
preferred stock dividends for the year ended December 31, 1992 for BankAmerica
Corporation and its consolidated subsidiaries (BAC) and for Security Pacific
Corporation and its consolidated subsidiaries (SPC) and (ii) the pro forma
combined ratios of earnings to fixed charges and ratios of earnings to combined
fixed charges and preferred stock dividends for the year ended December 31,
1992, giving effect to the April 22, 1992 merger between BAC and SPC (the
Merger) as if it had been consummated on January 1, 1991. The pro forma
combined ratio has been calculated using the pro forma combined financial
information for the year ended December 31, 1992, and should be read in
conjunction with and is qualified in its entirety by such pro forma combined
information included in the 1994 Annual Report to Shareholders. Pro forma
adjustments made to arrive at the pro forma combined ratio are based on the
purchase method of accounting and are based upon actual amounts recorded by BAC
subsequent to the effective time of the Merger.
<PAGE>
EXHIBIT 12(B)
Page 2 of 2
Year Ended
December 31, 1992
-------------------------
Historical Pro Forma
------------ ---------
BAC/a/ SPC Combined
------- --- ---------
RATIO OF EARNINGS TO FIXED CHARGES
Excluding interest on deposits 3.18 /b/ 2.05
Including interest on deposits 1.53 /b/ 1.27
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
Excluding interest on deposits 2.55 /b/ 1.87
Including interest on deposits 1.45 /b/ 1.26
/a/ This financial information reflects the effects of the Merger subsequent
to the Merger's consummation on April 22, 1992.
/b/ Because the Merger was consummated on April 22, 1992, there is no
year-to-date data for SPC.
These pro forma combined ratios are intended for informational purposes and
are not necessarily indicative of the future ratios of earnings to fixed
charges and ratios of earnings to combined fixed charges and preferred stock
dividends of the combined company or the ratios of earnings to fixed charges
and ratios of earnings to combined fixed charges and preferred stock dividends
of the combined company that would have actually occurred had the Merger been
effective on January 1, 1991.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 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 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,854
<INT-BEARING-DEPOSITS> 5,368
<FED-FUNDS-SOLD> 10,124
<TRADING-ASSETS> 16,351
<INVESTMENTS-HELD-FOR-SALE> 12,408
<INVESTMENTS-CARRYING> 3,689
<INVESTMENTS-MARKET> 3,759
<LOANS> 166,986
<ALLOWANCE> 3,504
<TOTAL-ASSETS> 257,520
<DEPOSITS> 171,413
<SHORT-TERM> 31,074
<LIABILITIES-OTHER> 20,909<F1>
<LONG-TERM> 14,198<F2>
<COMMON> 1,210
0
848
<OTHER-SE> 17,868
<TOTAL-LIABILITIES-AND-EQUITY> 257,520
<INTEREST-LOAN> 10,442
<INTEREST-INVEST> 833
<INTEREST-OTHER> 1,775<F3>
<INTEREST-TOTAL> 13,050
<INTEREST-DEPOSIT> 4,292
<INTEREST-EXPENSE> 6,488
<INTEREST-INCOME-NET> 6,562
<LOAN-LOSSES> 730
<SECURITIES-GAINS> 67
<EXPENSE-OTHER> 6,312
<INCOME-PRETAX> 4,017
<INCOME-PRE-EXTRAORDINARY> 4,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,398
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.20
<YIELD-ACTUAL> 4.11
<LOANS-NON> 930
<LOANS-PAST> 197
<LOANS-TROUBLED> 285
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,523
<CHARGE-OFFS> 932
<RECOVERIES> 245
<ALLOWANCE-CLOSE> 3,504
<ALLOWANCE-DOMESTIC> 0<F4>
<ALLOWANCE-FOREIGN> 0<F4>
<ALLOWANCE-UNALLOCATED> 652
<FN>
<F1>INCLUDES TRUST PREFERRED SECURITIES OF $1,873 MILLION.
<F2>INCLUDES SUBORDINATED CAPITAL NOTES OF $353 MILLION.
<F3>INCLUDES INTEREST INCOME ON TRADING ACOUNT ASSETS OF $890 MILLION.
<F4>THESE AMOUNTS ARE NOT REPORTED IN OUR INTERIM FILING.
</FN>
</TABLE>
