<PAGE>
BankAmerica Corporation Analytical Review and Form 10-Q
[BANK AMERICA LOGO APPEARS HERE]
1998
2nd Quarter
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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 ----- 684,766,103 shares outstanding on June 30,
1998.*
*In addition, 89,931,417 shares were held in treasury.
- --------------------------------------------------------------------------------
This document serves both as an analytical review for analysts, shareholders,
and other interested persons, and as the quarterly report on Form 10-Q of
BankAmerica Corporation to the Securities and Exchange Commission, which has
taken no action to approve or disapprove the report or to pass upon its accuracy
or adequacy. Additionally, this document is to be read in conjunction with
BankAmerica Corporation's Annual Report on Form 10-K for the year ended December
31, 1997, including the consolidated financial statements and notes thereto.
<PAGE>
CONTENTS
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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 ....................................... 18
Financial Highlights ............................. 19
Business Sectors ................................. 20
Results of Operations:
Net Interest Income ............................ 26
Noninterest Income ............................. 27
Noninterest Expense ............................ 28
Year 2000 ...................................... 29
Income Taxes ................................... 29
Balance Sheet Review:
Credit Card Securitizations .................... 32
Credit Risk Management:
Loan Portfolio Management ...................... 33
Domestic Consumer Loans ...................... 34
Foreign Loans ................................ 35
Recent International Developments .............. 35
Regional Foreign Exposures ..................... 35
Allowance for Credit Losses .................... 37
Nonperforming Assets ........................... 40
Derivative Financial Instruments ................. 43
Funding and Capital:
Liquidity Review ............................... 44
Capital Management ............................. 44
Forward-Looking Statements ....................... 46
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ............................ 46
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PART II
OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds .... 47
Item 4. Submission of Matters to Vote of Security
Holders ..................................... 48
Item 5. Other Information ............................ 49
Item 6. Exhibits and Reports on Form 8-K ............. 49
Signatures ............................................ 50
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<PAGE>
FINANCIAL STATEMENTS
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
===================================================================================================================================
1998 1997 Six Months Ended
------------------ --------------------------- June 30
Second First Fourth Third Second ------------------
(dollar amounts in millions, except per share data) Quarter Quarter Quarter Quarter Quarter 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 3,367 $ 3,388 $ 3,445 $ 3,537 $ 3,513 $ 6,755 $ 6,951
Interest-bearing deposits in banks 99 108 104 107 105 207 204
Federal funds sold 10 8 10 14 9 18 17
Securities purchased under resale agreements 259 233 233 208 180 492 335
Trading account assets 387 383 340 323 298 770 567
Available-for-sale and held-to-maturity securities 275 283 290 277 270 558 556
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TOTAL INTEREST INCOME 4,397 4,403 4,422 4,466 4,375 8,800 8,630
INTEREST EXPENSE
Deposits 1,453 1,489 1,501 1,502 1,424 2,942 2,790
Federal funds purchased 25 27 21 11 19 52 32
Securities sold under repurchase agreements 280 251 256 227 178 531 327
Other short-term borrowings 283 293 269 268 287 576 562
Long-term debt 250 248 253 249 257 498 520
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TOTAL INTEREST EXPENSE 2,291 2,308 2,300 2,257 2,165 4,599 4,231
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 2,106 2,095 2,122 2,209 2,210 4,201 4,399
PROVISION FOR CREDIT LOSSES 230 245 220 260 250 475 470
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NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,876 1,850 1,902 1,949 1,960 3,726 3,929
NONINTEREST INCOME
Deposit account fees 357 338 362 364 361 695 721
Credit and other card fees 100 91 102 96 93 191 180
Trust fees 82 75 75 62 61 157 118
Other fees and commissions 651 562 565 424 417 1,213 792
Trading income 119 251 63 223 218 370 406
Equity investment activities 125 190 225 171 98 315 204
Net gain on sales of loans 149 115 93 53 44 264 103
Net gain (loss) on available-for-sale debt securities 12 61 12 2 (1) 73 12
Net gain (loss) on sales of subsidiaries and operations (41) 20 34 139 27 (21) 40
Other income 289 110 85 121 108 399 220
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TOTAL NONINTEREST INCOME 1,843 1,813 1,616 1,655 1,426 3,656 2,796
NONINTEREST EXPENSE
Salaries 1,007 1,050 968 892 873 2,057 1,712
Employee benefits 181 179 153 177 189 360 378
Occupancy 195 191 192 192 183 386 369
Equipment 179 171 188 182 173 350 355
Professional services 134 112 134 107 82 246 157
Communications 98 97 95 95 96 195 189
Amortization of intangibles 90 91 90 88 89 181 180
Other expense 419 397 389 499 362 816 740
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TOTAL NONINTEREST EXPENSE 2,303 2,288 2,209 2,232 2,047 4,591 4,080
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,416 1,375 1,309 1,372 1,339 2,791 2,645
PROVISION FOR INCOME TAXES 526 540 497 553 540 1,066 1,066
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NET INCOME $ 890 $ 835 $ 812 $ 819 $ 799 $ 1,725 $ 1,579
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EARNINGS PER COMMON SHARE $ 1.29 $ 1.21 $ 1.15 $ 1.14 $ 1.10 $ 2.49 $ 2.15
DILUTED EARNINGS PER COMMON SHARE 1.24 1.17 1.12 1.11 1.07 2.41 2.10
DIVIDENDS DECLARED PER COMMON SHARE 0.345 0.345 0.305 0.305 0.305 0.69 0.61
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
===================================================================================================================================
1998 1997
----------------------- -------------------------------------
(in millions) June 30 March 31 Dec. 31 Sept. 30 June 30
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 14,053 $ 14,699 $ 14,280 $ 13,854 $ 14,884
Interest-bearing deposits in banks 5,566 5,737 5,862 5,368 7,037
Federal funds sold 688 1,748 105 48 270
Securities purchased under resale agreements 11,532 11,179 9,774 10,076 7,272
Trading account assets 19,314 21,328 15,551 16,351 16,765
Available-for-sale securities 12,574 12,328 12,786 12,408 11,959
Held-to-maturity securities 3,420 3,645 3,667 3,689 3,858
Loans 166,621 165,520 168,104 168,009 170,161
Less: Allowance for credit losses 3,517 3,517 3,500 3,504 3,563
- -----------------------------------------------------------------------------------------------------------------------------------
Net loans 163,104 162,003 164,604 164,505 166,598
Customers' acceptance liability 2,688 3,374 3,561 3,154 3,230
Accrued interest receivable 1,693 1,625 1,570 1,593 1,567
Goodwill, net 3,740 3,790 3,822 3,727 3,842
Identifiable intangibles, net 1,381 1,420 1,374 1,459 1,499
Unrealized gains on off-balance-sheet instruments 9,147 9,347 10,929 7,892 7,319
Premises and equipment, net 3,528 3,831 3,880 3,909 3,944
Other assets 11,457 9,382 8,394 9,487 8,319
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 263,885 $ 265,436 $ 260,159 $ 257,520 $ 258,363
- ------------------------------------------------------------------=================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Interest-bearing $ 94,535 $ 95,387 $ 94,495 $ 94,074 $ 83,308
Noninterest-bearing 35,392 33,628 33,704 31,206 41,434
Deposits in foreign offices:
Interest-bearing 46,594 43,249 42,326 44,450 46,667
Noninterest-bearing 1,573 1,626 1,512 1,683 1,759
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 178,094 173,890 172,037 171,413 173,168
Federal funds purchased 702 810 3,751 1,349 1,730
Securities sold under repurchase agreements 12,701 13,500 11,159 11,024 9,699
Other short-term borrowings 16,293 18,333 15,702 18,701 18,327
Acceptances outstanding 2,689 3,374 3,563 3,154 3,230
Accrued interest payable 988 1,004 978 1,023 958
Unrealized losses on off-balance-sheet instruments 8,093 8,792 10,502 7,541 7,157
Other liabilities 8,553 9,626 6,835 7,318 7,117
Long-term debt 13,521 14,011 13,922 14,198 14,736
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TOTAL LIABILITIES 241,634 243,340 238,449 235,721 236,122
- -----------------------------------------------------------------------------------------------------------------------------------
Corporation obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated deferrable interest debentures of the
corporation (trust preferred securities) 2,212 2,212 1,873 1,873 1,873
STOCKHOLDERS' EQUITY
Preferred stock -- 614 614 848 1,596
Common stock 1,210 1,210 1,210 1,210 1,210
Additional paid-in capital 8,022 7,994 7,974 7,947 7,872
Retained earnings 14,922 14,292 13,726 13,168 12,598
Net unrealized gain on available-for-sale securities 81 66 137 108 13
Common stock in treasury, at cost (4,196) (4,292) (3,824) (3,355) (2,921)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 20,039 19,884 19,837 19,926 20,368
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 263,885 $ 265,436 $ 260,159 $ 257,520 $ 258,363
- ------------------------------------------------------------------=================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
=========================================================================================================================
Six Months Ended June 30
------------------------
(in millions) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,725 $ 1,579
Adjustments to net income to arrive at net cash used by operating activities:
Provision for credit losses 475 470
Net gain on sales of loans and subsidiaries and operations (243) (143)
Depreciation and amortization 398 435
Provision for (benefit from) deferred income taxes (180) 55
Change in assets and liabilities:
Increase in trading account assets (3,763) (4,560)
Increase in accrued interest receivable (123) (126)
Increase in accrued interest payable 10 79
Increase in current income taxes payable 395 383
Deferred fees received from lending activities 141 83
Net cash provided (used) by loans held for sale 374 (744)
Other, net (1,391) 920
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (2,182) (1,569)
CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
Sales proceeds 3,369 1,350
Maturities, prepayments, and calls 2,865 2,720
Purchases (5,816) (4,108)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls 381 465
Purchases (217) (181)
Proceeds from loan sales and securitizations 6,889 3,606
Purchases of loans (337) (158)
Purchases of premises and equipment (429) (284)
Proceeds from sales of other real estate owned 136 254
Net cash provided (used) by:
Loan originations and principal collections (5,879) (7,155)
Interest-bearing deposits in banks (387) (1,143)
Federal funds sold (583) (136)
Securities purchased under resale agreements (1,758) 3
Other, net 167 118
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,599) (4,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 934 847
Principal payments and retirements of long-term debt (1,309) (1,902)
Net proceeds from issuance of trust preferred securities 339 396
Proceeds from issuance of treasury stock 166 106
Preferred stock redeemed (614) (646)
Treasury stock purchased (604) (936)
Common stock dividends (472) (430)
Preferred stock dividends (19) (64)
Net cash provided (used) by:
Deposits 6,057 5,153
Federal funds purchased (3,049) (446)
Securities sold under repurchase agreements 1,542 2,055
Other short-term borrowings 591 761
Other, net (35) (37)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,527 4,857
Effect of exchange rate changes on cash and due from banks 27 22
- -------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and due from banks (227) (1,339)
Cash and due from banks at beginning of period 14,280 16,223
- -------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 14,053 $ 14,884
- ----------------------------------------------------------------------------------------------===========================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
===================================================================================================================================
1998 1997
---------------------- -------------------------------------
Second First Fourth Third Second
(in millions) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PREFERRED STOCK
Balance, beginning of quarter $ 614 $ 614 $ 848 $ 1,596 $ 1,596
Preferred stock redeemed (614) -- (234) (748) --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter -- 614 614 848 1,596
Common Stock
Balance, beginning of quarter 1,210 1,210 1,210 1,210 605
Issuance of 387,314,462 shares of common stock to effect
a two-for-one common stock split -- -- -- -- 605
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 1,210 1,210 1,210 1,210 1,210
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of quarter 7,994 7,974 7,947 7,872 8,473
Common stock issued 1 -- 10 18 1
Issuance of 387,314,462 shares of common stock to effect
a two-for-one common stock split -- -- -- -- (605)
Treasury stock issued in excess of cost 27 20 17 57 3
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 8,022 7,994 7,974 7,947 7,872
RETAINED EARNINGS
Balance, beginning of quarter 14,292 13,726 13,168 12,598 12,029
Net income 890 835 812 819 799
Common stock dividends (236) (236) (211) (212) (214)
Preferred stock dividends (9) (10) (14) (22) (30)
Foreign currency translation adjustments, net of
related income taxes (15) (23) (29) (15) 14
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 14,922 14,292 13,726 13,168 12,598
NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES
Balance, beginning of quarter 66 137 108 13 (90)
Valuation adjustments, net of related income taxes 15 (71) 29 95 103
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter 81 66 137 108 13
COMMON STOCK IN TREASURY, AT COST
Balance, beginning of quarter (4,292) (3,824) (3,355) (2,921) (2,516)
Treasury stock purchased -- (600) (550) (525) (475)
Treasury stock issued 98 133 85 112 71
Other (2) (1) (4) (21) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of quarter (4,196) (4,292) (3,824) (3,355) (2,921)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $20,039 $19,884 $19,837 $19,926 $20,368
- ----------------------------------------------------------------===================================================================
SHARES OF COMMON STOCK, PAR VALUE $1.5625
(in thousands)
Authorized 1,400,000 1,400,000 1,400,000 1,400,000 1,400,000
Issued 774,698 774,698 774,698 774,641 774,631
Held in treasury 89,932 91,994 86,641 81,173 76,224
Outstanding 684,766 682,704 688,057 693,468 698,407
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Note 1. The unaudited consolidated financial statements of
FINANCIAL STATEMENT BankAmerica Corporation and subsidiaries (BAC) are prepared
PRESENTATION 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, 1997.
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 1998, the Financial Accounting Standards Board
issued Statement No. 133, (SFAS No. 133) "Accounting for
Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15,
1999. SFAS No. 133 requires all derivatives to be recognized
as assets or liabilities at fair value. Derivatives that are
not hedges must be adjusted to fair value through earnings.
If the derivative is a hedge, changes in its fair value will
either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective
portion of a hedged derivative's change in fair value (i.e.,
the amount by which the hedge does not exactly offset the
value of the hedged item) will be immediately recognized in
earnings. BAC has not yet completed its analysis to
determine what effect the adoption of SFAS No. 133 will have
on its financial position and results of operations.
The preparation of the consolidated financial statements of
BAC requires management to make certain estimates and
assumptions that affect reported amounts. These estimates
are made based on information available as of the date of
the financial statements; therefore, actual results could
differ from those estimates.
Certain amounts in prior periods have been reclassified to
conform to the current presentation.
6
<PAGE>
================================================================================
NOTE 2. MERGER On April 10, 1998, BAC entered into an agreement and plan of
AGREEMENT WITH reorganization (the Merger Agreement) with NationsBank
NATIONSBANK Corporation (NationsBank). Under the Merger Agreement,
CORPORATION NationsBank will create a new subsidiary (NationsBank (DE)),
and will merge into NationsBank (DE) (the Reincorporation
Merger), with NationsBank (DE) as the surviving corporation.
BAC will then merge into NationsBank (DE), which will be the
surviving corporation and concurrently be renamed
BankAmerica Corporation (the BAC Merger and together with
the Reincorporation Merger, the Recapitalization). Each
share of NationsBank's common stock will be automatically
converted into one share of common stock of NationsBank (DE)
and each share of the NationsBank's preferred stock will be
converted into the right to receive one share of NationsBank
(DE) preferred stock on substantially identical terms. Each
share of BAC's common stock will be converted into the right
to receive 1.1316 shares (the exchange ratio) of NationsBank
(DE) common stock. In addition, all rights with respect to
common stock options of both BAC and NationsBank will be
converted into and become options of NationsBank (DE) with
substantially similar terms, adjusted to reflect the
exchange ratio. The Recapitalization, which will be
accounted for as a pooling of interests, is expected to
close by September 30, 1998 and is subject to regulatory and
shareholder approval. On June 30, 1998, NationsBank's total
assets, deposits, and total shareholders' equity were $308.0
billion, $169.2 billion, and $26.7 billion, respectively.
For further information regarding the merger, see the Joint
Proxy Statement-Prospectus dated August 4, 1998.
- --------------------------------------------------------------------------------
NOTE 3. During the six-month periods ended June 30, 1998 and 1997,
SUPPLEMENTAL BAC made interest payments on deposits and other
DISCLOSURE OF CASH interest-bearing liabilities of $4,589 million and $4,153
FLOW INFORMATION million, respectively, and made net income tax payments of
$851 million and $695 million, respectively. In addition,
during the same periods foreclosures took place on loans
with carrying values of $66 million and $166 million,
respectively.
During the first quarter of 1998, BAC made payments on
accrued liabilities of $4 million related to common stock
repurchased during 1997. Due to the termination of the
common stock repurchase program made in connection with the
merger with NationsBank as described in Notes 2 and 7, there
were no repurchases or payments made in the second quarter
of 1998.
- --------------------------------------------------------------------------------
NOTE 4. As of January 1, 1998, BAC adopted Statement of Financial
COMPREHENSIVE Accounting Standards No. 130, "Reporting Comprehensive
INCOME Income" (SFAS No. 130), which requires companies to report
and display comprehensive income and its components, which
include net income, net unrealized gains (losses) on
available-for-sale securities, and foreign currency
translation adjustments. The adoption of SFAS No. 130 had
no impact on BAC's financial position or results of
operations.
The following is a summary of the components of total
comprehensive income, net of related income taxes:
<TABLE>
<CAPTION>
1998 1997 Six Months Ended
------------------ ----------------------------- June 30
Second First Fourth Third Second ----------------
(in millions) Quarter Quarter Quarter Quarter Quarter 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income $ 890 $ 835 $ 812 $ 819 $ 799 $ 1,725 $ 1,579
Net unrealized gain (loss) on
available-for-sale securities 15 (71) 29 95 103 (56) (19)
Foreign currency translation
adjustments (15) (23) (29) (15) 14 (38) 13
------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME $ 890 $ 741 $ 812 $ 899 $ 916 $ 1,631 $ 1,573
------------------------------------========================================================================
</TABLE>
7
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
NOTE 5. During the six-month period ended June 30, 1998, BAC sold
AVAILABLE-FOR- available-for-sale securities for aggregate proceeds of
SALE $3,369 million, resulting in gross realized gains of $82
AND HELD-TO- million and gross realized losses of $9 million. During the
MATURITY six-month period ended June 30, 1997, BAC sold
SECURITIES available-for-sale securities for aggregate proceeds of
$1,350 million, resulting in gross realized gains of $46
million and gross realized losses of $12 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>
JUNE 30, 1998 $12,574 $12,444 $ 3,419 $ 3,420
March 31, 1998 12,328 12,239 3,675 3,645
December 31, 1997 12,786 12,557 3,744 3,667
September 30, 1997 12,408 12,251 3,759 3,689
June 30, 1997 11,959 11,959 3,655 3,858
At June 30, 1998, securities pledged as collateral related
to secured financing transactions amounted to $25 million
and were included in available-for-sale securities.
- ----------------------------------------------------------------------------------------
</TABLE>
NOTE 6. During the first quarter of 1998, BankAmerica Capital IV, a
TRUST PREFERRED trust, all of whose outstanding common securities ($11
SECURITIES million liquidation amount) are owned by the Parent, issued
trust preferred securities (the Series 4 preferred
securities), at a cost of $339 million, net of deferred
issuance costs, with an aggregate liquidation amount of $350
million. The sole assets of the trust are junior
subordinated deferrable interest debentures issued by the
Parent having an aggregate principal amount of $361 million
(the Series 4 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 4 preferred
securities.
The distribution rate for the Series 4 preferred securities
corresponds to the interest rate on the Series 4 debentures,
which is an annual rate of 7%. The interest payment dates
are the last day of March, June, September, and December of
each year. The Parent has the right to defer payment of
interest on the Series 4 debentures at any time or from time
to time for an extension period not exceeding 20 consecutive
quarters. During any such extension period, distributions on
the Series 4 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 4 debentures have a stated maturity of March 31,
2028, although the Parent may redeem the Series 4 debentures
prior to stated maturity (i) on or after February 24, 2003,
or (ii) prior to February 24, 2003 upon the occurrence of
certain events relating to the tax treatment of the trust or
the Series 4 debentures or relating to the capital treatment
of the Series 4 preferred securities, in each case, at a
redemption price of 100% of the principal amount plus
accrued interest. The Series 4 preferred securities are
subject to mandatory redemption upon repayment of the Series
4 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.
8
<PAGE>
================================================================================
The Parent has issued a guarantee for the payment of
distributions and payments on liquidation or redemption of
the Series 4 preferred securities, but only to the extent of
funds held by the trust. The guarantee is a junior
subordinated obligation of the Parent.
In the second quarter and six months ended June 30, 1998,
distributions and amortization of deferred issuance costs on
all of the trust preferred securities totaling $42 million
and $81 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 pages 70 and 71 of BAC's 1997 Annual
Report to Shareholders.
- --------------------------------------------------------------------------------
NOTE 7. During the first quarter of 1998, BAC's Board of Directors
STOCK REPURCHASE increased the size of its existing stock repurchase program
PROGRAM and extended it through December 1999. The amended program
authorized the Parent to buy back up to an additional $3.5
billion of its common stock and to redeem up to an
additional $450 million of preferred stock by the end of
1999. However, due to the announced decision to merge with
NationsBank, the common stock repurchase program was
terminated.
During the three months ended March 31, 1998, the Parent
repurchased 8.3 million shares of its common stock under the
amended and prior stock repurchase programs at an average
per-share price of $72.62, which reduced stockholders'
equity by approximately $600 million. There were no common
stock repurchases during the second quarter of 1998.
On June 29, 1998, the Parent redeemed all 5,178,000
outstanding shares of its Cumulative Adjustable Preferred
Stock, Series A and all 3,546,100 outstanding shares of its
Cumulative Adjustable Preferred Stock, Series B, reducing
stockholders' equity by $614 million. For the Series A
redemption, the redemption price was equal to the stated
value of $50.00 per share, plus accrued and unpaid dividends
to the redemption date of $0.2528 per share. For the Series
B redemption, the redemption price was equal to the stated
value of $100.00 per share, plus accrued and unpaid
dividends to the redemption date of $0.4667 per share. At
June 30, 1998, the Parent had no preferred stock
outstanding.
- --------------------------------------------------------------------------------
NOTE 8. The following is a summary of the components of income tax
INCOME TAXES expense:
<TABLE>
<CAPTION>
1998 1997 Six Months Ended
---------------- ------------------------- June 30
Second First Fourth Third Second ----------------
(in millions) Quarter Quarter Quarter Quarter Quarter 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PROVISION FOR INCOME TAXES
Federal $ 354 $ 369 $ 168 $ 382 $ 359 $ 723 $ 729
State and local 87 80 62 91 86 167 170
Foreign 85 91 267 80 95 176 167
---------------------------------------------------------------------------------------------
$ 526 $ 540 $ 497 $ 553 $ 540 $1,066 $1,066
--------------------------------=============================================================
</TABLE>
BAC's estimated annual effective income tax rates for the
six-month periods ended June 30, 1998 and 1997 were 38.2
percent and 40.3 percent, respectively. These rates are
higher than the federal statutory tax rate of 35.0 percent
due principally to state income taxes.
9
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
NOTE 9. BAC recorded a pre-tax restructuring charge of $280 million
RESTRUCTURING in the fourth quarter of 1996 as a result of decisions to
CHARGE 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. Due to the announced decision to
merge with NationsBank, management is currently evaluating
the projects relating to these restructurings.
During the second quarter of 1998, 62 positions were reduced
and during the first quarter of 1998, 159 positions were
reduced. Following is a summary of changes in the
restructuring charge through the second quarter of 1998:
<TABLE>
<CAPTION>
(in millions) Severance Premises Other/a/ Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at March 31, 1998 $ 56 $ 29 $ 5 $ 90
Payments (16) (1) (1) (18)
-------------------------------------------------------------------------------------------
BALANCE AT JUNE 30 1998 $ 40 $ 28 $ 4 $ 72
-------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes equipment write-offs and other miscellaneous
costs.
10
<PAGE>
================================================================================
<TABLE>
<CAPTION>
NOTE 10. The computation of earnings per common share is presented in the tables below.
EARNINGS PER
COMMON SHARE EARNINGS PER COMMON SHARE
---------------------------------------------------------------------------------------------------------------
1998 1997 Six Months Ended
------------------- ----------------------------- June 30
(dollar amounts in millions, Second First Fourth Third Second ----------------
except per share data) Quarter Quarter Quarter Quarter Quarter 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME APPLICABLE TO
COMMON STOCK
Net income $890 $835 $812 $819 $799 $1,725 $1,579
Less: Preferred stock dividends 9 10 14 22 30 19 64
---------------------------------------------------------------------------------------------------------------
$881 $825 $798 $797 $769 $1,706 $1,515
---------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
(in thousands) 683,790 684,737 690,878 695,835 701,458 684,264 705,022
---------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE $1.29 $1.21 $1.15 $1.14 $1.10 $2.49 $2.15
-------------------------------------==========================================================================
DILUTED EARNINGS PER COMMON SHARE
---------------------------------------------------------------------------------------------------------------
<CAPTION> 1998 1997 Six Months Ended
------------------ ----------------------------- June 30
(dollar amounts in millions, Second First Fourth Third Second ----------------
except per share data) Quarter Quarter Quarter Quarter Quarter 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME APPLICABLE TO
COMMON STOCK
Net income $890 $835 $812 $819 $799 $1,725 $1,579
Less: Preferred stock dividends 9 10 14 22 30 19 64
--------------------------------------------------------------------------------------------------------------
$881 $825 $798 $797 $769 $1,706 $1,515
--------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING USED TO
CALCULATE DILUTED EARNINGS PER
COMMON SHARE (IN THOUSANDS)
Average number of common shares
outstanding (in thousands) 683,790 684,737 690,878 695,835 701,458 684,264 705,022
Effect of dilutive options
and warrants
(in thousands) 25,274 21,744 23,531 22,549 18,056 23,509 18,135
--------------------------------------------------------------------------------------------------------------
709,064 706,481 714,409 718,384 719,514 707,773 723,157
--------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER
COMMON SHARE $1.24 $1.17 $1.12 $1.11 $1.07 $2.41 $2.10
-------------------------------------=========================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11. In the ordinary course of business, BAC enters into various
OFF-BALANCE-SHEET types of transactions that involve credit-related and
TRANSACTIONS derivative financial instruments that are not required to be
recorded on the balance sheet. Credit-related financial
instruments are typically customer-driven, while derivative
financial instruments are entered into both with customers
and for BAC's own account in managing foreign exchange,
interest rate, equity, credit, and other risks.
11
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
================================================================================
CREDIT-RELATED FINANCIAL INSTRUMENTS
A summary of the contractual amounts of each significant
class of off-balance-sheet 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>
1998 1997
------------------- ------------------------------
(in millions) June 30 March 31 Dec. 31 Sept. 30 June 30
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commitments to extend credit:
Unutilized credit card lines $ 38,887 $ 38,939 $ 35,920 $ 37,222 $ 38,028
Other commitments to extend credit/a/ 117,860 118,902 114,771 109,971 106,590
Standby letters of credit/b/ 20,720 19,790 18,888 18,305 18,680
Commercial letters of credit 3,166 2,894 2,345 3,354 4,186
----------------------------------------------------------------------------------------------
</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 $3,583 million at June 30,
1998, $3,452 million at March 31, 1998, $3,300 million
at December 31, 1997, $3,306 million at September 30,
1997, and $2,907 million at June 30, 1997.
DERIVATIVE FINANCIAL INSTRUMENTS
The tables on page 13 summarize the notional and credit risk
amounts for each significant class of 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 43 through 49 and 80 through
86 of BAC's 1997 Annual Report to Shareholders.
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, equity instruments, and changes in
credit ratings. 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
foreign exchange and 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 derivative
financial instruments. That risk is measured by the total
potential future loss of income 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.
12
<PAGE>
================================================================================
<TABLE>
<CAPTION>
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL
INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES
------------------------------------------------------------
June 30, 1998 December 31, 1997
-------------------------- --------------------------
Notional Credit Notional Credit
(in millions) Amount Risk/a/ Amount Risk/a/
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $ 488,562 $ 1,657/b/ $ 463,295 $ 1,828/b/
Futures and forward rate contracts:
Commitments to purchase 130,475 95 112,562 69
Commitments to sell 145,962 35 145,158 50
Written options 43,065 --/c/ 27,191 --/c/
Purchased options 43,459 368 36,522 395
---------------------------------------------------------------------------------------------------------
TOTAL INTEREST RATE CONTRACTS 851,523 2,155 784,728 2,342
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts 642,096 4,537 575,761 6,530
Written options 37,953 --/c/ 31,748 --/c/
Purchased options 37,710 453 30,330 520
Currency swaps 28,154 1,784 29,063 1,450
---------------------------------------------------------------------------------------------------------
TOTAL FOREIGN EXCHANGE CONTRACTS 745,913 6,774 666,902 8,500
STOCK INDEX OPTIONS AND COMMODITY CONTRACTS 10,396 165 4,349 87
CREDIT DERIVATIVE CONTRACTS
Credit default swaps 145 6 -- --
Total rate of return swaps 1,333 47 -- --
---------------------------------------------------------------------------------------------------------
TOTAL CREDIT DERIVATIVE CONTRACTS 1,478 53 -- --
---------------------------------------------------------------------------------------------------------
TOTAL $1,609,310/d/ $ 9,147 $1,455,979/e/ $ 10,929
-----------------------------------------------==========================================================
NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL
INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY
MANAGEMENT PURPOSES
-----------------------------------------------------------
June 30, 1998 December 31, 1997
-------------------------- --------------------------
Notional Credit Notional Credit
(in millions) Amount Risk/a/ Amount Risk/a/
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $ 50,831 $ 230 $ 47,444 $ 135
Futures and forward rate contracts 58,836 -- 89,650 --
Written options 385 --/c/ 210 --/c/
Purchased options 17,726 17 19,009 81
---------------------------------------------------------------------------------------------------------
TOTAL INTEREST RATE CONTRACTS 127,778 247 156,313 216
Foreign exchange contracts
Spot, forward, and futures contracts 2,764 -- 3,756 --
Currency swaps 739 -- 771 --
---------------------------------------------------------------------------------------------------------
TOTAL FOREIGN EXCHANGE CONTRACTS 3,503 -- 4,527 --
---------------------------------------------------------------------------------------------------------
TOTAL $131,281/d/ $ 247 $160,840/e/ $ 216
-------------------------------------------------========================================================
</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 $8.7 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 $3.3 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 $6.5 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 $4.2 billion
of intercompany hedging-related contracts.
13
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
The tables on page 15 summarize the average and period-end
fair values of each significant class of derivative
financial instrument outstanding in BAC's trading portfolio
and the period-end fair values for each significant class of
derivative financial instrument 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.
ASSET AND LIABILITY MANAGEMENT ACTIVITIES
BAC uses derivative financial instruments to manage interest
rate risk related to designated 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 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 84 through 86 of BAC's 1997 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 June 30, 1998 were not
significantly different from those at year-end 1997.
14
<PAGE>
<TABLE>
<CAPTION>
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES
----------------------------------------------------------------------------------------------------------
June 30, 1998 December 31, 1997
----------------------------- ---------------------------
Average Average
Fair Value Fair Value
For the Period-End for the Year-End
(in millions) Period Ended/a b/ Fair Value/b/ Year Ended/a b/ Fair Value/b/
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps:
Assets $ 1,987 $ 1,657 $ 2,280 $ 1,828
Liabilities (1,599) (1,323) (1,999) (1,603)
Futures and forward rate contracts:
Assets 80 130 150 119
Liabilities (51) (84) (131) (78)
Written options (243) (246) (283) (302)
Purchased options 304 368 303 395
----------------------------------------------------------------------------------------------------------
TOTAL INTEREST RATE CONTRACTS 478 502 320 359
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts:
Assets 4,875 4,537 4,454 6,530
Liabilities (4,565) (4,422) (4,370) (6,521)
Written options (594) (538) (640) (731)
Purchased options 419 453 504 520
Currency swaps:
Assets 1,634 1,784 1,154 1,450
Liabilities (1,298) (1,367) (962) (1,199)
----------------------------------------------------------------------------------------------------------
TOTAL FOREIGN EXCHANGE CONTRACTS 471 447 140 49
STOCK INDEX OPTIONS AND COMMODITY CONTRACTS
Assets 139 165 67 87
Liabilities (94) (108) (61) (68)
----------------------------------------------------------------------------------------------------------
TOTAL STOCK INDEX OPTIONS AND
Commodity Contracts 45 57 6 19
CREDIT DERIVATIVE CONTRACTS
Credit default swaps:
Assets 2 6 -- --
Liabilities -- -- -- --
Total rate of return swaps:
Assets 21 47 -- --
Liabilities (4) (5) -- --
----------------------------------------------------------------------------------------------------------
TOTAL CREDIT DERIVATIVE CONTRACTS 19 48 -- --
----------------------------------------------------------------------------------------------------------
TOTAL $ 1,013 $ 1,054 $ 466 $ 427
---------------------------------------------------=======================================================
<CAPTION>
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY
MANAGEMENT PURPOSES
-----------------------------------------------------------------------------------------
(in millions) June 30, 1998/b c/ December 31, 1997/b c/
-----------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST RATE CONTRACTS
Interest rate swaps $(204) $(337)
Futures and forward rate contracts 10 (16)
Written options (24) (20)
Purchased options 66 74
-----------------------------------------------------------------------------------------
TOTAL INTEREST RATE CONTRACTS (152) (299)
FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts -- --
Currency swaps (175) (133)
-----------------------------------------------------------------------------------------
TOTAL FOREIGN EXCHANGE CONTRACTS (175) (133)
-----------------------------------------------------------------------------------------
TOTAL $(327) $(432)
-------------------------------------------------------------============================
/a/ Average fair value amounts are calculated based on
monthly balances.
/b/ For a description of fair value methodologies, refer to
Note 26 of Notes to Consolidated Financial Statements on
pages 86 through 88 of BAC's 1997 Annual Report to
Shareholders.
/c/ Bracketed amounts reflect net liability positions.
</TABLE>
15
<PAGE>
BANKAMERICA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
================================================================================
NOTE 12. Trading income represents the net amount earned from BAC's
TRADING ACTIVITIES 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. Income derived from these 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
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. This table should
be read in conjunction with the description of such products
included on page 84 of BAC's 1997 Annual Report to
Shareholders.
<TABLE>
<CAPTION>
TRADING-RELATED INCOME
-------------------------------------------------------------------------------------------------------------
1998 1997 Six Months Ended
------------------- ------------------------------ June 30
Second First Fourth Third Second ----------------
(in millions) Quarter Quarter Quarter Quarter Quarter 1998 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TRADING INCOME
Interest rate products $ 28 $ 45 $(28) $ 24 $ 17 $ 73 $ 29
Foreign exchange contracts 163 158 139 106 107 321 199
Debt instruments (72) 48 (48) 93 94 (24) 178
-------------------------------------------------------------------------------------------------------------
$119 $251 $ 63 $223 $218 $370 $406
------------------------------------=========================================================================
OTHER TRADING-RELATED INCOME
Interest rate products/a/ $ 7 $ 6 $ 15 $ 6 $ 12 $ 13 $ 22
Foreign exchange contracts (3) 2 -- 1 2 (1) 6
Debt instruments/a/ 65 88 73 49 47 153 97
-------------------------------------------------------------------------------------------------------------
$ 69 $ 96 $ 88 $ 56 $ 61 $165 $125
------------------------------------=========================================================================
</TABLE>
/a/ Primarily includes the net interest revenue associated
with the respective products.
During the six-month period ended June 30, 1998, trading
income included a net unrealized holding loss on trading
securities of $70 million. During the six-month period ended
June 30, 1997, trading income included a net unrealized
holding gain on trading securities of $22 million. These
amounts exclude the net unrealized trading results of the
Parent's securities broker/dealer subsidiary (Section 20
subsidiary).
For secured financing transactions, BAC reports securities
received as collateral in other assets and the corresponding
obligation to return the securities in other liabilities. At
June 30, 1998, these securities amounted to $1,021 million.
At June 30, 1998, securities provided as collateral related
to secured financing transactions using trading securities
amounted to $1,435 million and were reported in trading
account assets.
16
<PAGE>
================================================================================
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
HIGHLIGHTS
================================================================================
On April 10, 1998, BankAmerica Corporation and subsidiaries (BAC) and
NationsBank Corporation (NationsBank) entered into a definitive
agreement to merge in a stock-for-stock transaction. For more
information on the merger, refer to Note 2 of Notes to Consolidated
Financial Statements on page 7. In addition, on April 13, 1998, BAC
announced an agreement to sell BankAmerica Housing Services. Each
transaction is subject to the satisfaction or waiver of certain
conditions, and there can be no assurance that the transactions will
ultimately be consummated.
The following is a summary of second-quarter 1998 financial information
for BAC.
. BAC reported second-quarter 1998 diluted earnings per common share
of $1.24, an increase of 16 percent from $1.07 for the same period
a year ago. Net income for the second quarter of 1998 was $890
million, up 11 percent from $799 million for the second quarter of
1997.
. The return on average common equity was 18.20 percent, an increase
of 147 basis points from the amount reported in the second quarter
of 1997.
. Net interest income was $2,113 million for the second quarter of
1998, an increase of $13 million from the previous quarter, and a
decrease of $103 million from the second quarter of 1997. BAC's net
interest margin for the second quarter of 1998 was 3.86 percent, an
increase of 2 basis points from the previous quarter, and a
decrease of 26 basis points from the comparable period a year ago.
. Noninterest income for the second quarter of 1998 was $1,843
million, an increase of $417 million, or 29 percent, from the
second quarter of 1997. The second-quarter 1998 amount included the
results associated with the Robertson Stephens businesses acquired
during the fourth quarter of 1997.
. Noninterest expense for the second quarter of 1998 was $2,303
million, an increase of $256 million from the same period in 1997.
This increase included the results associated with the Robertson
Stephens businesses.
. Nonaccrual assets were $951 million at June 30, 1998, a decrease of
$85 million, or 8 percent, from their March 31, 1998 level, and an
increase of $90 million, or 10 percent, from their June 30, 1997
level.
. The provision for credit losses was $230 million for the second
quarter of 1998, down $15 million from the previous quarter and $20
million from the second quarter of 1997. Net credit losses were
$230 million for the second quarter of 1998, a decrease of $9
million from the previous quarter, and an increase of $6 million
from the second quarter of 1997. For additional information on the
allowance for credit losses, certain credit quality ratios and
credit quality information on specific loan categories, see the
"Allowance for Credit Losses" section on pages 37-42.
. On June 29, 1998, BAC redeemed all outstanding shares of its
Cumulative Adjustable Preferred Stock, Series A and B, which
reduced stockholders' equity by $614 million.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------------- ------------------------------------------
(dollar amounts in millions, Second First Fourth Third Second
except per share data) Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Interest income $ 4,397 $ 4,403 $ 4,422 $ 4,466 $ 4,375
Interest expense 2,291 2,308 2,300 2,257 2,165
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 2,106 2,095 2,122 2,209 2,210
Provision for credit losses 230 245 220 260 250
Noninterest income 1,843 1,813 1,616 1,655 1,426
Noninterest expense 2,303 2,288 2,209 2,232 2,047
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,416 1,375 1,309 1,372 1,339
Provision for income taxes 526 540 497 553 540
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 890 $ 835 $ 812 $ 819 $ 799
- -------------------------------------------------------==========================================================================
PER SHARE DATA
Earnings per common share $ 1.29 $ 1.21 $ 1.15 $ 1.14 $ 1.10
Diluted earnings per common share 1.24 1.17 1.12 1.11 1.07
Dividends declared per common share 0.345 0.345 0.305 0.305 0.305
- --------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
Book value per common share at period end $ 29.26 $ 28.23 $ 27.94 $ 27.51 $ 26.88
Common stock price range:
High 96 87 1/8 81 15/16 77 7/8 69
Low 79 1/2 61 1/2 66 1/4 64 9/16 49 9/16
Closing common stock price 86 1/2 82 5/8 73 73 5/16 64 9/16
Average number of common shares
outstanding (in thousands) 683,790 684,737 690,878 695,835 701,458
Average number of diluted common shares
outstanding (in thousands) 709,064 706,481 714,409 718,384 719,514
Number of common shares outstanding at period
end (in thousands) 684,766 682,704 688,057 693,468 698,407
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END
Loans $166,621 $165,520 $168,104 $168,009 $170,161
Total assets 263,885 265,436 260,159 257,520 258,363
Deposits 178,094 173,890 172,037 171,413 173,168
Long-term debt 13,521 14,011 13,922 14,198 14,736
Common equity 20,039 19,270 19,223 19,078 18,772
Total equity 20,039 19,884 19,837 19,926 20,368
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Expense to revenue/a/ 55.04% 55.41% 56.25% 52.79% 52.93%
Rate of return (based on net income) on:
Average common equity 18.20 17.89 16.68 16.82 16.73
Average total equity 17.85 17.52 16.28 16.23 15.99
Average total assets 1.37 1.28 1.24 1.26 1.26
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Ratio of common equity to total assets 7.59% 7.26% 7.39% 7.41% 7.27%
Ratio of total equity to total assets 7.59 7.49 7.62 7.74 7.88
Ratio of average total equity to average total assets 7.66 7.33 7.65 7.78 7.86
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------
Six Months Ended
June 30
(dollar amounts in millions, --------------------------
except per share data) 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING RESULTS
Interest income $ 8,800 $ 8,630
Interest expense 4,599 4,231
- ------------------------------------------------------------------------------------
Net interest income 4,201 4,399
Provision for credit losses 475 470
Noninterest income 3,656 2,796
Noninterest expense 4,591 4,080
- ------------------------------------------------------------------------------------
Income before income taxes 2,791 2,645
Provision for income taxes 1,066 1,066
- ------------------------------------------------------------------------------------
NET INCOME $ 1,725 $ 1,579
- -----------------------------------------------------------=========================
PER SHARE DATA
Earnings per common share $ 2.49 $ 2.15
Diluted earnings per common share 2.41 2.10
Dividends declared per common share 0.69 0.61
- ------------------------------------------------------------------------------------
STOCK DATA
Book value per common share at period end $ 29.26 $ 26.88
Common stock price range:
High 96 69
Low 61 1/2 47 11/16
Closing common stock price 86 1/2 64 9/16
Average number of common shares
outstanding (in thousands) 684,264 705,022
Average number of diluted common shares
outstanding (in thousands) 707,773 723,157
Number of common shares outstanding at period
end (in thousands) 684,766 698,407
- ------------------------------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END
Loans $166,621 $170,161
Total assets 263,885 258,363
Deposits 178,094 173,168
Long-term debt 13,521 14,736
Common equity 20,039 18,772
Total equity 20,039 20,368
- ------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Expense to revenue/a/ 55.23% 53.23%
Rate of return (based on net income) on:
Average common equity 18.05 16.62
Average total equity 17.69 15.85
Average total assets 1.33 1.26
- ------------------------------------------------------------------------------------
CAPITAL RATIOS
Ratio of common equity to total assets 7.59% 7.27
Ratio of total equity to total assets 7.59 7.88
Ratio of average total equity to average total assets 7.49 7.92
- ------------------------------------------------------------------------------------
</TABLE>
/a/ Excludes net other real estate owned expense, amortization of intangibles,
expenses associated with trust preferred securities, a third-quarter 1997
gain of $246 million on the sale of Security Pacific Financial Services,
Inc., charges of approximately $112 million incurred in the third quarter
of 1997 associated with the decision to exit Midwest retail facilities and
expenses connected with multiple legal matters, writedowns on corporate
real estate, and contributions to the BankAmerica Foundation totaling $140
million in the third quarter of 1997.
19
<PAGE>
BUSINESS SECTORS
================================================================================
The business sector information is presented in a format that reflects
BAC's new organizational structure announced in 1997. The financial
information includes all performance measures used internally to evaluate
business performance.
BAC examines the financial performance of its businesses from multiple
capital return perspectives to facilitate meeting various decision support
needs of managers. Each measure reflects different levels of capital,
treatment of intangible assets, and bases for recognition of credit losses.
The key return on capital measures are:
. Return on Avg. Common Equity -- This is a method of performance
measurement where all of average common equity is allocated to
businesses on the basis of their relative share of BAC's total assets
and an apportionment of the corporate provision and reserve for credit
losses. Income is derived in a manner consistent with externally
reported financial statement results. This measure is oriented toward
external performance comparisons and does not allocate capital based
on the risks inherent in a specific business. Net interest margin and
expense to revenue ratios for a business are derived under this
perspective.
. Risk Adjusted Return on Capital (RAROC) -- This is a method of
performance measurement where economic capital is allocated to
businesses on the bases of credit, country, market/interest rate, and
business/operating risks. The assignments are based on empirical
analysis of the risks that are inherent in the operation of each
business. Credit losses reflect the statistically derived expected
losses within a given portfolio. Goodwill is not amortized in deriving
this measure. This measure includes only the capital necessary to
cover the risks of unexpected losses, and represents that which is
incrementally attributable to businesses for individual transactions.
RAROC is most often used for incremental decision analysis.
. Return on Invested Capital (ROIC) -- ROIC is an all-in return concept
based on a quasi-cash derivation of net income. Credit losses in this
measure are represented by net charge-offs and goodwill is not
amortized. Under this method of performance measurement, BAC invested
capital is defined as common equity plus the tax-effected loan loss
reserve. Invested capital is allocated to businesses based on risk
based economic capital as assigned through the RAROC process described
above and increased by an additional allocation based on the
intangible assets assigned to a business. Capital is thereby assumed
to cover unexpected losses plus an amount of capital necessary to fund
businesses grown through acquisition. This measure enables managers
to evaluate their overall business performance on a comprehensive,
fully allocated basis that is oriented toward cash flows.
Net interest income is adjusted for each return calculation to reflect
changes in the debt to equity mix under each measure.
Economic Profit, which reflects net income available to common shareholders
less a 12 percent charge for the cost of capital, is calculated for the
RAROC and ROIC measurements.
GLOBAL RETAIL BANK
Consumer Banking -- Consumer Banking's net income available to common
shareholders for the first six months of 1998 increased $239 million, or 39
percent, from the same period last year. The first half of 1997 results
included certain lines of business (Hawaii,
<PAGE>
================================================================================
Midwest Retail, and indirect consumer lending) that were exited since the first
six months of 1997. Net interest income declined $198 million from the first
half of 1997 due to sales of residential first mortgages, securitization of
credit card receivables and manufactured housing loans and exited businesses.
Noninterest income increased $274 million due to higher loan servicing revenues,
gains on loans sales, and higher fee revenue. The noninterest expense increase
of $98 million reflects higher people development and training expenses and
volume-related compensation and processing expenses, offset partially by
expenses attributable to exited businesses. A $358 million decrease in the
provision for credit losses is attributable to securitizations of credit card
receivables and manufactured housing loans, favorable payment experience, and
exited businesses. Average loans decreased $7.5 billion, or 9 percent, from the
first half of 1997, reflecting the securitizations of credit card receivables
and manufactured housing loans, and the sale of residential first mortgages.
Excluding the effect of the securitizations of credit card receivables and
manufactured housing loans, average loans increased by $1.2 billion for the
first half of 1998 compared to 1997.
RAROC and ROIC economic profit increases were less substantial than the increase
in net income available to common shareholders primarily due to the more modest
declines in credit losses recognized under the RAROC and ROIC methods of
performance measurement.
Middle Market Banking -- Net income available to common shareholders increased
slightly by $12 million, or 6 percent, for the first half of 1998 from the same
period a year ago, reflecting loan growth and higher noninterest income from
financial management fees, partially offset by higher noninterest expenses.
Private Banking -- Private Banking's net income available to common shareholders
increased by $4 million, or 10 percent for the first six months of 1998 from the
same period a year ago, due to continued loan growth and increases in trust fee
revenues, partially offset by increased noninterest expenses.
GLOBAL WHOLESALE BANK
U.S. and Canada -- U.S. and Canada's net income available to common shareholders
for the first six months of 1998 increased $50 million, or 12 percent, from the
same period a year ago. Noninterest income increased $445 million due to the
Robertson Stephens businesses acquired during the fourth quarter of 1997, better
performance in capital markets and increased equity investment activities.
Noninterest expense increased by $319 million due to the addition of the
Robertson Stephens businesses and higher market-driven compensation. The
provision for credit losses increased $99 million in 1998 compared to 1997
resulting from the effect of reductions in the allowance in 1997 due primarily
to improvement in the commercial real estate portfolio. In 1998, the provision
was increased to recognize additional exposure to several commercial credits.
Average total assets increased $7.8 billion, reflecting higher capital markets
trading positions and loan growth.
RAROC and ROIC economic profit increased as higher income before credit losses
and income taxes exceeded higher capital assignments due to the acquisition of
Robertson Stephens and capital markets activities.
Asia -- Asia's net income available to common shareholders for the first six
months of 1998 decreased by $111 million, or 102 percent from the same period
last year, primarily resulting from an increase of $205 million in the provision
for credit losses, partially offset by higher noninterest income from gains on
assets sales and fee revenues. RAROC economic and ROIC invested capital
assignments in the 1998 period were increased substantially in response to the
financial problems in the Asian economies.
<PAGE>
===============================================================================
SELECTED BUSINESS SECTOR DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998/a/
---------------------------------------------------
GLOBAL RETAIL BANK
---------------------------------------------------
Consumer Middle Private
(dollar amounts in millions) Banking Market Banking Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KEY MEASURES
ROIC economic profit/c/ $ 306 $ 87 $ 17 $ 410
ROIC return on invested capital/c/ 18.8% 20.5% 18.3% 19.1%
RAROC economic profit/c/ $ 456 $ 94 $ 22 $ 572
RAROC risk adj. return on capital/c/ 27.0% 24.3% 24.7% 26.4%
Return on avg. common equity/c/ 27.6 20.9 20.4 25.8
Expense/revenue/d/ 57.2 43.8 66.1 55.9
Net interest margin 5.20 4.14 2.97 5.44
- ------------------------------------------------------------------------------------------
OPERATING RESULTS
Net interest income $ 2,644 $ 484 $ 105 $ 3,233
Noninterest income 1,692 152 128 1,972
Noninterest expense (2,663) (303) (166) (3,132)
- ------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR CREDIT
LOSSES AND INCOME TAXES 1,673 333 67 2,073
Provision for credit losses (201) 4 1 (196)
Income taxes (605) (132) (25) (762)
- ------------------------------------------------------------------------------------------
Net income 867 205 43 1,115
Net preferred/e/ (8) (2) -- (10)
- ------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 859 $ 203 $ 43 $ 1,105
- ----------------------------------------==================================================
SELECTED AVERAGE BALANCE
SHEET COMPONENTS
Loans $ 76,987 $23,253 $5,119 $105,359
Total assets 86,239 26,637 5,550 118,426
Deposits 101,428 10,161 7,033 118,622
Common equity 6,279 1,955 407 8,641
RAROC economic capital/c/ 6,122 1,552 337 8,011
ROIC invested capital/c/ 9,061 2,072 521 11,654
- ------------------------------------------------------------------------------------------
<CAPTION>
GLOBAL WHOLESALE BANK
----------------------------------------------------------------
U.S. & Latin All Total
(dollar amounts in millions) Canada Asia EMEA/b/ America Total Other BAC
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEY MEASURES
ROIC economic profit/c/ $ 203 $ (8) $ (17) $ 29 $ 207 $ (52) $ 565
ROIC return on invested capital/c/ 19.3% 10.8% 8.4% 20.3% 17.0% NM 17.4%
RAROC economic profit/c/ $ 232 $ 57 $ (29) $ 26 $ 286 $ (50) $ 808
RAROC risk adj. return on capital/c/ 22.6% 21.9% 5.8% 19.3% 20.0% NM 22.1%
Return on avg. common equity/c/ 19.1 (0.4) 5.0 14.9 12.9 NM 18.1
Expense/revenue/d/ 49.4 51.3 78.0 39.9 51.7 NM 55.2
Net interest margin 2.20 2.23 1.37 3.68 2.20 NM 3.85
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Net interest income $ 634 $ 210 $ 119 $ 180 $ 1,143 $ (175) $ 4,201
Noninterest income 1,121 201 136 24 1,482 202 3,656
Noninterest expense (900) (212) (200) (82) (1,394) (65) (4,591)
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR CREDIT
LOSSES AND INCOME TAXES 855 199 55 122 1,231 (38) 3,266
Provision for credit losses (48) (198) (2) (29) (277) (2) (475)
Income taxes (323) (2) (12) (30) (367) 63 (1,066)
- ----------------------------------------------------------------------------------------------------------------------------------
Net income 484 (1) 41 63 587 23 1,725
Net preferred/e/ (5) (1) (1) (1) (8) (1) (19)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 479 $ (2) $ 40 $ 62 $ 579 $ 22 $ 1,706
- ---------------------------------------===========================================================================================
SELECTED AVERAGE BALANCE
SHEET COMPONENTS
Loans $ 37,805 $11,217 $ 4,714 $ 6,287 $ 60,023 $ 1,464 $166,846
Total assets 68,738 21,274 21,282 11,701 122,995 20,975 262,396
Deposits 20,499 12,636 15,034 1,758 49,927 3,489 172,038
Common equity 5,046 1,561 1,562 859 9,028 1,386 19,055
RAROC economic capital/c/ 4,396 1,172 917 756 7,241 916 16,168
ROIC invested capital/c/ 5,609 1,210 918 762 8,499 1,087 21,240
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ For comparability purposes, both 1998 and 1997 amounts reflect BAC's
internal allocation and classification methodologies, adjusted for
residuals, at June 30, 1998.
/b/ Europe, Middle East, and Africa.
/c/ See page 20 for a more detailed description on method of performance
measurement.
RAROC and ROIC economic profit changes were less dramatic than the
decrease in net income available to common shareholders primarily
because the expected losses and net charge-offs used to compute the
RAROC and ROIC performance measurements reflected more modest increases
from 1997 than the provision for credit losses.
Europe, Middle East, and Africa (EMEA) -- Net income available to
common shareholders for the first six months of 1998 decreased by $52
million, or 57 percent from the same period last year. This decrease
was primarily due to less favorable capital markets trading results,
combined with higher interest recoveries and assets sales gains in
1997.
Latin America -- Net income available to common shareholders for the
first six months of 1998 decreased by $26 million, or 30 percent from
the same period a year ago. The first six months of 1998 included a
higher provision for credit losses for emerging countries, whereas the
same period in 1997 included a net reduction of the credit provision.
Average loans increased by $1.6 billion. RAROC economic and ROIC
invested capital assignments were increased in 1998 to reflect higher
capital markets trading positions and increased credit and country risk
associated with loan growth.
22
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1997/a/
---------------------------------------------------------------------------------------------
Global Retail Bank
--------------------------------------------------
Consumer Middle Private
(dollar amounts in millions) Banking Market Banking Total
- -----------------------------------------------------------------------------------------
KEY MEASURES
ROIC economic profit/c/ $ 192 $ 75 $ 13 $ 280
ROIC return on invested capital/c/ 16.0% 19.3% 17.1% 16.6%
RAROC economic profit/c/ $ 337 $ 80 $ 20 $ 437
RAROC risk adj. return on capital/c/ 22.5% 22.8% 25.1% 22.6%
Return on avg. common equity/c/ 18.1 21.2 20.8 18.9
Expense/revenue/d/ 55.5 42.0 62.3 54.2
Net interest margin 5.89 4.28 2.68 6.03
- -----------------------------------------------------------------------------------------
OPERATING RESULTS
Net interest income $ 2,842 $ 464 $ 98 $ 3,404
Noninterest income 1,418 112 112 1,642
Noninterest expense (2,565) (261) (143) (2,969)
- -----------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR CREDIT
LOSSES AND INCOME TAXES 1,695 315 67 2,077
Provision for credit losses (559) 16 -- (543)
Income taxes (498) (136) (27) (661)
- -----------------------------------------------------------------------------------------
Net income 638 195 40 873
Net preferred/e/ (18) (4) (1) (23)
- -----------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 620 $ 191 $ 39 $ 850
- ---------------------------------------==================================================
SELECTED AVERAGE BALANCE
SHEET COMPONENTS
Loans $ 84,458 $21,489 $ 4,722 $110,669
Total assets 94,068 24,809 5,210 124,087
Deposits 97,517 9,389 7,382 114,288
Common equity 6,895 1,809 380 9,084
RAROC economic capital/c/ 6,514 1,478 311 8,303
ROIC invested capital/c/ 9,823 2,055 513 12,391
- -----------------------------------------------------------------------------------------
<CAPTION>
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1997/a/
---------------------------------------------------------------------------------------------
Global Wholesale Bank
---------------------------------------------------------------
U.S. & Latin All Total
(dollar amounts in millions) Canada Asia EMEA/b/ America Total Other BAC
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
KEY MEASURES
ROIC economic profit/c/ $ 133 $ 37 $ 36 $ 39 $ 245 $ (106) $ 419
ROIC return on invested capital/c/ 17.2% 19.5% 20.9% 27.8% 18.7% NM 16.1%
RAROC economic profit/c/ $ 146 $ 30 $ 31 $ 37 $ 244 $ (109) $ 572
RAROC risk adj. return on capital/c/ 19.7% 18.5% 19.7% 27.1% 20.1% NM 19.6%
Return on avg. common equity/c/ 19.6 13.3 13.3 27.2 17.8 NM 16.6
Expense/revenue/c/ 41.6 54.8 57.9 37.8 45.9 NM 53.2
Net interest margin 2.43 1.81 1.80 3.96 2.32 NM 4.14
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Net interest income $ 612 $ 183 $ 140 $ 153 $ 1,088 $ (93) $ 4,399
Noninterest income 676 191 191 41 1,099 55 2,796
Noninterest expense (581) (207) (193) (73) (1,054) (57) (4,080)
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR CREDIT
LOSSES AND INCOME TAXES 707 167 138 121 1,133 (95) 3,115
Provision for credit losses 51 7 (6) 20 72 1 (470)
Income taxes (318) (63) (38) (52) (471) 66 (1,066)
- ---------------------------------------------------------------------------------------------------------------------------------
Net income 440 111 94 89 734 (28) 1,579
Net preferred/e/ (11) (2) (2) (1) (16) (25) (64)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 429 $ 109 $ 92 $ 88 $ 718 $ (53) $ 1,515
- ---------------------------------------==========================================================================================
SELECTED AVERAGE BALANCE
SHEET COMPONENTS
Loans $35,156 $11,104 $ 5,085 $4,651 $ 55,996 $ 643 $167,308
Total assets 60,908 22,529 18,977 8,845 111,259 18,272 253,618
Deposits 19,952 13,294 14,465 1,363 49,074 4,380 167,742
Common equity 4,439 1,642 1,383 645 8,109 1,195 18,388
RAROC economic capital/c/ 3,862 904 807 489 6,062 867 15,232
ROIC invested capital/c/ 5,021 945 808 495 7,269 847 20,507
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/d/ Excludes net other real estate owned expense, amortization of intangibles,
and expenses associated with trust preferred securities.
/e/ Net preferred represents the incremental cost of preferred dividends, and
the allocation of trust preferred securities and subordinated debt, net of
funding and tax effects.
RAROC and ROIC economic profit decreases were slight compared to the
decrease in net income available to common shareholders, primarily
because the expected losses and net charge-offs used to compute the
RAROC and ROIC performance measurements were stable in both periods.
ALL OTHER
This sector includes the results of Asset and Liability Management
(investment securities, federal funds bought and sold), along with the
Global Asset Management Group, Community Development Banking, and
residual income and expenses related to the institutional trust
business, which BAC had substantially divested in 1996. Also included
is the impact of reclassifications between financial statement
categories made for internal reporting purposes. The first six months
of 1998 include an $84 million pre-tax gain on the sale of the Columbia
Seafirst Center, and $82 million of securities pre-tax gains, partially
offset by a $45 million pre-tax accrual for the estimated loss
associated with the decision to sell Robertson Stephens Investment
Management. 1997 included lower results from corporate asset and
liability management activities.
23
<PAGE>
================================================================================
AVERAGE BALANCES, INTEREST, AND AVERAGE RATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Second Quarter 1998 Second Quarter 1997
-------------------------------- ---------------------------------
(dollar amounts in millions) Balance/a/ Interest/b/ Rate/b/ Balance/a/ Interest/b/ Rate/b/
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits in banks $ 5,825 $ 99 6.85% $ 6,627 $ 105 6.32%
Federal funds sold 724 10 5.57 631 9 5.58
Securities purchased under resale agreements 10,950 259 9.48 9,729 180 7.41
Trading account assets 19,721 388 7.90 15,273 301 7.90
Available-for-sale securities/c d/ 12,403 214 6.92 11,277 200 7.10
Held-to-maturity securities/d/ 3,510 63 7.17 3,918 73 7.44
Domestic loans:
Consumer-residential first mortgages/e/ 31,963 570 7.16 37,381 696 7.47
Consumer-residential junior mortgages/e/ 12,714 265 8.35 13,488 289 8.60
Consumer-credit card 5,255 181 13.76 8,218 299 14.55
Other consumer 20,359 472 9.30 20,543 498 9.73
Commercial and industrial/e/ 39,384 745 7.59 35,467 694 7.84
Commercial loans secured by real estate 12,765 274 8.59 12,551 273 8.70
Financial institutions 3,681 43 4.74 3,201 43 5.38
Lease financing 2,826 44 6.22 2,793 40 5.75
Loans for purchasing or carrying securities 2,490 53 8.39 1,930 44 9.13
Construction and development loans
secured by real estate 2,379 77 12.99 2,243 78 14.03
Agricultural 1,630 35 8.60 1,514 32 8.50
Other 1,922 32 6.70 1,448 20 6.11
-------- ------ -------- ------
Total domestic loans/e/ 137,368 2,791 8.14 140,777 3,006 8.56
Foreign loans 28,979 580 8.03 27,311 507 7.45
-------- ------ -------- ------
Total loans/c e/ 166,347 3,371 8.12 168,088 3,513 8.38
-------- ------ -------- ------
Total earning assets/e/ 219,480 $4,404 8.04 215,543 $4,381 8.15
Nonearning assets/e/ 45,333 ====== 43,141 ======
Less: Allowance for credit losses 3,546 3,553
-------- --------
TOTAL ASSETS $261,267 $255,131
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic interest-bearing deposits:
Transaction $ 5,362 $ 19 1.42% $ 5,151 $ 21 1.60%
Savings 10,852 54 2.00 11,942 62 2.09
Money market 48,160 280 2.33 36,746 272 2.97
Time 31,131 430 5.54 30,009 398 5.32
-------- ------ -------- ------
Total domestic interest-bearing deposits 95,505 783 3.29 83,848 753 3.60
Foreign interest-bearing deposits:/f/
Banks located in foreign countries 11,637 178 6.17 13,306 195 5.89
Governments and official institutions 10,629 150 5.64 11,312 154 5.45
Time, savings, and other 20,827 342 6.58 21,172 322 6.09
-------- ------ -------- ------
Total foreign interest-bearing deposits 43,093 670 6.24 45,790 671 5.87
-------- ------ -------- ------
Total interest-bearing deposits 138,598 1,453 4.21 129,638 1,424 4.40
Federal funds purchased 1,827 25 5.44 1,361 19 5.59
Securities sold under repurchase agreements 12,166 280 9.23 10,777 178 6.63
Other short-term borrowings 17,720 283 6.40 19,275 287 5.98
Long-term debt 13,901 250 7.21 14,717 257 7.02
-------- ------ -------- ------
Total interest-bearing liabilities 184,212 $2,291 4.99 175,768 $2,165 4.94
====== ======
Domestic noninterest-bearing deposits 32,369 37,486
Foreign noninterest-bearing deposits 1,413 1,870
Other noninterest-bearing liabilities 21,060 18,079
-------- --------
Total liabilities 239,054 233,203
Trust preferred securities/g/ 2,213 1,873
Stockholders' equity 20,000 20,055
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $261,267 $255,131
======== ========
Interest income as a percentage of average earning assets/e/ 8.04% 8.15%
Interest expense as a percentage of average earning assets/e/ (4.18) (4.03)
---- ----
NET INTEREST MARGIN/e/ 3.86% 4.12%
==== ====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Average balances are obtained from the best available daily, weekly, or
monthly data.
/b/ Interest income and average rates are presented on a taxable-equivalent
basis. The taxable-equivalent adjustments are based on a marginal tax rate
of 39 percent for 1998 and 40 percent for 1997.
/c/ Average balances include nonaccrual assets.
/d/ Refer to the table on page 31 of the Balance Sheet Review section for more
detail on available-for-sale and held-to-maturity securities.
/e/ Certain amounts in prior periods have been reclassified to conform to the
presentation in the current year.
/f/ Primarily consists of time deposits in denominations of $100,000 or more.
/g/ 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.
24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30
---------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------
(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 $ 6,152 $ 207 6.80% $ 6,348 $ 204 6.47%
Federal funds sold 653 18 5.66 611 17 5.45
Securities purchased under resale agreements 11,463 492 8.66 9,546 334 7.08
Trading account assets 18,536 773 8.41 14,315 570 8.03
Available-for-sale securities/c d/ 12,609 433 6.89 11,436 403 7.07
Held-to-maturity securities/d/ 3,566 129 7.25 4,013 159 7.93
Domestic loans:
Consumer-residential first mortgages/e/ 32,401 1,165 7.25 37,970 1,412 7.50
Consumer-residential junior mortgages/e/ 12,930 538 8.39 13,390 569 8.56
Consumer-credit card 5,834 404 13.85 8,308 604 14.55
Other consumer 20,517 951 9.35 20,166 978 9.78
Commercial and industrial/e/ 38,908 1,468 7.61 35,200 1,354 7.76
Commercial loans secured by real estate 12,846 556 8.66 12,490 548 8.78
Financial institutions 3,551 83 4.70 3,071 75 4.95
Lease financing 2,842 83 5.89 2,761 78 5.66
Loans for purchasing or carrying securities 2,463 102 8.39 1,841 74 8.06
Construction and development loans
secured by real estate 2,332 138 11.91 2,255 144 12.91
Agricultural 1,665 72 8.68 1,538 67 8.73
Other 1,851 58 6.32 1,368 41 6.06
-------- ------ -------- ------
Total domestic loans/e/ 138,140 5,618 8.18 140,358 5,944 8.51
Foreign loans 28,706 1,143 8.03 26,950 1,011 7.56
-------- ------ -------- ------
Total loans/c e/ 166,846 6,761 8.15 167,308 6,955 8.36
-------- ------ -------- ------
Total earning assets/e/ 219,825 $8,813 8.07 213,577 $8,642 8.14
Nonearning assets/e/ 46,108 ====== 43,591 ======
Less: Allowance for credit losses 3,537 3,550
-------- --------
TOTAL ASSETS $262,396 $253,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic interest-bearing deposits:
Transaction $ 5,320 $ 39 1.49% $ 6,140 $ 45 1.47%
Savings 10,796 108 2.01 12,050 123 2.05
Money market 48,092 564 2.37 35,677 527 2.98
Time 30,845 851 5.56 29,992 797 5.36
-------- ------ -------- ------
Total domestic interest-bearing deposits 95,053 1,562 3.31 83,859 1,492 3.59
Foreign interest-bearing deposits:/f/
Banks located in foreign countries 12,053 378 6.34 13,198 376 5.74
Governments and official institutions 10,350 291 5.67 10,990 291 5.34
Time, savings, and other 21,440 711 6.68 21,058 631 6.04
-------- ------ -------- ------
Total foreign interest-bearing deposits 43,843 1,380 6.35 45,246 1,298 5.78
-------- ------ -------- ------
Total interest-bearing deposits 138,896 2,942 4.27 129,105 2,790 4.36
Federal funds purchased 1,910 52 5.47 1,208 32 5.38
Securities sold under repurchase agreements 13,063 531 8.20 10,351 327 6.37
Other short-term borrowings 18,245 576 6.36 18,636 562 6.09
Long-term debt 13,792 498 7.28 15,162 520 6.92
-------- ------ -------- ------
Total interest-bearing liabilities 185,906 $4,599 4.99 174,462 $4,231 4.89
====== ======
Domestic noninterest-bearing deposits 31,697 36,914
Foreign noninterest-bearing deposits 1,445 1,723
Other noninterest-bearing liabilities 21,576 18,580
-------- --------
Total liabilities 240,624 231,679
Trust preferred securities/g/ 2,111 1,842
Stockholders' equity 19,661 20,097
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $262,396 $253,618
======== ========
Interest income as a percentage of average earning assets/e/ 8.07% 8.14%
Interest expense as a percentage of average earning assets/e/ (4.22) (4.00)
----- -----
NET INTEREST MARGIN/e/ 3.85% 4.14%
===== =====
- ------------------------------------------------------------------------------------------------------------------------------------
</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 39 percent for 1998 and 40 percent for 1997.
/c/ Average balances include nonaccrual assets.
/d/ Refer to the table on page 31 of the Balance Sheet Review section for more
detail on available-for-sale and held-to-maturity securities.
/e/ Certain amounts in prior periods have been reclassified to conform to the
presentation in the current year.
/f/ Primarily consists of time deposits in denominations of $100,000 or more.
/g/ 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.
25
<PAGE>
RESULTS OF OPERATIONS
================================================================================
NET INTEREST Taxable-equivalent net interest income for the second quarter and
INCOME the first six months of 1998 was $2,113 million and $4,214
million, respectively, down $103 million and $197 million from
the corresponding periods of 1997. The decrease primarily
resulted from sales of residential first mortgages, the effects
of credit card securizations and continued higher funding costs.
Excluding the effects of credit card securizations, taxable-
equivalent net interest income for the second quarter and six
months ended June 30, of 1998 would have decreased $11 million
and $42 million, respectively, from the comparable 1997 periods.
Average earning assets totaled $219.5 billion and $219.8 billion
in the second quarter and first six months of 1998, respectively,
up $3.9 billion and $6.2 billion from the same periods in 1997.
The increases were largely attributable to trading account assets
which rose $4.4 billion and $4.2 billion from the second quarter
and first six months of 1997, respectively. In addition,
securities purchased under resale agreements rose $1.2 billion
and $1.9 billion from the comparable 1997 periods.
BAC's net interest margin for the second quarter and first six
months of 1998 was 3.86 percent and 3.85 percent, respectively,
down 26 and 29 basis points from the comparable periods a year
ago. The yield on average earning assets decreased 11 and 7 basis
points from the second quarter and first six months of 1997,
respectively. The decrease was primarily due to lower prevailing
market rates and an increase in lower yielding assets. The cost
of funds for the second quarter of 1998 increased from the same
period a year ago primarily due to higher rates on securities
sold under repurchase agreements, and other short-term
borrowings.
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 by approximately
$25 million and $50 million in the second quarter and first six
months of 1998, respectively, compared with an approximate
decrease of $15 million and $35 million, respectively, in the
corresponding periods of 1997.
<PAGE>
================================================================================
NONINTEREST Noninterest income for the second quarter and first half of 1998
INCOME was $1,843 million and $3,656 million, respectively, representing
increases of $417 million and $860 million from the comparable
periods in 1997. These increases were due principally to growth
in fees and commissions, and other noninterest income.
================================================================================
NONINTEREST INCOME
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended
Second Quarter June 30
------------------- -------------------
(in millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEES AND COMMISSIONS
Deposit account fees:
Retail $ 253 $ 272 $ 504 $ 543
Commercial 104 89 191 178
Credit and other card fees 100 93 191 180
Trust fees 82 61 157 118
Other fees and commissions:
Loan fees and charges 195 152 361 286
Off-balance-sheet credit-related instrument fees 78 75 151 153
Financial services fees 111 56 193 94
Mutual fund and annuity commissions 31 26 54 52
Other 236 108 454 207
- ------------------------------------------------------------------------------------------------------------------
1,190 932 2,256 1,811
- ------------------------------------------------------------------------------------------------------------------
TRADING INCOME 119 218 370 406
- ------------------------------------------------------------------------------------------------------------------
OTHER NONINTEREST INCOME
Equity investment activities 125 98 315 204
Net gain on sales of loans 149 44 264 103
Net gain (loss) on available-for-sale debt securities 12 (1) 73 12
Net gain (loss) on sales of subsidiaries and operations (41) 27 (21) 40
Other income 289 108 399 220
- ------------------------------------------------------------------------------------------------------------------
534 276 1,030 579
- ------------------------------------------------------------------------------------------------------------------
$ 1,843 $ 1,426 $ 3,656 $ 2,796
- --------------------------------------------------------------====================================================
</TABLE>
Fees and commissions, the largest component of noninterest income,
for the second quarter and first six months of 1998 increased $258
million and $445 million, respectively, from the same periods a
year ago, reflecting BAC's continued focus on expanding its fee-
generating activities. Revenues earned from financial services fees
increased $55 million and $99 million for the second quarter and
first half of 1998, respectively, compared with the corresponding
periods in 1997. These increases were mainly attributable to higher
revenues from private placement and management services,
syndication and brokerage services, and the Robertson Stephens
businesses acquired during the fourth quarter of 1997. Loan fees
and charges, which are reported net of amortization expense and
valuation adjustments on servicing assets, increased $43 million
and $75 million for the second quarter and first six months of
1998, respectively, from the comparable periods a year ago. These
increases were primarily due to higher loan servicing fees from
growth in credit card securitizations, partially offset by higher
valuation adjustments on mortgage servicing assets. The growth in
the "other" component of other fees and commissions of $128 million
and $247 million for the second quarter and first half of 1998,
respectively, compared to the same periods in 1997, was largely
associated with the acquisition of the Robertson Stephens
businesses, resulting in higher revenues from investment banking
and underwriting fees as well as from brokerage commissions.
<PAGE>
================================================================================
Other noninterest income totaled $534 million and $1,030 million
in the second quarter and first half of 1998, respectively,
representing growth of $258 million and $451 million from the
second quarter and first half of 1997. The growth included higher
income related to net gain on sales of loans, equity investment
activities, and the "other" component of other noninterest
income. Net gain on sales of loans increased by $105 million and
$161 million for the second quarter and first half of 1998,
respectively, compared to the same periods in the prior year,
largely due to growth in sales of residential first mortgages and
securitizations of manufactured housing loans. Noninterest income
related to equity investment activities increased $27 million and
$111 million for the second quarter and first half of 1998,
respectively, compared to the same periods in 1997, primarily due
to higher realized gains on sales of equity investments. The
growth in the "other" component of other noninterest income of
$181 million and $179 million for the second quarter and first
half of 1998, respectively, compared to the same periods in 1997,
was mainly associated with an $84 million pre-tax gain on the
sale of Columbia Seafirst Center and a $56 million pre-tax gain
on leasing-related activities, that were recognized in the second
quarter of 1998. These increases were partially offset by
decreases in net gain on sales of subsidiaries and operations of
$68 million and $61 million in the second quarter and first half
of 1998, respectively, from the comparable periods in 1997. The
decrease was primarily attributable to a second-quarter 1998
pre-tax accrual of a $45 million estimated loss associated with
the decision to sell Robertson Stephens Investment Management.
The growth in noninterest income was partially offset by
decreases in trading income of $99 million and $36 million in the
second quarter and first half of 1998, respectively, compared to
the same periods in 1997. These decreases were mainly
attributable to volatility in emerging markets.
- --------------------------------------------------------------------------------
NONINTEREST Noninterest expense for the second quarter and first half of 1998
EXPENSE was $2,303 million and $4,591 million, respectively, representing
increases of $256 million and $511 million from the comparable
periods in 1997. These increases largely reflected higher
personnel expense and other noninterest expense.
Personnel expense, the largest component of noninterest expense,
increased $126 million and $327 million for the second quarter
and first half of 1998, respectively, from the same periods a
year ago. These increases were primarily associated with the
Robertson Stephens businesses acquired in the fourth quarter of
1997. In addition, these increases included higher variable pay
related to increased loan origination volumes. BAC's staff level
on a full-time equivalent (FTE) basis was approximately 77,100 at
June 30, 1998, down from approximately 77,400 at June 30, 1997.
FTE is a measurement equal to one full-time employee working a
standard work day. BAC had approximately 89,300 total employees,
both full-time and part-time, at June 30, 1998, down from
approximately 91,000 at June 30, 1997.
<PAGE>
================================================================================
Other noninterest expense was $741 million and $1,438 million in
the second quarter and first half of 1998, respectively,
representing increases of $112 million and $172 million from the
comparable periods in 1997. These increases were mainly due to
higher professional services fees and other expenses. The
increase in professional services fees was primarily due to
increases in outside legal and consulting services. In addition,
the growth in "other expense" from the second quarter and first
half of 1997 reflected modest increases in various expense
categories.
================================================================================
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
Second Quarter June 30
------------------------- -------------------------
(in millions) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PERSONNEL
Salaries $ 1,007 $ 873 $ 2,057 $ 1,712
Employee benefits 181 189 360 378
- ------------------------------------------------------------------------------------------------------------------------------------
1,188 1,062 2,417 2,090
- ------------------------------------------------------------------------------------------------------------------------------------
OCCUPANCY 195 183 386 369
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT 179 173 350 355
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER NONINTEREST EXPENSE
Professional services 134 82 246 157
Communications 98 96 195 189
Amortization of intangibles 90 89 181 180
Other expense 419 362 816 740
- ------------------------------------------------------------------------------------------------------------------------------------
741 629 1,438 1,266
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,303 $ 2,047 $ 4,591 $ 4,080
- -----------------------------------------------------------------------=============================================================
Full-time-equivalent staff at period end 77,100 77,400
Employees at period end 89,300 91,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR 2000 BAC's noninterest expense for the second quarter and six months
ended June 30, 1998 included approximately $66 million and $126
million, respectively, incurred in connection with ongoing
efforts to make its computer systems year 2000 compliant.
For additional information regarding the year 2000 issue, refer
to page 28 of BAC's 1997 Annual Report to Shareholders.
INCOME The provision for income taxes was $526 million and $540
TAXES million for the quarters ended June 30, 1998 and 1997,
respectively, reflecting forecasted annual effective income tax
rates of 38.2 percent and 40.3 percent, respectively.
For further information concerning BAC's provision for federal,
state, and foreign income taxes for the most recent five
quarters, refer to Note 8 of Notes to Consolidated Financial
Statements on page 9.
<PAGE>
BALANCE SHEET REVIEW
================================================================================
Interest-earning assets totaled $220 billion at June 30, 1998, up
$4 billion or 2 percent, from year-end 1997. Growth in
interest-earning assets, primarily federal funds sold, trading
account assets, and securities purchased under resale agreements,
was largely funded through increases in foreign interest-bearing
deposits, securities sold under repurchase agreements and other
short-term borrowings.
Total deposits at June 30, 1998 were $178 billion, an increase of
$6 billion from December 31, 1997. The growth was predominantly
attributable to a $4.3 billion increase in foreign
interest-bearing deposits as a result of BAC's continued
participation in selected global markets.
<PAGE>
================================================================================
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES - AVERAGE BALANCES, INTEREST,
AND AVERAGE RATES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Second Quarter 1998 Second Quarter 1997
------------------------------------------------------------- ------------------------------
Rate
Rate based on
based on amortized
(dollar amounts in millions) Balance/a/ Interest/b/ fair value/b/ cost/b/ Balance/a/ Interest/b/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities $ 1,013 $ 14 5.82% 5.84% $ 1,533 $ 26
Mortgage-backed securities 7,751 131 6.76 6.84 6,415 112
Other domestic securities 1,070 17 6.27 6.55 870 13
Foreign securities 2,569/c/ 52 8.09/d/ 7.87/d/ 2,459/c/ 49
- ------------------------------------------------------------------------------------------------------------------------------------
$12,403 $ 214 6.92% 6.95% $11,277 $ 200
- --------------------------------------==============================================================================================
<CAPTION>
- ----------------------------------------------------------------------
Second Quarter 1997
- ----------------------------------------------------------------------
Rate
Rate based on
based on amortized
(dollar amounts in millions) fair value/b/ cost/b/
- ----------------------------------------------------------------------
<S> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities 6.77% 6.61%
Mortgage-backed securities 6.97 6.91
Other domestic securities 5.94 6.53
Foreign securities 8.06/d/ 7.68/d/
- ----------------------------------------------------------------------
7.10% 7.02%
- --------------------------------------------==========================
</TABLE>
<TABLE>
<CAPTION>
Second Quarter 1998 Second Quarter 1997
-------------------------------------- --------------------------------------
(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 $ 67 $ 1 4.45% $ 10 $ -/e/ 5.87%
Mortgage-backed securities 1,747 32 7.40 2,062 39 7.49
State, county, and municipal securities 287 6 7.65 384 7 7.52
Other domestic securities 54 1 6.68 54 1 6.86
Foreign securities 1,355 23 6.93 1,408 26 7.34
- ------------------------------------------------------------------------------------------------------------------------------------
$3,510 $ 63 7.17% $3,918 $ 73 7.44%
- ------------------------------------------------------==============================================================================
<CAPTION>
Six Months Ended June 30
---------------------------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------------------------
Rate
Rate based on
based on amortized
(dollar amounts in millions) Balance/a/ Interest/b/ fair value/b/ cost/b/ Balance/a/ Interest/b/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities $ 1,148 $ 34 5.96% 6.06% $ 1,435 $ 48
Mortgage-backed securities 7,716 262 6.80 6.89 6,476 222
Other domestic securities 1,058 32 6.03 6.44 903 26
Foreign securities 2,687/c/ 105 7.88/d/ 7.71/d/ 2,622/c/ 107
- ------------------------------------------------------------------------------------------------------------------------------------
$12,609 $ 433 6.89% 6.96% $11,436 $ 403
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------
1997
- -----------------------------------------------------------------------
Rate
Rate based on
based on amortized
(dollar amounts in millions) fair value/b/ cost/b/
- -----------------------------------------------------------------------
<S> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury and other government
agency securities 6.70% 6.58%
Mortgage-backed securities 6.85 6.83
Other domestic securities 5.83 6.53
Foreign securities 8.23/d/ 7.90/d/
- -----------------------------------------------------------------------
7.07% 7.03%
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------------------
(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 $ 60 $ 1 3.89% $ 12 $ 1 5.99%
Mortgage-backed securities 1,793 67 7.43 2,095 78 7.47
State, county, and municipal securities 294 11 7.56 388 15 7.48
Other domestic securities 54 2 7.35 55 2 6.84
Foreign securities 1,365 48 7.09 1,463 63 8.74
- ------------------------------------------------------------------------------------------------------------------------------------
$3,566 $ 129 7.25% $4,013 $ 159 7.93%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 39% in 1998 and 40% in 1997.
/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.
31
<PAGE>
================================================================================
CREDIT CARD BAC has securitized and sold $5,621 million in credit card
SECURITIZATIONS receivables since mid-1996. The securitizations affect,
among other things, the manner and time period in which
revenue is reported in the consolidated statement of
operations. The amounts that would otherwise be included in
net interest income 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 securitizations of
credit card receivables on BAC's results of operations and
financial position as of June 30, 1998.
================================================================================
IMPACT OF CREDIT CARD SECURITIZATIONS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
------------------------------------------------
Including
Loans of Impact of
Credit Card Credit Card
(dollar amounts in millions) Securitizations Securitizations Reported
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS
Net interest income $ 4,431 $ (230)/a/ $ 4,201
Credit card fees 233 (42)/a/ 191
Other noninterest income 3,337 128 /a/ 3,465
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 8,001 (144)/a/ 7,857
Noninterest expense 4,591 -- 4,591
- ---------------------------------------------------------------------------------------------------------------------------
Income before provision for credit
losses and income taxes 3,410 (144)/a/ 3,266
Provision for credit losses 630 (155)/a b/ 475
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 2,780 $ 11 /a/ $ 2,791
- --------------------------------------------------------------------------------===========================================
NET INTEREST MARGIN 3.77% 0.08%/a/ 3.85%
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT PERIOD END
Credit card loans outstanding $ 10,772 $ (5,621)/c/ $ 5,151
Total assets 269,506 (5,621)/c/ 263,885
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET DATA
Credit card loans 10,432 (4,599)/c/ 5,833
Earning assets 224,424 (4,599)/c/ 219,825
Total assets 266,995 (4,599)/c/ 262,396
- ---------------------------------------------------------------------------------------------------------------------------
NET CREDIT LOSSES - CREDIT CARD PORTFOLIO 350 (155)/c/ 195
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Annualized ratio of net credit losses on credit card loans
to average credit card loans outstanding 6.75% (0.01)%/c/ 6.74%
Delinquent credit card loan ratio/d/ 4.33 (0.48) /c/ 3.85
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes the effects of accumulated credit card securitizations of $5,621
million at June 30, 1998.
/b/ Represents provision for credit losses applicable to the investor's share.
/c/ Includes the effects of accumulated credit card securitizations of $5,621
million at June 30, 1998, which includes a $500 million purchased credit
card portfolio.
/d/ 30 days or more past due.
32
<PAGE>
CREDIT RISK MANAGEMENT
================================================================================
LOAN PORTFOLIO Total loans at June 30, 1998 decreased $1.5 billion, or 1
MANAGEMENT percent, from year-end 1997. This decline was primarily in
the domestic consumer portfolio, which decreased by $5.7
billion, or 8 percent, from year-end 1997 due primarily to
increased securitizations of credit card receivables. This
decline was also reflected in most all domestic consumer
loan categories. Partially offsetting this decline were
increases in the domestic commercial and foreign loan
portfolios.
================================================================================
LOAN OUTSTANDINGS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997
---------------------- -----------------------------------
(in millions) June 30 March 31 Dec. 31 Sept. 30 June 30
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC
Consumer:
Residential first mortgages/b/ $ 31,600 $ 31,711 $ 33,295 $ 35,805 $ 37,163
Residential junior mortgages/b/ 12,561 12,920 13,301 13,389 13,700
Other installment 17,818 18,179 18,418 18,432 18,410
Credit card/a/ 5,151 5,680 6,697 7,050 7,624
Other individual lines of credit 955 1,833 1,937 1,939 1,961
Other 360 353 461 442 413
- -------------------------------------------------------------------------------------------------------------------------
68,445 70,676 74,109 77,057 79,271
Commercial:
Commercial and industrial/b/ 40,036 37,765 37,595 35,105 35,621
Loans secured by real estate 12,783 12,968 12,897 12,833 12,669
Financial institutions 3,724 3,571 3,485 3,452 2,947
Lease financing 2,767 2,861 2,892 2,700 2,809
Loans for purchasing or carrying securities 2,970 2,794 2,668 2,000 2,616
Construction and development loans
secured by real estate 2,434 2,350 2,206 2,257 2,262
Agricultural 1,651 1,641 1,824 1,774 1,560
Other 1,859 1,904 1,896 1,745 1,738
- -------------------------------------------------------------------------------------------------------------------------
68,224 65,854 65,463 61,866 62,222
- -------------------------------------------------------------------------------------------------------------------------
136,669 136,530 139,572 138,923 141,493
FOREIGN
Commercial and industrial 18,478 18,939 18,484 18,260 17,762
Banks and other financial institutions 4,533 3,815 3,904 4,295 4,818
Governments and official institutions 810 723 840 861 851
Other 6,131 5,513 5,304 5,670 5,237
- -------------------------------------------------------------------------------------------------------------------------
29,952 28,990 28,532 29,086 28,668
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 166,621 165,520 168,104 168,009 170,161
Less: Allowance for credit losses 3,517 3,517 3,500 3,504 3,563
- -------------------------------------------------------------------------------------------------------------------------
$163,104 $162,003 $164,604 $164,505 $166,598
- ---------------------------------------------------------================================================================
</TABLE>
/a/ Excludes outstanding securitized credit card receivables of $5,621 million
at June 30, 1998, $4,871 million at March 31, 1998, $3,621 million at
December 31, 1997, $2,971 million at September 30, 1997, and $2,221 million
at June 30, 1997.
/b/ Amounts in prior periods have been reclassified to conform to the current
presentation.
Domestic Consumer Loans -- Growth in residential first
mortgages during the second quarter of 1998 was more than
offset by the sale of $7.0 billion of mortgages from the
portfolio, resulting in a net decrease of $1.7 billion from
year-end 1997. The credit card loan portfolio decreased $1.5
billion from year-end 1997, substantially all due to the
securitization of credit card receivables.
33
<PAGE>
================================================================================
Domestic Commercial Loans -- Domestic commercial loans at
June 30, 1998 increased $2.8 billion, or 4.2 percent, from
year-end 1997, primarily reflecting strong growth in the
commercial and industrial loan category. The growth in
commercial and industrial loans reflected BAC's efforts to
diversify its market share as well as increased loan demand
from large corporate and middle market borrowers in various
industries throughout the United States.
Foreign Loans -- Foreign loans increased $1.4 billion from
its level at December 31, 1997. This growth was primarily
due to increases in lease financing and loans to banks and
other financial institutions.
================================================================================
DOMESTIC CONSUMER LOANS BY GEOGRAPHIC AREA AND LOAN TYPE AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Residential Residential
First Junior Manufactured Credit Other Total
(in millions) Mortgages Mortgages Housing Auto Card Consumer Consumer
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
California $22,033 $ 8,882 $ 789 $ 3,137 $ 1,155 $ 1,857 $37,853
Washington 1,367 1,631 302 1,857 1,092 755 7,004
Arizona 1,174 482 220 577 191 75 2,719
Texas 614 135 578 801 174 46 2,348
Oregon 778 428 130 221 189 85 1,831
Other/a/ 5,634 1,003 5,715 1,623 2,350 365 16,690
- -------------------------------------------------------------------------------------------------------------------------------
$31,600 $12,561 $ 7,734 $ 8,216 $ 5,151 $ 3,183 $68,445
- ------------------------------=================================================================================================
</TABLE>
/a/ No other state individually exceeded 2 percent of total domestic consumer
loans.
Delinquent domestic consumer loans 30 days or more past due
totaled $1,339 million at June 30, 1998, a decrease of $366
million from the December 31, 1997 level. The decrease was a
result of a lower level of delinquencies in all consumer
loan categories, primarily in credit card and other consumer
loans. At June 30, 1998, the delinquency ratio for
residential first mortgages decreased 15 basis points to
2.38 percent from the December 31, 1997 ratio in spite of a
decline in the outstanding balance due to sales and
prepayments.
================================================================================
DOMESTIC CONSUMER LOAN DELINQUENCY INFORMATION/a/
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1998 1997
--------------------------- --------------------------------------------
(dollar amounts in millions) June 30 March 31 Dec. 31 Sept. 30 June 30
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DELINQUENT CONSUMER LOANS
Residential first mortgages $ 752 $ 810 $ 844 $ 909 $ 907
Residential junior mortgages 109 119 138 122 144
Credit card 198 251 305 313 322
Other 280 304 418 391 352
- --------------------------------------------------------------------------------------------------------------------------
$ 1,339 $ 1,484 $ 1,705 $ 1,735 $ 1,725
- ------------------------------------------================================================================================
DELINQUENT CONSUMER LOAN RATIOS/b/
Residential first mortgages 2.38% 2.55% 2.53% 2.54% 2.44%
Residential junior mortgages 0.87 0.92 1.03 0.91 1.05
Credit card 3.85 4.42 4.56 4.43 4.23
Other 1.46 1.49 2.01 1.88 1.69
Total 1.96 2.10 2.30 2.25 2.18
- ------------------------------------------================================================================================
</TABLE>
/a/ 30 days or more past due.
/b/ Ratios represent delinquent balances expressed as a percentage of total
loans for that loan category.
34
<PAGE>
================================================================================
RECENT As anticipated, problems in several Asian economies persist.
INTERNATIONAL Indonesia has taken certain positive steps to correct its
DEVELOPMENTS problems but is expected to continue to experience a severe
decrease in its economic activity for the foreseeable
future. Nothing has yet occurred to alter management's view
that the problems of the Asian economies will require some
years to resolve. The recent nuclear tests in India and
Pakistan have added another complicating factor to the
region's situation. In addition, the economies of the world
are currently so interrelated that slow growth or recession
in a major country such as Japan has significant
implications for other countries that trade with it or, in
normal times, receive net positive loan and investment
proceeds from it.
The impact of any widespread downturn in economic activity
depends not only on the severity and geographic scope of the
downturn but also on its length. Many companies during these
times can survive and pay their debts but the more severe
the downturn is, and the longer it persists, the more
companies will have difficulty meeting their obligations.
This situation will have some effect on the repayment of
amounts owed to lenders, including BAC; however, the nature
and extent of this effect cannot presently be determined.
- --------------------------------------------------------------------------------
REGIONAL FOREIGN Through its credit and market risk management activities,
EXPOSURES BAC devotes special attention to those countries that have
been negatively impacted by increasing global economic
pressures. This includes special attention to those Pacific
Rim countries that are currently experiencing currency and
other economic problems. For more information concerning
risk management, refer to pages 44 through 49 of BAC's 1997
Annual Report to Shareholders.
In connection with its efforts to maintain a diversified
portfolio, BAC limits its exposure to any one geographic
region or country and monitors this exposure on a continuous
basis. The table on page 36 sets forth selected regional
foreign exposures of BAC as of June 30, 1998. Exposure
represents loans, securities, including restructured debt,
unrealized gains on derivative and foreign exchange
products, unused commitments, and other monetary assets.
The table on page 36 reflects gross local country claims, as
opposed to net local currency claims. Gross local country
claims represent claims of BAC's foreign offices on local
country residents, regardless of the currency. In addition,
gross local country claims and "Other" include derivative
products and unused commitments. The table portrays a
comprehensive picture of BAC's foreign exposures in the
regions presented.
35
<PAGE>
================================================================================
REGIONAL FOREIGN EXPOSURES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in millions)
June 30, 1998
------------------------------------------------------------------------------
Total
Total Cross-border Gross Local
REGION/COUNTRY Exposure/a/ Loans Country Claims/b/ Other/c/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASIA
China $ 494 $ 209 $ 102 $ 183
Hong Kong 5,131 74 4,744 313
India 2,231 317 1,630 284
Indonesia 713 259 233 221
Japan 3,199 201 1,487 1,511
Korea (South) 2,510 796 412 1,302
Malaysia 898 9 824 65
Pakistan 433 8 419 6
Philippines 585 216 173 196
Singapore 1,846 115 1,620 111
Taiwan 1,637 404 1,134 99
Thailand 1,232 130 854 248
Other 77 -- 77 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total 20,986 2,738 13,709 4,539
- ------------------------------------------------------------------------------------------------------------------------------------
CENTRAL AND EASTERN EUROPE
Russia Federation 412 84 12 316
Other 645 242 102 301
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,057 326 114 617
- ------------------------------------------------------------------------------------------------------------------------------------
LATIN AMERICA
Argentina 1,693 273 908 512
Brazil 2,541 1,064 1,039 438
Chile 1,924 1,254 578 92
Colombia 557 472 53 32
Mexico 3,895 1,916/d/ 486 1,493
Venezuela 568 129 83 356
Other 129 3 -- 126
- ------------------------------------------------------------------------------------------------------------------------------------
11,307 5,111 3,147 3,049
- ------------------------------------------------------------------------------------------------------------------------------------
Total $33,350 $ 8,175/e/ $16,970 $ 8,205
- -------------------------------------------------------=============================================================================
</TABLE>
/a/ Includes the following foreign assets: 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 unrealized gains on off-balance-sheet instruments, unused
commitments, and available-for-sale and held-to-maturity securities that
are collateralized by U.S. Treasury securities.
/b/ Represents claims of BAC's foreign offices on local country residents,
including trading account assets, derivative products, unused
commitments, and available-for sale and held-to-maturity securities
regardless of the currency.
/c/ Includes: accrued interest receivable, acceptances, interest-bearing
deposits in banks, trading account assets, other interest-earning
investments, other short-term monetary assets, unrealized gains on
off-balance-sheet instruments, unused commitments, and available-for-sale
and held-to-maturity securities, including securities that are
collateralized by U.S. Treasury securities as follows: Mexico - $1,058
million, Venezuela - $252 million, Philippines - $22 million, and Latin
America Other - $89 million. Held-to-maturity securities amounted to $1,117
million with a fair value of $1,062 million.
/d/ Includes a $30 million loan that is collateralized by zero-coupon U.S.
Treasury securities.
/e/ Amount includes nonaccrual loans of $325 million.
36
<PAGE>
================================================================================
SUMMARY OF TOTAL EXPOSURE WITH SOUTH KOREA
- --------------------------------------------------------------------------------
(in millions)
- --------------------------------------------------------------------------------
Balance, March 31, 1998 $2,885
Net change in short-term and long-term exposure (306)
New principal 373
Principal repayments (442)
- --------------------------------------------------------------------------------
Balance, June 30, 1998 $2,510
- --------------------------------------------------------------------------------
ALLOWANCE FOR The allowance for credit losses at June 30, 1998 was $3,517
CREDIT LOSSES million, or 2.11 percent of loans outstanding, compared with
$3,500 million, or 2.08 percent, at December 31, 1997. The
ratio of the allowance for credit losses to total nonaccrual
assets was 370 percent at June 30, 1998, down from 389
percent at December 31, 1997.
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, the Bank's credit officers
include results obtained from statistical models using
historical loan performance data.
After an allowance has been established for the loan
portfolio segments, credit management determines an
unallocated portion of the allowance for credit losses,
which is attributable to factors that cannot be associated
with a specific loan or portfolio segment. These factors
include general economic conditions, recognition of specific
regional and international geographic concerns, and trends
in portfolio growth. When events occur that allow credit
management to more clearly identify the risks in the
portfolio, the unallocated portion of the allowance for
credit losses may be reduced. The decline in the unallocated
portion in the quarters ended March 31, 1998 and December
31, 1997 reflected corresponding increases in the reserves
for specific portfolio segments, primarily in the foreign
component due to Asia and emerging markets globally. The
increase in the unallocated portion in the quarter ended
June 30, 1998 reflected corresponding decreases in the
reserves for specific portfolio segments, primarily in the
domestic consumer component, due to continued asset
securitization and sale activity.
================================================================================
COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997
--------------------- ----------------------------------
(in millions) June 30 March 31 Dec. 31 Sept. 30 June 30
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Special mention and classified:
Migration model benchmark $ 470 $ 476 $ 353 $ 318 $ 316
Qualitative credit management evaluation 737 629 592 398 370
- ---------------------------------------------------------------------------------------------------------------------
Total special mention and classified 1,207 1,105 945 716 686
Other:
Domestic consumer 1,218 1,350 1,432 1,469 1,523
Domestic commercial 291 286 282 279 262
Foreign 469 556 591 388 310
- ---------------------------------------------------------------------------------------------------------------------
Total allocated 3,185 3,297 3,250 2,852 2,781
Unallocated 332 220 250 652 782
- ---------------------------------------------------------------------------------------------------------------------
$3,517 $3,517 $3,500 $3,504 $3,563
- -------------------------------------------------------==============================================================
</TABLE>
37
<PAGE>
===============================================================================
QUARTERLY CREDIT LOSS EXPERIENCE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 Six Months Ended
------------------ ---------------------------- June 30
Second First Fourth Third Second ---------------------
(dollar amounts in millions) Quarter Quarter Quarter Quarter Quarter 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES
Balance, beginning of period $ 3,517 $ 3,500 $ 3,504 $ 3,563 $ 3,538 $ 3,500 $ 3,523
CREDIT LOSSES
Domestic consumer:
Residential first mortgages 3 4 3 4 7 7 14
Residential junior mortgages 6 9 11 10 13 15 26
Credit card 95 123 121 132 134 218 258
Other installment 87 107 107 99 85 194 189
Other individual lines of credit 20 23 24 21 22 43 43
Other 9 7 7 6 5 16 10
Domestic commercial:
Commercial and industrial 33 15 27 52 24 48 40
Loans secured by real estate 1 -- 17 3 2 1 3
Financial institutions -- -- -- -- -- -- --
Lease financing -- 1 3 1 -- 1 --
Construction and development loans secured by real estate 1 -- 1 5 -- 1 1
Loans for purchasing or carrying securities -- -- -- -- -- -- --
Agricultural -- -- 1 -- -- -- --
Foreign 57 39 51 4 9 96 11
- ------------------------------------------------------------------------------------------------------------------------------------
Total credit losses 312 328 373 337 301 640 595
CREDIT LOSS RECOVERIES
Domestic consumer:
Residential first mortgages -- -- 1 -- -- -- --
Residential junior mortgages 4 3 2 3 5 7 9
Credit card 11 12 9 10 10 23 19
Other installment 48 45 39 36 36 93 81
Other individual lines of credit 2 2 2 2 2 4 4
Other 2 2 2 1 1 4 2
Domestic commercial:
Commercial and industrial 10 7 15 6 5 17 21
Loans secured by real estate 1 1 3 1 2 2 4
Financial institutions -- -- 79 -- -- -- --
Lease financing -- -- -- 1 -- -- 1
Construction and development loans secured by real estate 1 -- 2 4 8 1 11
Loans for purchasing or carrying securities -- -- -- 4 -- -- --
Agricultural -- 1 -- 1 1 1 2
Foreign 3 16 5 9 7 19 13
- -----------------------------------------------------------------------------------------------------------------------------------
Total credit loss recoveries 82 89 159 78 77 171 167
- -----------------------------------------------------------------------------------------------------------------------------------
Total net credit losses 230 239 214 259 224 469 428
Provision for credit losses 230 245 220 260 250 475 470
Other net additions (deductions) -- 11 (10) (60)/a/ (1) 11 (2)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 3,517 $ 3,517 $ 3,500 $ 3,504 $ 3,563 $ 3,517 $ 3,563
- ------------------------------------------------------------========================================================================
ANNUALIZED RATIO OF NET CREDIT LOSSES (RECOVERIES)
TO AVERAGE LOAN OUTSTANDINGS
Domestic consumer:
Residential first mortgages 0.03% 0.05% 0.02% 0.05% 0.08% 0.04% 0.08%
Residential junior mortgages 0.09 0.17 0.23 0.22 0.25 0.13 0.27
Credit card 6.35 7.07 6.41 6.32 6.07 6.74 5.82
Other installment 0.86 1.36 1.48 1.35 1.08 1.11 1.22
Other individual lines of credit 4.00 4.49 4.61 3.99 3.98 4.25 3.94
Other 6.82 5.97 4.93 4.77 3.64 6.41 3.77
Domestic commercial:
Commercial and industrial 0.24 0.09 0.14 0.52 0.22 0.16 0.11
Loans secured by real estate 0.01 0.47 0.45 0.07 (0.01) 0.24 (0.03)
Financial institutions -- 0.01 (9.26) -- -- 0.01 --
Lease financing 0.01 0.06 0.45 -- -- 0.03 (0.05)
Construction and development loans secured by real estate (0.02) (2.86) (0.20) 0.20 (1.47) (1.40) (0.93)
Loans for purchasing or carrying securities -- (0.01) -- (0.71) -- -- --
Agricultural (0.11) (0.11) 0.05 (0.24) (0.12) (0.11) (0.20)
Total domestic 0.51 0.63 0.48 0.76 0.64 0.57 0.62
Foreign 0.74 0.33 0.65 (0.08) 0.04 0.54 (0.01)
TOTAL 0.55 0.58 0.51 0.62 0.54 0.57 0.52
RATIO OF ALLOWANCE TO LOANS AT PERIOD END 2.11 2.13 2.09 2.10 2.11 2.11 2.11
EARNINGS COVERAGE OF NET CREDIT LOSSES/b/ 7.18x 6.77x 7.17x 6.30x 7.08x 6.97x 7.28x
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Represents the deduction in the provision for credit losses related to the
sale of Security Pacific Financial Services.
/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.
38
<PAGE>
================================================================================
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES BY LOAN TYPE/a/
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, 1998 March 31, 1998
--------------------------------- -----------------------------
Percent Percent
of Loan of Loan
(dollar amounts in millions) Allowance Category Allowance Category
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic consumer:
Residential first mortgages $ 61 0.19% $ 78 0.24%
Residential junior mortgages 87 0.69 98 0.76
Credit card 320 6.22 373 6.56
Other consumer 749 3.92 801 3.93
Domestic commercial:
Commercial and industrial/b/ 528 1.18 538 1.27
Loans secured by real estate 180 1.41 184 1.42
Financial institutions 4 0.10 11 0.31
Lease financing 34 1.22 33 1.16
Construction and development loans
secured by real estate 52 2.13 50 2.12
Agricultural 22 1.36 22 1.36
Foreign 1,148 3.83 1,109 3.83
Unallocated 332 -- 220 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total $3,517 2.11% $3,517 2.13%
- --------------------------------------------------------==========================================================================
</TABLE>
/a/ Includes the allowance for credit losses on impaired loans of $158 million
and $171 million at June 30, 1998 and March 31, 1998, respectively. While
management has allocated this allowance to various portfolio segments, it is
general in nature and is available for the loan portfolio in its entirety.
/b/ Includes the allowance for credit losses for commercial and industrial
loans, loans for purchasing or carrying securities, and other commercial
loans.
Net credit losses for the second quarter of 1998 amounted to
$230 million, an increase of $6 million from the same period
a year ago. This increase was the result of increased net
credit losses in the foreign and domestic commercial
portfolios offset by decreases in the domestic consumer
portfolio. Foreign net credit losses for the second quarter
of 1998 increased $52 million from the comparable period in
1997 as a result of the ongoing financial problems in the
Asian economies.
In the domestic portfolios, domestic consumer net credit
losses for the second quarter of 1998 totaled $153 million,
a decrease of $59 million from the amount reported in the
second quarter of 1997. Domestic commercial net credit
losses for the second quarter of 1998 totaled $23 million,
an increase of $13 million from the comparable period in
1997.
39
<PAGE>
================================================================================
NONPERFORMING Nonperforming assets comprise assets that are on nonaccrual
ASSETS status and other real estate owned (OREO).
Total nonaccrual assets increased $52 million, or 6 percent,
between year-end 1997 and June 30, 1998. This increase
resulted from additional loans being placed on nonaccrual
status, primarily foreign loans, partially offset by a
decrease in domestic consumer and commercial and industrial
loans. The increase in foreign nonaccrual loans was
concentrated in Asia primarily due to the previously
discussed economic pressures in this area.
At June 30, 1998, the ratio of nonaccrual loans to total
loans was 0.57 percent, up from 0.53 percent at December 31,
1997. In addition, the ratio of nonperforming assets to
total assets increased slightly from year-end 1997 to 0.43
percent at June 30, 1998.
For further information concerning nonaccrual assets,
refer to the table below and on pages 41 and 42.
===============================================================================
ANALYSIS OF CHANGE IN NONACCRUAL ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997
--------------------------- -------------------------------------------
Second First Fourth Third Second
(in millions) Quarter Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of quarter $ 1,036 $ 899 $ 930 $ 861 $ 1,030
Additions:
Loans placed on nonaccrual status 166 290 127 244 103
Deductions:
Sales (38) (50) (18) (26) (103)
Restored to accrual status (43) (6) (34) (31) (38)
Foreclosures (18) -- -- -- (1)
Charge-offs (76) (38) (57) (47) (20)
Other, primarily payments (76) (59) (49) (71) (110)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF QUARTER $ 951 $ 1,036 $ 899 $ 930 $ 861
- ------------------------------------------------=============================================================================
</TABLE>
40
<PAGE>
================================================================================
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE AND
STILL ACCRUING INTEREST
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
----------------------- ---------------------------------------
(in millions) June 30 March 31 Dec. 31 Sept. 30 June 30
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NONACCRUAL ASSETS
Domestic consumer loans:
Residential first mortgages $ 301 $ 339 $ 345 $ 335 $ 318
Residential junior mortgages 32 35 43 41 54
Other consumer -- -- 5 2 1
Domestic commercial loans:
Commercial and industrial 144 203 150 188 203
Loans secured by real estate 67 90 104 136 120
Financial institutions -- 35 41 45 --
Lease financing 4 3 5 8 2
Construction and development loans secured by real estate 24 29 30 39 59
Agricultural 18 17 18 22 23
- ------------------------------------------------------------------=================================================================
590 751 741 816 780
Foreign loans, primarily commercial 358 282 156 114 81
Other interest-bearing assets 3 3 2 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 951 $1,036 $ 899 $ 930 $ 861
- ------------------------------------------------------------------=================================================================
RESTRUCTURED LOANS/a/
Domestic commercial:
Commercial and industrial $ -- $ 1 $ 5 $ 5 $ 18
Loans secured by real estate 219 222 265 268 268
Construction and development loans secured by real estate 32 34 3 11 15
Agricultural -- 1 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 251 $ 258 $ 274 $ 285 $ 302
- ------------------------------------------------------------------=================================================================
LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST
Domestic consumer:
Other consumer $ 124 $ 153 $ 189 $ 177 $ 190
Domestic commercial:
Commercial and industrial 4 4 7 12 15
Loans secured by real estate 6 4 4 4 7
Lease financing 2 1 -- -- --
Construction and development loans secured by real estate 1 1 -- 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
137 163 200 194 213
Foreign 21 8 3 3 1
Other interest-bearing assets 1 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 159 $ 171 $ 203 $ 197 $ 214
- ------------------------------------------------------------------=================================================================
</TABLE>
/a/ Excludes debt restructurings with countries that have experienced liquidity
problems of $1.4 billion at June 30, 1998, $1.4 billion at March 31, 1998,
$1.4 billion at December 31, 1997, $1.4 billion at September 30, 1997, and
$1.5 billion at June 30, 1997. The majority of these instruments was
classified as either available-for-sale or held-to-maturity securities.
41
<PAGE>
================================================================================
INTEREST INCOME FOREGONE ON NONACCRUAL ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended
(in millions) June 30, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
DOMESTIC
Interest income that would have been recognized had the assets
performed in accordance with their original terms $71
Less: Interest income included in the results of operations 23
- ------------------------------------------------------------------------------------------------------------------
Domestic interest income foregone 48
FOREIGN
Interest income that would have been recognized had the assets
performed in accordance with their original terms 20
Less: Interest income included in the results of operations 1
- ------------------------------------------------------------------------------------------------------------------
Foreign interest income foregone 19
- ------------------------------------------------------------------------------------------------------------------
Total $67
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE/a/
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
June 30, 1998
---------------------------------------------------------------------------------------
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 $ 301 $ -- $ -- $ 301 100%
Residential junior mortgages 32 -- -- 32 100
Other consumer -- -- -- -- --
Commercial:
Commercial and industrial 414 229 41 144 35
Loans secured by real estate 123 42 14 67 54
Financial institutions 3 2 1 -- --
Lease financing 4 -- -- 4 100
Construction and development
loans secured by real estate 42 16 2 24 57
Agricultural 27 4 5 18 69
- -------------------------------------------------------------------------------------------------------------------------------
946 293 63 590 62
FOREIGN, PRIMARILY COMMERCIAL 509 144 7 358 70
Other interest-bearing assets 4 1 -- 3 69
- -------------------------------------------------------------------------------------------------------------------------------
$1,459 $ 438 $ 70 $ 951 65%
- ---------------------------------------------==================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, 1998
----------------------------------------------------------------
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 $ 329 $ 10 $ -- $ 10
Residential junior mortgages 35 1 -- 1
Other consumer -- -- -- --
Commercial:
Commercial and industrial 183 5 7 12
Loans secured by real estate 85 3 1 4
Financial institutions 25 -- 2 2
Lease financing 4 -- -- --
Construction and development
loans secured by real estate 27 2 -- 2
Agricultural 18 2 1 3
- --------------------------------------------------------------------------------------------------------------
706 23 11 34
FOREIGN, PRIMARILY COMMERCIAL 277 1 2 3
Other interest-bearing assets 3 -- -- --
- --------------------------------------------------------------------------------------------------------------
$ 986 $ 24 $ 13 $ 37
- --------------------------------------------------============================================================
CASH YIELD ON AVERAGE TOTAL NONACCRUAL BOOK BALANCE 7.50%
- --------------------------------------------------------------------------------------------------------------
</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.
42
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
================================================================================
BAC uses interest rate, foreign exchange, equity, and credit
derivative financial instruments in both its trading and
asset and liability management activities. BAC uses
commodity derivative financial instruments solely in its
trading activities. Interest rate, foreign exchange, equity,
credit, 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, credit-related contracts, 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. At June
30, 1998, notional amounts for credit derivative financial
instruments used in asset and liability management
activities were insignificant.
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, financial or commodity indices,
and credit. Counter-parties to BAC's foreign exchange and
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, to meet management goals, by
efficiently managing the positions that result from these
transactions, and by making markets in a wide variety of
products.
In connection with BAC's own asset and liability management
activities, it primarily uses foreign exchange derivative
financial instruments to manage foreign exchange risk;
interest rate derivative financial instruments to manage the
interest rate risk associated with its assets and
liabilities, including residential loans, deposits, and
long-term debt; equity derivative financial instruments to
manage the price risk associated with fluctuations in the
fair value of marketable equity securities; and credit
derivative financial instruments to hedge credit risk.
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 risk of unexpected losses attributable to human error,
systems failures, fraud, or inadequate internal controls and
procedures); market risk (the potential of loss arising from
adverse changes in market rates and prices, such as interest
rates (interest rate risk), foreign currency exchange rates
(foreign exchange risk), commodity prices (commodity risk),
and prices of equity securities (equity risk)); 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 44
through 49 of BAC's 1997 Annual Report to Shareholders.
For additional information concerning interest rate, foreign
exchange, equity, credit, and commodity derivative financial
instruments, including their respective notional, credit
risk, and fair value amounts, refer to Note 11 of Notes to
Consolidated Financial Statements on pages 11 through 15.
43
<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 $64 billion at June 30, 1998, up $5 billion,
or 8 percent, from year-end 1997. The increase in liquid
assets was primarily attributable to increases in trading
account assets, securities purchased under resale agreements
and federal funds sold.
The ongoing operations of BAC resulted in cash inflows of
$6.6 billion and $5.9 billion for the first six months of
1998 and 1997, respectively, from deposits and short-term
borrowings. During the same periods, BAC's liquidity was
enhanced by proceeds from loan sales and securitizations,
totaling $6.9 billion and $3.6 billion, respectively. In
addition, for the first six months of 1998 and 1997, total
sales, maturities, prepayments, and calls of securities
exceeded total purchases, resulting in cash inflows of $582
million and $246 million for the six months ended June 30,
1998 and 1997, respectively.
Total loan originations and purchases exceeded total
principal collections, resulting in cash outflows of $6.2
billion and $7.3 billion for the first six months of 1998
and 1997, respectively. In addition, for the first six
months of 1998 and 1997, BankAmerica Corporation (the
Parent) paid dividends of $491 million and $494 million,
respectively, to its preferred and common stockholders.
During the same periods of 1998 and 1997, the Parent
repurchased common and redeemed preferred stock for a total
of $1,218 million and $1,582 million, respectively.
- --------------------------------------------------------------------------------
CAPITAL At June 30, 1998, total stockholders' equity amounted to
MANAGEMENT $20.0 billion, an increase of $202 million from year-end
1997. Common equity at June 30, 1998 was up $816 million
from December 31, 1997, due to earnings in excess of common
and preferred stock dividends of $1.2 billion and shares
issued in connection with restricted stock bonus plans and
other employee benefit related plans of $0.2 billion.
Partially offsetting these increases was a reduction of $0.6
billion due to repurchases of common stock in the first
quarter of 1998. At June 30, 1998, common equity equaled
total stockholders' equity due to the redemption of all
outstanding preferred stock as discussed below.
During the first three months of 1998, BAC repurchased 8.3
million shares of its common stock at an average price per
share of $72.62 reflecting the Corporation's ongoing efforts
to effectively manage capital. The shares were repurchased
on the open market over 54 trading days and represented
approximately 7 percent of the total volume of BAC common
stock traded on those days. There were no such repurchases
in the second quarter of 1998. For additional information
regarding the stock repurchase program, refer to Note 7 of
Notes to Consolidated Financial Statements on page 9.
The reduction in BAC's preferred stock to zero resulted from
the redemptions of all 5,178,000 outstanding shares of its
Cumulative Adjustable Preferred Stock, Series A and all
3,546,100 outstanding shares of its Cumulative Adjustable
Preferred Stock, Series B. For additional information
regarding the redemption of preferred stock refer to Note 7
of Notes to Consolidated Financial Statements on page 9.
During the first quarter of 1998, BAC issued trust preferred
securities totaling $339 million, net of $11 million of
deferred debt issuance costs. For additional information
regarding trust preferred securities, refer to Note 6 of
Notes to Consolidated Financial Statements on page 8.
44
<PAGE>
================================================================================
RISK-BASED CAPITAL, RISK-WEIGHTED ASSETS, AND RISK-BASED CAPITAL RATIOS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------------ ------------------------------------
(dollar amounts in millions) June 30/a,b/ March 31/a,b/ Dec. 31/a/ Sept. 30 June 30
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RISK-BASED CAPITAL
Common stockholders' equity $ 19,958 $ 19,204 $ 19,086 $ 18,970 $ 18,759
Qualified perpetual preferred stock -- 614 614 848 1,197
Minority interest/c/ 2,464 2,457 2,122 1,975 1,967
Less: Goodwill, nongrandfathered core deposit and
other identifiable intangibles, and other deductions/d/ (4,440) (4,511) (4,531) (4,632) (4,778)
- ----------------------------------------------------------------------------------------------------------------------------------
TIER 1 RISK-BASED CAPITAL 17,982 17,764 17,291 17,161 17,145
Eligible portion of the allowance for credit losses 3,052 2,971 2,879 2,822 2,791
Hybrid capital instruments -- 70 71 71 71
Subordinated notes and debentures 6,036 6,293 6,357 6,270 6,140
Less: Other deductions -- -- -- (205) (196)
- ----------------------------------------------------------------------------------------------------------------------------------
Tier 2 risk-based capital 9,088 9,334 9,307 8,958 8,806
Tier 3 risk-based capital -- -- NA NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
Total 27,070 27,098 26,598 26,119 25,951
Less: Investments in unconsolidated banking
and finance subsidiaries (45) (44) (44) (48) (50)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL $ 27,025 $ 27,054 $ 26,554 $ 26,071 $ 25,901
- -----------------------------------------------------------------=================================================================
RISK-WEIGHTED ASSETS
Balance sheet assets:
Trading account assets $ 9,286 $ 9,171 $ 6,826 $ 6,821 $ 6,846
Available-for-sale and held-to-maturity securities 5,680 5,499 5,103 4,703 3,358
Loans 141,866 140,931 142,044 140,158 139,457
Other assets 21,695 19,566 20,662 19,673 19,887
- ----------------------------------------------------------------------------------------------------------------------------------
Total balance sheet assets 178,527 175,167 174,635 171,355 169,548
- ----------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet items:
Unused commitments 31,552 30,973 31,567 31,070 30,089
Standby letters of credit 17,301 16,507 15,568 15,061 15,414
Foreign exchange and derivatives contracts 5,578 5,698 5,623 4,911 4,885
Other 2,783 2,603 2,312 2,260 2,213
- ----------------------------------------------------------------------------------------------------------------------------------
Total off-balance-sheet items 57,214 55,781 55,070 53,302 52,601
- ----------------------------------------------------------------------------------------------------------------------------------
Less: Covered positions/e/ (9,286) (9,171) NA NA NA
Add: Market risk equivalent assets/f/ 17,213 15,350 NA NA NA
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RISK-WEIGHTED ASSETS $243,668 $237,127 $229,705 $224,657 $222,149
- -----------------------------------------------------------------=================================================================
RISK-BASED CAPITAL RATIOS
TIER 1 CAPITAL RATIO 7.38% 7.49% 7.53% 7.64% 7.72%
TOTAL CAPITAL RATIO 11.09 11.41 11.56 11.60 11.66
LEVERAGE RATIO 7.00 6.86 6.81 7.17 7.22
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ Includes the capital and assets of the parent's Section 20 broker/dealer
subsidiary to reflect the Federal Reserve Board's (FRB) October 31, 1997
modifications to the risk-based capital regulations. Prior to December 31,
1997, amounts and ratios excluded the Section 20 subsidiary.
/b/ Includes the effect of market risk as required by the regulators effective
January 1, 1998.
/c/ Represents trust preferred securities and other minority interest of
$2,212 million and $252 million, respectively, at June 30, 1998, $2,212
million and $245 million, respectively, at March 31, 1998, $1,873 million
and $249 million, respectively, at December 31, 1997, $1,873 million and
$102 million, respectively, at September 30, 1997, and $1,873 million and
$94 million, respectively, at June 30, 1997.
/d/ Includes nongrandfathered core deposit and other identifiable intangibles
acquired after February 19, 1992 of $604 million and $70 million,
respectively, at June 30, 1998, $619 million and $70 million,
respectively, at March 31, 1998, $636 million and $73 million,
respectively at December 31, 1997, $688 million and $59 million,
respectively, at September 30, 1997, and $705 million and $63 million,
respectively, at June 30, 1997. Also includes $26 million at June 30,
1998, $32 million at March 31, 1998, and $18 million at June 30, 1997 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 December
31, 1997 and September 30, 1997.
/e/ Includes balance sheet trading account assets.
/f/ Represents the mathematical measure for market risk for off-balance-sheet
items.
NA Not applicable.
45
<PAGE>
================================================================================
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 June 30, 1998
decreased 15 basis points and 47 basis points, respectively,
from year-end 1997. The decreases resulted primarily from an
increase in risk-weighted assets which includes the effects
of the new market risk requirement as required by the
banking regulators effective January 1, 1998, partially
offset by the increase in Tier 1 capital. Tier 1 capital
increased due to the issuance of $339 million of trust
preferred securities and an increase in retained earnings.
This increase was partially offset by the redemption of all
remaining shares of preferred stock including Preferred
Stock, Series A, of $259 million and Preferred Stock, Series
B, of $355 million, and also by repurchases of common stock
of $600 million in the first quarter of 1998. Total capital
decreased slightly due to the required disqualification of
certain subordinated debt as Tier 2 capital as it reaches
maturity. Risk-weighted assets increased by $14 billion
primarily due to the new market risk requirement and an
increase in standby letters of credit. Comparing the new
market risk requirement to the previous method of
calculation, Tier 1 and total risk-based capital ratios at
June 30, 1998 decreased by 25 basis points and 34 basis
points, respectively. BAC's leverage ratio was 7.00 percent
at June 30, 1998, 19 basis points higher than the 6.81
percent reported at December 31, 1997, primarily due to the
net effect of the increase in BAC's Tier 1 capital as
discussed above and an increase in quarterly average assets.
FORWARD-LOOKING STATEMENTS
================================================================================
This report contains forward-looking statements, usually
containing the words "estimate," "project," "expect,"
"objective," "goal," or similar expressions. Those
statements are subject to uncertainties, including those
discussed in this report, particularly in Recent
International Developments on page 35. These uncertainties
could cause actual results to differ materially. Readers are
cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date
hereof. Readers should also consider information on risks
and uncertainties contained in the discussions of
competition, supervision and regulation, and forward-looking
statements in BAC's most recent report on Form 10-K.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
================================================================================
For information concerning BAC's quantitative and
qualitative disclosures about market risk, refer to pages 45
through 47 of BAC's 1997 Annual Report to Shareholders.
46
<PAGE>
PART II - OTHER INFORMATION
================================================================================
ITEM 2. The description of a certain option granted by BankAmerica
CHANGES IN Corporation to NationsBank Corporation in connection with
SECURITIES AND the proposed merger of the two entities is incorporated
USE OF PROCEEDS by reference to the section entitled "THE MERGER--
NationsBank and BankAmerica Stock Option Agreements" in the
joint proxy statement-prospectus of the Parent, dated August
4, 1998 (File No. 1-7377). The Parent issued the option in
reliance on the exemption in Section 4(2) of the Securities
Act of 1933.
- --------------------------------------------------------------------------------
ITEM 4. Set forth below is information concerning each matter
SUBMISSION OF submitted to a vote at the Parent's Annual Meeting of
MATTERS TO VOTE Shareholders on May 21, 1998 ("Annual Meeting"):
OF SECURITY HOLDERS
Directors: Each of the following persons was elected as a
---------
director of the Parent, to hold office until the 1999 Annual
Meeting of Shareholders or until earlier retirement,
resignation or removal.
Number of Voters
----------------
Director's Name For Against
--------------- ----------- ---------
Joseph Alibrandi 566,780,130 3,217,082
Peter Bedford 566,756,974 3,294,238
Richard Clarke 566,869,280 3,181,932
David Coulter 566,886,480 3,164,732
Timm Crull 566,889,861 3,161,351
Kathleen Feldstein 566,910,797 3,140,415
Donald Guinn 566,935,237 3,115,975
Frank Hope, Jr. 566,745,777 3,305,435
Walter Massey 566,911,415 3,139,797
Richard Rosenberg 566,594,665 3,456,547
Michael Spence 566,894,152 3,157,060
Solomon Trujillo 566,864,346 3,186,866
Shirley Young 566,736,455 3,314,757
Auditors: The shareholders ratified the appointment of Ernst
--------
& Young LLP as Independent Auditors
<TABLE>
<CAPTION>
Number of Voters
----------------
For Against Abstentions
----------- --------- -----------
<S> <C> <C> <C>
Ernst & Young LLP as 567,583,754 1,283,073 1,184,386
Independent Auditors
</TABLE>
47
<PAGE>
================================================================================
ITEM 5. SHAREHOLDER PROPOSALS
OTHER INFORMATION
The Parent and NationsBank Corporation have announced a
proposal to merge into a new Delaware corporation which is
expected to occur by September 30, 1998.
The Parent will hold a 1999 Annual Meeting of the Parent's
shareholders only if the merger is not consummated before
the time of such meeting. In the event that such a meeting
is held, any proposals of the Parent's shareholders
submitted for inclusion in the proxy material for that
Annual Meeting must have been received by the Secretary of
the Parent no later than November 23, 1998 in order to be
considered for inclusion in the Parent's 1999 proxy
materials. The Parent's bylaws contain the requirements that
must be met before a shareholder may recommend someone as a
director or raise business from the floor of a shareholders'
meeting. Shareholders must give the Parent's Corporate
Secretary 90 to 120 days' notice prior to the meeting of the
nomination or business intended to be raised. (For further
information, see the Parent's Proxy Statement dated March
23, 1998 under "CORPORATE LEADERSHIP AND GOVERNANCE--HOW TO
NOMINATE DIRECTORS OR RAISE BUSINESS AT SHAREHOLDERS'
MEETINGS," and "OTHER MATTERS--SUBMISSION OF SHAREHOLDER
PROPOSALS FOR 1999 MEETING").
If the merger is consummated the advance notice provision in
the successor corporation's bylaws will apply. The
successor corporation's bylaws currently provide that any
shareholder proposal to be raised from the floor and that is
not submitted for inclusion in the Corporation's proxy
materials must be received by the secretary of that
corporation no later than 75 days before the date that the
corporation mailed its proxy materials for its previous
annual meeting.
- --------------------------------------------------------------------------------
ITEM 6. (a) Exhibits:
EXHIBITS AND
REPORTS ON Exhibit
FORM 8-K Number Exhibit
------ -------
2 Agreement and Plan of Reorganization by and
between BankAmerica Corporation and NationsBank
Corporation dated as of April 10, 1998
(incorporated by reference to Appendix A to Joint
Proxy Statement-Prospectus of BankAmerica
Corporation dated August 4, 1998 (File No. 1-7377)
("Merger Proxy"))
4 Stock Option Agreement dated April 10, 1998,
between BankAmerica Corporation, a Delaware
corporation as issuer and NationsBank Corporation,
a North Carolina corporation as grantee
(incorporated by reference to Appendix C to Merger
Proxy)
10 Letters to Eugene Lockhart dated May 6, 1998 and June
19, 1998 regarding severance arrangements
12 Ratio of Earnings to Fixed Charges and Earnings to
Fixed Charges and Preferred Stock Dividends
27 Financial Data Schedule
48
<PAGE>
================================================================================
(b) Reports on Form 8-K:
During the second quarter of 1998, the Parent filed reports
on Form 8-K dated April 10, 1998 (as amended by Amendment
Nos. 1 and 2) and April 15, 1998. The April 10 report
disclosed, pursuant to Item 5 of the report, that Parent and
NationsBank Corporation entered into an Agreement and Plan
of Reorganization on April 10, 1998. The April 10 report, as
amended by Amendment Nos. 1 and 2, filed under Item 7
certain financial statements previously filed by
NationsBank.
The April 15 report filed, pursuant to Items 5 and 7 of the
report, a copy of the Parent's press release titled
"BankAmerica First Quarter Earnings."
After the second quarter of 1998, the Parent filed a report
on Form 8-K dated July 15, 1998. 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."
49
<PAGE>
[BankAmerica Logo appears here]
BankAmerica Corporation
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 9/97 [Recycled Recycled
Paper Paper
logo
appears
here]
<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 of the Board and
Chief Financial Officer
August 13, 1998
By Chief Accounting Officer and
Duly Authorized Signatory:
/S/ JOHN J. HIGGINS
---------------------------------
JOHN J. HIGGINS
Executive Vice President and
Chief Accounting Officer
August 13, 1998
<PAGE>
Exhibit 10
LOGO
Bank of America John R. Cammidge
Executive Vice President
May 6, 1998
Eugene Lockhart
Dear Gene:
This letter should respond to the questions you recently raised with Kathi Burke
and Brad Comp. Kathi asked me to follow-up on the questions and reply to you and
Brad during her absence on vacation. Hopefully, I have answered everything
clearly and comprehensively, but if not, please let me know. The letter includes
information on how certain of your benefits are affected by the change in
control. Of course, the original documents under which these benefits are
provided will govern.
Cash Compensation
- -----------------
In return for your availability for assistance during the pre-merger transition
period, your monthly base salary of $70,833.33 will be paid through the day
after the day in which the change in control occurs.
The severance pay of $7.8 million under a change in control is 300% of your
annual salary and bonus, payable within 30 days after date of termination.
The 1998 prorated bonus is calculated by dividing the number of days in the
current year through your termination date by 365. Assuming that you will remain
on payroll until October 2, 1998, the prorated bonus would be at least
$1,318,493, payable at the customary time for the annual bonus. This bonus is
deferrable under the Deferred Compensation Plan if you elect to do so. You will
be receiving election materials later this year.
Stock Related Issues
- --------------------
Your restricted stock units vest on the change in control and are assessed for
taxes using the fair market value of the shares on the day after your employment
ends. Upon payment of income taxes, the stock will be released to you either in
book entry form or as a stock certificate.
Your Premium Price Options will all vest and be exercisable through the
remainder of the term of the award (May 22, 2007). Your market price options are
exercisable for three years following termination of employment. Unfortunately,
the gain on exercise of these options cannot be deferred under the Stock Option
Gain Deferral Program. The program requires that at the time of the election
that the option grant be fully vested and that the election deferral be
submitted 180 days prior to the exercise of the option.
You may elect to cancel your Premium Price Options and to exercise your Limited
Stock Appreciation Rights (LSARs). Either all or a portion of each tranche of
the LSARs can be exercised for a 60 day period commencing on the date of the
change in control. The gain will be paid out in company stock.
<PAGE>
Excise Tax
- ----------
BAC will contract with a third party to calculate the excise taxes. BAC has an
obligation to withhold taxes from all payments to employees. For example, upon
payment of the severance package, excise taxes will be both withheld and
reimbursed to you concurrently. Excise taxes are payable on all other cash
disbursements associated with your termination, release of restricted stock, and
an assessment will be made on the accelerated value of your vested stock
options.
Financial Counseling
- --------------------
The change in control agreement provides for financial counseling through
December 31, 1999, including tax preparation for the fiscal year 1999. It is
expected that 1999 tax preparation and filings will be completed by mid 2000.
Health Benefits
- ---------------
COBRA is available and continues for 18 months from the date of termination. The
change in control agreement provides for a payment equal to three times the
current annual contribution provided by the Company for your medical, dental,
long term disability, life and accidental death and dismemberment insurance.
Long-term care will be discontinued at termination, although you may elect to
continue coverage by contacting John Hancock directly within 31 days of
termination.
Relocation Expense
- ------------------
BAC will pay up to a total of $1.1 million to cover your relocation expenses and
any associated tax gross-up paid by BAC, provided you use the relocation company
designated by BAC for the sale of your home in San Francisco.
Gene, please note that all of the foregoing are subject to your signing the
release provided under your change in control agreement and are subject to the
other terms of the change in control agreements. Finally, I hope that I have
answered all of your questions. For further assistance, either you or Brad Comp
can call me at (415) 241-3210 or Paula Evangelou may be contacted on (415) 241-
7686.
Sincerely,
/s/John Cammidge
John Cammidge
cc: Brad Comp
<PAGE>
Exhibit 10 cont'd
LOGO
Bank of America John R. Cammidge
Executive Vice President
June 19, 1998
Eugene Lockhart
Dear Gene,
Sorry for the delay in getting back to you. Hopefully by now you have a copy of
the release documentation, that must not be signed until after your resignation
date, associated with the change in control agreement.
I also understand from Cherie Sorokin that she needs a copy of your signed
resignation letter (copy enclosed). Further, she tells me that before you sign
the resignation letter, you have requested clarification regarding severance pay
if the BAC/NationsBank merger agreement is terminated and you resign effective
at that time.
On behalf of Kathi Burke and Dave Coulter, I am confirming that in this event,
following the effective date of your resignation, the three year severance pay
formula described in the change in control agreement would be used to calculate
your severance pay, not the formula set forth in the March 4, 1997 offer letter.
This would result in a payment to you of the gross sum of $7.8 million, less
applicable deductions. (Of course, your monthly base salary will be paid through
the resignation date.) In a similar fashion, you will receive a prorated bonus
for 1998 using the formula provided for in the change in control agreement. This
bonus is deferrable under the Deferred Compensation Plan if you elect to defer
some or all of this prorated bonus during the annual Deferred Compensation
election period.
In addition, subject to approval of the Executive Personnel and Compensation
Committee of the BAC Board of Directors and consistent with your March 4, 1997
offer letter, (i) your unvested restricted stock units will vest upon your
termination of employment and all of your restricted stock units will be
payable, (ii) your market price stock options will become immediately
exercisable in full upon your termination of employment and will remain
exercisable for three years after employment ends, and (iii) 100 percent of the
third tranche of your Performance Equity Program premium price options will
remain in effect after your employment ends. All of your premium price options
would remain in effect for five years after your employment ends, although none
could be exercised until three years after the original grant date. (The third
tranche would still have to meet the price threshold to become exercisable.)
Receipt of the consideration described above would be contingent on your signing
release documentation that is similar to the release documentation referred to
above. For your information, this letter and my earlier letter to you of May 6,
1998 or the data in those letters, may need to be disclosed in SEC or other
filings and to the shareholders.
If the above is satisfactory to you, please return the signed resignation letter
to Cherie Sorokin at Corporate Secretary's Office #13018, BankAmerica
Corporation, P.O. Box 37000, San Francisco, CA 94137. If it is not satisfactory
to you, please call me at (415) 241-3210.
Sincerely,
/s/John Cammidge
Enclosure
153186
<PAGE>
Exhibit 12
Page 1 of 2
BANKAMERICA CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
----------------------- ---------------------------------------------------------
(dollar amounts in millions) 1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Fixed charges:
Interest expense (other than interest
on deposits) $1,657 $1,441 $ 2,995 $ 2,713 $ 2,455 $1,505 $1,215
Interest payments on trust preferred
securities (see footnote (a)) 80 70 143 7 - - -
Interest factor in rent expense 63 61 122 125 120 109 112
Other 1 1 2 - - 3 2
----------------------- ---------------------------------------------------------
$1,801 $1,573 $ 3,262 $ 2,845 $ 2,575 $1,617 $1,329
======================= =========================================================
Earnings:
Income from operations $1,725 $1,579 $ 3,210 $ 2,873 $ 2,664 $2,176 $1,954
Applicable income taxes 1,066 1,066 2,116 1,900 1,903 1,541 1,474
Fixed charges 1,801 1,573 3,262 2,845 2,575 1,617 1,329
Other (19) (27) (51) (9) (12) (55) (39)
----------------------- ---------------------------------------------------------
$4,573 $4,191 $ 8,537 $ 7,609 $ 7,130 $5,279 $4,718
======================= =========================================================
RATIO OF EARNINGS TO FIXED CHARGES,
EXCLUDING INTEREST ON DEPOSITS 2.54 2.66 2.62 2.67 2.77 3.26 3.55
INCLUDING INTEREST ON DEPOSITS
Fixed charges:
Interest expense $4,599 $4,231 $ 8,788 $ 8,072 $ 7,378 $4,842 $4,186
Interest payments on trust preferred
securities (see footnote (a)) 80 70 143 7 - - -
Interest factor in rent expense 63 61 122 125 120 109 112
Other 1 1 2 - - 3 2
----------------------- ---------------------------------------------------------
$4,743 $4,363 $ 9,055 $ 8,204 $ 7,498 $4,954 $4,300
======================= =========================================================
Earnings:
Income from operations $1,725 $1,579 $ 3,210 $ 2,873 $ 2,664 $2,176 $1,954
Applicable income taxes 1,066 1,066 2,116 1,900 1,903 1,541 1,474
Fixed charges 4,743 4,363 9,055 8,204 7,498 4,954 4,300
Other (19) (27) (51) (9) (12) (55) (39)
----------------------- ---------------------------------------------------------
$7,515 $6,981 $14,330 $12,968 $12,053 $8,616 $7,689
======================= =========================================================
RATIO OF EARNINGS TO FIXED CHARGES,
INCLUDING INTEREST ON DEPOSITS 1.58 1.60 1.58 1.58 1.61 1.74 1.79
</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
Page 2 of 2
BANKAMERICA CORPORATION
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Six Months Ended
June 30 Year Ended December 31
--------------------- ----------------------------------------------------
(dollar amounts in millions) 1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EXCLUDING INTEREST ON DEPOSITS
Fixed charges and preferred dividends:
Interest expense (other than interest
on deposits) $1,657 $1,441 $ 2,995 $ 2,713 $ 2,455 $1,505 $1,215
Interest payments on trust preferred
securities (see footnote (a)) 80 70 143 7 - - -
Interest factor in rent expense 63 61 122 125 120 109 112
Preferred dividend requirements
(see footnote (b)) 31 107 166 307 389 424 423
Other 1 1 2 - - 3 2
--------------------- ----------------------------------------------------
$1,832 $1,680 $ 3,428 $ 3,152 $ 2,964 $2,041 $1,752
===================== ====================================================
Earnings:
Income from operations $1,725 $1,579 $ 3,210 $ 2,873 $ 2,664 $2,176 $1,954
Applicable income taxes 1,066 1,066 2,116 1,900 1,903 1,541 1,474
Fixed charges, excluding preferred
dividend requirements 1,801 1,573 3,262 2,845 2,575 1,617 1,329
Other (19) (27) (51) (9) (12) (55) (39)
--------------------- ----------------------------------------------------
$4,573 $4,191 $ 8,537 $ 7,609 $ 7,130 $5,279 $4,718
===================== ====================================================
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED DIVIDENDS, EXCLUDING INTEREST ON DEPOSITS 2.50 2.49 2.49 2.41 2.41 2.59 2.69
INCLUDING INTEREST ON DEPOSITS
Fixed charges and preferred dividends:
Interest expense $4,599 $4,231 $ 8,788 $ 8,072 $ 7,378 $4,842 $4,186
Interest payments on trust preferred
securities (see footnote (a)) 80 70 143 7 - - -
Interest factor in rent expense 63 61 122 125 120 109 112
Preferred dividend requirements
(see footnote (b)) 31 107 166 307 389 424 423
Other 1 1 2 - - 3 2
--------------------- ----------------------------------------------------
$4,774 $4,470 $ 9,221 $ 8,511 $ 7,887 $5,378 $4,723
===================== ====================================================
Earnings:
Income from operations $1,725 $1,579 $ 3,210 $ 2,873 $ 2,664 $2,176 $1,954
Applicable income taxes 1,066 1,066 2,116 1,900 1,903 1,541 1,474
Fixed charges, excluding preferred
dividend requirements 4,743 4,363 9,055 8,204 7,498 4,954 4,300
Other (19) (27) (51) (9) (12) (55) (39)
--------------------- ----------------------------------------------------
$7,515 $6,981 $14,330 $12,968 $12,053 $8,616 $7,689
===================== ====================================================
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED DIVIDENDS, INCLUDING INTEREST ON DEPOSITS 1.57 1.56 1.55 1.52 1.53 1.60 1.63
</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 pre-tax earnings necessary
to cover preferred stock dividends declared during the six months ended
June 30, 1998 and 1997 and the years ended December 31, 1997, 1996, 1995,
1994, and 1993 of $19 million, $64 million, $100 million, $185 million,
$227 million, $248 million, and $241 million, respectively.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998
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
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES BY LOAN TYPE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-Q FILING.
Any item provided in the schedule, in accordance with the rules governing the
schedule, will not be subject to liability under The Federal Securities Laws,
except to the extent that the financial statements and other information from
which the data were extracted violate The Federal Securities Laws. Also,
pursuant to Item 601(c)(1)(iv) of Regulation S-K promulgated by the Securities
And Exchange Commission (SEC), the schedule shall not be deemed filed for
purposes of Section 11 of The Securities Act of 1933, Section 18 of the Exchange
Act of 1934 and Section 323 of The Trust Indenture Act, or otherwise be subject
to the liabilities of such sections, nor shall it be deemed a part of any
registration statement to which it relates.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 14,053
<INT-BEARING-DEPOSITS> 5,566
<FED-FUNDS-SOLD> 12,220
<TRADING-ASSETS> 19,314
<INVESTMENTS-HELD-FOR-SALE> 12,574
<INVESTMENTS-CARRYING> 3,420
<INVESTMENTS-MARKET> 3,419
<LOANS> 166,621
<ALLOWANCE> 3,517
<TOTAL-ASSETS> 263,885
<DEPOSITS> 178,094
<SHORT-TERM> 29,696
<LIABILITIES-OTHER> 22,535<F1>
<LONG-TERM> 13,521<F2>
0
0
<COMMON> 1,210
<OTHER-SE> 18,829
<TOTAL-LIABILITIES-AND-EQUITY> 263,885
<INTEREST-LOAN> 6,755
<INTEREST-INVEST> 558
<INTEREST-OTHER> 1,487<F3>
<INTEREST-TOTAL> 8,800
<INTEREST-DEPOSIT> 2,942
<INTEREST-EXPENSE> 4,599
<INTEREST-INCOME-NET> 4,201
<LOAN-LOSSES> 475
<SECURITIES-GAINS> 73
<EXPENSE-OTHER> 4,591
<INCOME-PRETAX> 2,791
<INCOME-PRE-EXTRAORDINARY> 2,791
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,725
<EPS-PRIMARY> 2.49<F4>
<EPS-DILUTED> 2.41
<YIELD-ACTUAL> 3.85
<LOANS-NON> 948
<LOANS-PAST> 158
<LOANS-TROUBLED> 253
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,500
<CHARGE-OFFS> 640
<RECOVERIES> 171
<ALLOWANCE-CLOSE> 3,517
<ALLOWANCE-DOMESTIC> 2,037
<ALLOWANCE-FOREIGN> 1,148
<ALLOWANCE-UNALLOCATED> 332
<FN>
<F1>INCLUDES TRUST PREFERRED SECURITIES OF $2,212 MILLION.
<F2>INCLUDES SUBORDINATED CAPITAL NOTES OF $352 MILLION.
<F3>INCLUDES INTEREST INCOME ON TRADING ACCOUNT ASSETS OF $770 MILLION.
<F4>EPS-Basic.
</FN>
</TABLE>
