-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MZpfr8a+monMEhjVh9Pzuom6dFWbMHFYwcFwDKuVkg3Cp9U0H5aWzhlSLuGDT9Xu skqZYn+1uh1+R/h732ZeIA== 0000927016-96-000268.txt : 19960517 0000927016-96-000268.hdr.sgml : 19960517 ACCESSION NUMBER: 0000927016-96-000268 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK OF BOSTON CORP CENTRAL INDEX KEY: 0000036672 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 042471221 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06522 FILM NUMBER: 96565966 BUSINESS ADDRESS: STREET 1: 100 FEDERAL ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174342200 FORMER COMPANY: FORMER CONFORMED NAME: FIRST NATIONAL BOSTON CORP DATE OF NAME CHANGE: 19830414 10-Q 1 QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission file number 1-6522 BANK OF BOSTON CORPORATION (Exact name of Registrant as specified in its charter) Massachusetts 04-2471221 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Federal Street, Boston, Massachusetts 02110 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (617) 434-2200 Former name, former address and former fiscal year, if changed since last report: Not applicable 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 April 30, 1996: Common Stock, $1.50 par value 110,835,158 BANK OF BOSTON CORPORATION -------------------------- TABLE OF CONTENTS ----------------- Page CONSOLIDATED SELECTED FINANCIAL DATA 3 PART I - FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements ------- Bank of Boston Corporation and Subsidiaries Consolidated Balance Sheet 4 Consolidated Statement of Income 6 Consolidated Statement of Changes in Stockholders' Equity 7 Consolidated Statement of Cash Flows 8 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition ------- and Results of Operations 13 PART II - OTHER INFORMATION - --------------------------- Item 1. Legal Proceedings 33 ------- Item 4. Submission of Matters to a Vote of Security Holders 33 ------- Item 6. Exhibits and Reports on Form 8-K 35 ------- Signatures 36 LIST OF TABLES Consolidated Average Balance Sheet - Nine Quarters 28 Consolidated Statement of Income - Nine Quarters 29 Average Balances and Interest Rates - Quarter 30 Change in Net Interest Revenue - Volume and Rate Analysis 32 2 BANK OF BOSTON CORPORATION Consolidated Selected Financial Data (dollars in millions, except per share amounts)
Quarters Ended March 31 1996 1995 ------- ------ Income Statement Data: Net interest revenue $ 434 $ 426 Provision for credit losses 50 90 Noninterest income 226 293 Noninterest expense 405 383 Net income 117 125 Per common share: Primary .97 1.08 Fully diluted .95 1.04 Market value per common share: High 50 30 3/8 Low 41 5/8 25 5/8 At March 31 Balance Sheet Data: Loans and lease financing $ 31,402 $ 30,439 Total assets 46,457 43,462 Deposits 31,235 28,275 Total stockholders' equity 3,711 3,328 Book value per common share 28.98 25.36 Regulatory capital ratios Risk-based capital ratios Tier 1 8.1% 7.8% Total 12.9 13.3 Leverage ratio 7.2 7.3
3 BANK OF BOSTON CORPORATION Consolidated Balance Sheet ( dollars in millions, except per share amounts)
ASSETS March 31 December 31 1996 1995 ------------ ------------ Cash and due from banks $ 2,208 $ 2,645 Interest bearing deposits in other banks 1,425 1,250 Federal funds sold and securities purchased under agreements to resell 1,426 1,350 Trading securities 1,302 1,109 Loans held for sale 96 889 Securities Available for sale 5,064 5,014 Held to maturity (fair value of $639 in 1996 and $620 in 1995) 647 613 Loans and lease financing United States Operations 22,796 22,498 International Operations 8,606 8,569 ------ ------ Total loans and lease financing (net of unearned income of $262 in 1996 and $253 in 1995) 31,402 31,067 Reserve for credit losses (732) (736) ------ ------ Net loans and lease financing 30,670 30,331 Premises and equipment, net 620 617 Due from customers on acceptances 377 359 Accrued interest receivable 452 456 Other assets 2,170 2,764 ------ ------ TOTAL ASSETS $ 46,457 $ 47,397 ====== ======
The accompanying notes are an integral part of these financial statements. 4 BANK OF BOSTON CORPORATION Consolidated Balance Sheet (dollars in millions, except per share amounts) (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31 December 31 1996 1995 --------- ------------ Deposits Domestic offices Noninterest bearing $ 4,982 $ 4,839 Interest bearing 16,491 16,564 Overseas offices: Noninterest bearing 629 552 Interest bearing 9,133 8,993 ------ ------ Total deposits 31,235 30,948 Funds borrowed Federal funds purchased 644 1,675 Term federal funds purchased 600 869 Securities sold under agreements to repurchase 1,355 1,226 Other funds borrowed 4,602 4,993 Acceptances outstanding 378 359 Accrued expenses and other liabilities 1,433 1,437 Notes payable 2,499 2,139 ------ ------ TOTAL LIABILITIES 42,746 43,646 ------ ------ Commitments and contingencies Stockholders' equity Preferred stock without par value Authorized shares - 10,000,000 Issued and outstanding shares - 4,593,941 508 508 Common stock, par value $2.25 Authorized shares - 200,000,000 Issued shares - 112,503,413 in 1996 and 112,571,508 in 1995 Outstanding shares - 110,530,356 in 1996 and 112,086,150 in 1995 253 253 Surplus 926 932 Retained earnings 2,077 2,020 Net unrealized gain on securities available for sale, net of tax 41 64 Treasury stock, at cost (1,973,057 shares in 1996 and 485,358 shares in 1995) (89) (22) Cumulative translation adjustments, net of tax (5) (4) ------ ------ TOTAL STOCKHOLDERS' EQUITY 3,711 3,751 ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,457 $ 47,397 ====== ======
The accompanying notes are an integral part of the financial statements. 5 BANK OF BOSTON CORPORATION Consolidated Statement of Income (dollars in millions, except per share amounts)
Quarters Ended March 31 1996 1995 ------- ------- Interest Income: Loans and lease financing, including fees $ 810 $ 746 Securities 103 76 Trading securities 41 41 Loans held for sale 16 3 Federal funds sold and securities purchased under agreements to resell 41 102 Deposits in other banks 24 65 --------- --------- Total interest income 1,035 1,033 --------- --------- Interest Expense: Deposits of domestic offices 169 140 Deposits of overseas offices 187 222 Funds borrowed 202 206 Notes payable 43 39 --------- --------- Total interest expense 601 607 --------- --------- Net interest revenue 434 426 Provision for credit losses 50 90 --------- --------- Net interest revenue after provision for credit losses 384 336 --------- --------- Noninterest Income: Financial service fees 7 106 Trust and agency fees 51 53 Trading profits and commissions 12 1 Net securities gains 13 6 Other income 143 127 --------- --------- Total noninterest income 226 293 --------- --------- Noninterest Expense: Salaries 186 176 Employee benefits 43 41 Occupancy expense 37 35 Equipment expense 26 24 Other expense 113 107 --------- --------- Total noninterest expense 405 383 --------- --------- Income before income taxes 205 246 Provision for income taxes 88 121 --------- --------- NET INCOME $ 117 $ 125 ========= ========= NET INCOME APPLICABLE TO COMMON STOCK $ 108 $ 116 ========= ========= Per Common Share: Primary $ .97 $ 1.08 Fully diluted $ .95 $ 1.04 Dividends declared $ .37 $ .27 Average Number of Common Shares (in thousands): Primary 111,034 107,278 Fully diluted 112,864 111,820
The accompanying notes are an integral part of these financial statements. 6 BANK OF BOSTON CORPORATION Consolidated Statement of Changes in Stockholders' Equity (dollars in millions)
1996 1995 Quarters ended March 31 Preferred Stock Balance, January 1 $ 508 $ 508 ------ ------ Balance, March 31 508 508 ------ ------ Common Stock Balance, January 1 253 242 Common stock issued Conversion of subordinated convertible debentures 8 ------ ------ Balance, March 31 253 250 ------ ------ Surplus Balance, January 1 932 810 Dividend reinvestment and stock purchase plan 1 Exercise of stock options (11) 2 Conversion of subordinated convertible debentures 71 Acquisition of Ganis Credit Corporation 1 Restricted stock grants, net of forfeitures 2 Other, principally employee benefit plans 3 1 ------ ------ Balance, March 31 926 886 ------ ------ Retained Earnings Balance, January 1 2,020 1,655 Net income 117 125 Restricted stock grants, net of forfeitures (9) (6) Cash dividends declared Preferred stock (10) (9) Common stock (41) (29) ------ ------ Balance, March 31 2,077 1,736 ------ ------ Net Unrealized Gain (Loss) on Securities Available for Sale Balance, January 1 64 (40) Change in net unrealized gain (loss) on securities available for sale, net of tax (23) (9) ------ ------ Balance, March 31 41 (49) ------ ------ Treasury Stock Balance, January 1 (22) (27) Purchase of treasury stock-2,705,000 shares in 1996 (121) (28) Treasury stock reissued Dividend reinvestment and stock purchase plan-230,355 shares in 1996 10 9 Exercise of stock options-522,987 shares in 1996 23 1 Conversion of subordinated convertible debentures 15 Acquisition of Ganis Credit 7 21 Corporation-153,741 shares in 1996 Restricted stock grants-220,410 shares in 1996 10 7 Other, principally employee benefit plans-89,808 shares in 1996 4 2 ------ ------ Balance, March 31 (89) ------ ------ Cumulative Translation Adjustments Balance, January 1 (4) (6) Translation adjustments, net of tax (1) 3 ------ ------ Balance, March 31 (5) (3) ------ ------ Total Stockholders' Equity, March 31 $3,711 $3,328 ====== ======
The accompanying notes are an integral part of these financial statements. 7 BANK OF BOSTON CORPORATION Consolidated Statement of Cash Flows (in millions)
Quarters Ended March 31 1996 1995 ------- ------- Cash Flows From Operating Activities: Net income $ 117 $ 125 Reconciliation of net income to net cash provided from operating activities Provision for credit losses 50 90 Depreciation and amortization 26 47 Provision for deferred taxes 49 Net gains on sales of securities and other assets (108) (105) Change in trading securities (193) (376) Change in mortgages held for sale, net 151 13 Net change in interest receivables and payables 14 14 Other, net 8 324 ------ ------ Net cash provided from operating activities 114 132 ------ ------ Cash Flows From Investing Activities: Net cash provided from (used for) interest bearing deposits in other banks (175) 293 Net cash provided from (used for) federal funds sold and securities purchased under agreements to resell (76) 309 Purchases of securities held to maturity (45) (254) Purchases of securities available for sale (1,286) (507) Sales of securities available for sale 925 843 Maturities of securities held to maturity 10 97 Maturities of securities available for sale 266 256 Dispositions of equity and mezzanine financing investments 25 37 Loans and lease financing originated by nonbank entities (3,378) (2,421) Loans and lease financing collected by nonbank entities 3,064 2,292 Proceeds from sales of loan portfolios by bank subsidiaries 1,409 Net cash used for lending activities of bank subsidiaries (81) (819) Proceeds from sales of other real estate owned 7 12 Expenditures for premises and equipment (55) (44) Proceeds from sales of business units, premises and equipment 143 117 Other, net 60 4 ------ ------ Net cash provided from (used for) investing activities (596) 1,624 ------ ------ Cash Flows From Financing Activities: Net cash provided from (used for) deposits 287 (3,081) Net cash provided from (used for) funds borrowed, net (450) 1,392 Net proceeds from issuance of notes payable 360 18 Net proceeds from issuance of common stock 26 15 Purchases of treasury stock (121) (28) ------ ------ Dividends paid (51) (38) ------ ------ Net cash provided from (used for) financing activities 51 (1,722) Effect of foreign currency translation on cash (6) (5) ------ ------ NET CHANGE IN CASH AND DUE FROM BANKS (437) 29 Cash and Due from Banks at January 1 2,645 2,317 ------ ------ Cash and Due from Banks at March 31 $ 2,208 $ 2,346 ====== ====== Interest payments made $ 982 $ 595 Income tax payments made $ 57 $ 116
The accompanying notes are an integral part of these financial statements. 8 BANK OF BOSTON CORPORATION Notes to Financial Statements 1. The accompanying interim consolidated financial statements of Bank of Boston Corporation (the Corporation) are unaudited. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information contained herein have been made. Certain amounts reported in prior periods have been reclassified for comparative purposes. This information should be read in conjunction with the Corporation's 1995 Annual Report on Form 10-K. 2. Acquisitions and Divestitures: In October 1995, the Corporation entered into an agreement to acquire The Boston Bancorp (Bancorp), the holding company of South Boston Savings Bank, a Massachusetts chartered savings bank with approximately $1.3 billion in deposits at March 31, 1996. The Corporation will acquire Bancorp with shares of its common stock, which it expects to purchase in the open market. The transaction, with a purchase price currently estimated at $235 million, will be accounted for as a purchase. Stockholders of Bancorp approved the acquisition in April 1996. The Corporation expects to close the transaction, which is subject to the receipt of required regulatory approvals, in the second quarter of 1996. In December 1995, the Corporation entered into a merger agreement with BayBanks, Inc. (BayBanks), a bank holding company based in Boston with assets of $11.6 billion at March 31, 1996. The Corporation expects to issue approximately 43 million shares of its common stock in connection with the merger, based on an exchange ratio of 2.2 shares of its common stock for each outstanding BayBanks common share. The transaction is expected to be accounted for as a pooling of interests. Stockholders of both companies approved the merger in April 1996. The Corporation expects to close the merger, which is subject to the receipt of required regulatory approvals, in the third quarter of 1996. In March 1996, the Corporation recognized a gain of $60 million, or $39 million net of tax, from the sale of its mortgage banking subsidiary to a newly formed independent mortgage company, HomeSide, Inc. (HomeSide). The Corporation retained a 45% interest in the new company, and two equity investment firms held the remaining interest. The second phase of this transaction, in which Barnett Mortgage Company will be acquired by HomeSide, is expected to be completed in the second quarter of 1996, resulting in an additional after-tax gain of approximately $30 million. Subsequent to the completion of the second phase of the transaction, the Corporation, Barnett Banks and the two equity investment firms will each hold an approximate one-third interest in HomeSide. 3. Significant Noncash Transactions - Statement of Cash Flows: During the first quarters of 1996 and 1995, the Corporation transferred approximately $7 million and $12 million, respectively, to Other Real Estate Owned (OREO) from loans. 9 Notes to Financial Statements, continued 4. Securities: A summary comparison of securities available for sale by type is as follows:
March 31, 1996 December 31, 1995 ------------------------------------ -------------------------------- (in millions) Cost Carrying value Cost Carrying value --------- -------------- -------- -------------- U.S. Treasury $ 578 $ 573 $ 660 $ 665 U.S. government agencies and corporations - Mortgage-backed securities 3,222 3,225 2,969 3,037 States and political subdivisions 20 21 19 21 Foreign debt securities 631 629 698 685 Other debt securities 287 283 299 290 Marketable equity securities 102 172 100 152 Other equity securities 161 161 164 164 ----- ----- ----- ----- $ 5,001 $ 5,064 $ 4,909 $ 5,014 ===== ===== ===== =====
Other equity securities included in securities available for sale are not traded on established exchanges, and are carried at cost. A summary comparison of securities held to maturity by type is as follows:
March 31, 1996 December 31, 1995 ------------------------------------ -------------------------------- Amortized Amortized (in millions) Cost Fair value Cost Fair value ---------- ---------- ---------- ------------- U.S. Treasury $ 4 $ 4 $ 4 $ 4 U.S. government agencies and corporations - Mortgage-backed securities 557 549 523 530 States and political subdivisions 5 5 5 5 Foreign debt securities 11 11 11 11 Other equity securities 70 70 70 70 ----- ----- ----- ----- $ 647 $ 639 $ 613 $ 620 ===== ===== ===== =====
Other equity securities included in securities held to maturity represent securities, such as Federal Reserve Bank and Federal Home Loan Bank stock, which are not traded on established exchanges and have only redemption capabilities. Fair values for such securities are considered to approximate cost. 10 Notes to Financial Statements, continued 5. Loans and Lease Financing: The following are the details of loan and lease financing balances:
March 31 December 31 (in millions) 1996 1995 --------- ------------ United States Operations: Commercial, industrial and financial $ 11,361 $ 11,439 Commercial real estate: Construction 323 336 Other commercial 2,096 2,272 Consumer-related loans: Secured by 1-4 family residential properties 3,976 3,861 Other 3,843 3,397 Lease financing 1,414 1,409 Unearned income (217) (216) ------ ------ 22,796 22,498 ------ ------ International Operations: Loans and lease financing 8,651 8,606 Unearned income (45) (37) ------ ------ 8,606 8,569 ------ ------ $ 31,402 $ 31,067 ====== ======
6. Reserve for Credit Losses: An analysis of the reserve for credit losses is as follows:
(in millions) Quarters Ended March 31 1996 1995 ---- ---- Balance, beginning of period $ 736 $ 680 Provision 50 90 Reserves of entities sold (11) (32) Domestic credit losses: Commercial, industrial and financial (4) (10) Commercial real estate (13) (7) Consumer-related loans: Secured by 1-4 family residential properties (7) (5) Other (25) (14) International credit losses (9) (18) ---- ---- Total credit losses (58) (54) ---- ---- Domestic recoveries: Commercial, industrial and financial 4 1 Commercial real estate 1 1 Consumer-related loans: Secured by 1-4 family residential properties 1 1 Other 5 6 International recoveries 4 3 ---- ---- Total recoveries 15 12 ---- ---- Net credit losses (43) (42) ---- ---- Balance, end of period $ 732 $ 696 ==== ====
At March 31, 1996, loans for which impairment has been recognized in accordance with SFAS No. 114 totaled $211 million, of which $65 million related to loans with no valuation reserve and $146 million related to loans with a valuation reserve of $30 million. For the quarter ended March 31, 1996, average impaired loans were approximately $206 million. Interest recognized on impaired loans during the first quarter of 1996 was not material. 11 Notes to Financial Statements, continued 7. Notes Payable: In January 1996, the Corporation completed the issuance of $125 million in senior floating rate medium-term notes, due 1997 and $75 million in senior floating rate medium-term notes, due 1999. The interest rates on such notes ranged from 5.41% to 5.52% and 5.66% to 5.68%, respectively, at March 31, 1996. 8. Contingencies: The Corporation and its subsidiaries are defendants in a number of legal proceedings arising in the normal course of business. Management, after reviewing all actions and proceedings pending against or involving the Corporation and its subsidiaries, considers that the aggregate loss, if any, resulting from the final outcome of these proceedings should not be material to the Corporation's financial statements. 9. Subsequent Event: In April 1996, stockholders of the Corporation authorized an increase in the authorized shares of the Corporation's common stock from 200 million shares, par value $2.25 per share, to 300 million shares, par value $1.50 per share. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- GENERAL The Corporation's net income for the quarter ended March 31, 1996 was $117 million, compared with net income of $125 million for the same period in 1995. Net income per common share was $.97 on a primary basis and $.95 on a fully diluted basis in the first quarter of 1996, compared with net income per common share of $1.08 on a primary basis and $1.04 on a fully diluted basis for the first quarter of 1995. The comparisons include a $31 million net after-tax loss recorded in the first quarter of 1996 in connection with a transaction related to the sale of the Corporation's mortgage banking subsidiary and that subsidiary's risk management activities during the quarter (see further discussion below). The comparisons also reflect the acquisition of Ganis Credit Corporation (Ganis) and the sales of the Corporation's banking subsidiaries in Maine and Vermont in the first quarter of 1995, and the sale of the Corporation's corporate trust business and the joint venture of its stock transfer business in the fourth quarter of 1995. During the first quarter of 1996, the Corporation completed its previously announced transaction with two equity investment firms, in which the Corporation's mortgage banking subsidiary, BancBoston Mortgage Corporation (BBMC), was sold to a newly formed independent mortgage company, HomeSide, Inc. (HomeSide), with the Corporation retaining a 45 percent interest in HomeSide. The second phase of this transaction, in which Barnett Mortgage Company will be acquired by HomeSide, is expected to be completed in the second quarter of 1996. Upon completion of this transaction, the Corporation, Barnett Bank and the equity investment firms will each hold an approximate one-third interest in HomeSide. Under the agreement relating to the sale of BBMC, the Corporation agreed to receive a fixed price of $225 million and maintain a risk management program designed to protect the enterprise value of BBMC. Upon closing the transaction, the Corporation realized a gain of $60 million ($39 million after- tax). An additional after-tax gain of approximately $30 million is expected to be recognized in the second quarter of 1996 upon the closing of the second phase of the transaction mentioned above. These gains are offset by an after-tax loss related to BBMC's risk management activities of approximately $70 million recorded in the first quarter of 1996 (see "Noninterest Income" section). On December 12, 1995, the Corporation and BayBanks, Inc. (BayBanks), a $12 billion bank holding company based in Boston, jointly announced an agreement under which the Corporation would acquire BayBanks in a tax-free exchange of stock, whereby the Corporation will exchange 2.2 shares of its common stock for each outstanding share of BayBanks common stock. On April 25, 1996, the stockholders of both companies approved the transaction, which is expected to be accounted for as a pooling of interests. The transaction is expected to be completed during the third quarter of 1996, and is subject to a number of conditions, including approval by federal and state regulators. No assurance can be given that approvals of the regulators will be obtained. The Corporation anticipates incurring restructuring costs of approximately $140 million (on a pre-tax basis) in connection with the transaction. The combination of the two Boston-based institutions will create a consumer and corporate banking entity operating in 36 states and 23 countries, with approximately $60 billion in assets and $40 billion in deposits. In October 1995, the Corporation announced an agreement to acquire The Boston Bancorp (Bancorp), the holding company of South Boston Savings Bank, a Massachusetts chartered savings bank with approximately $1.3 billion in deposits. On April 11, 1996, the stockholders of Bancorp approved the transaction, which will be accounted for as a purchase. The acquisition is currently anticipated to close in the second quarter of 1996, and is subject to a number of conditions, including approval by federal and state regulators. No assurance can be given that the approvals of the regulators will be obtained. In August 1995, the Corporation announced its intent to purchase 93 branches and approximately $200 million in assets of Banco Integrado Departmental (BID) from the Central Bank of Argentina (the Central Bank). During the first quarter of 1996, as a result of certain changes in Argentine law, an Argentine court suspended the Corporation's offer, and the Central Bank reopened the bidding process for BID. The Corporation subsequently declined to re-enter the bidding process. Additional information on certain of these transactions can be found in Note 2 to the Financial Statements. 13 NET INTEREST REVENUE - (Fully Taxable Equivalent Basis) The discussion of net interest revenue should be read in conjunction with Average Balances and Interest Rates and Change in Net Interest Revenue - Volume and Rate Analysis appearing elsewhere in this report. For this review, interest income that is either exempt from federal income taxes or taxed at a preferential rate has been adjusted to a fully taxable equivalent basis. This adjustment has been calculated using a federal income tax rate of 35 percent, plus applicable state and local taxes, net of related federal tax benefits. The following table presents a summary of net interest revenue, on a fully taxable equivalent basis, and related average earning asset balances and net interest margins for United States and International Operations:
Quarters Ended March 31 (dollars in millions) 1996 1995 Change ---------- ---------- --------- United States Operations: Net interest revenue $ 312 $ 330 $ (18) Average loans and lease financing 22,610 22,742 (132) Average earning assets 29,144 27,647 1,497 Net interest margin 4.31% 4.85% (.54)% International Operations: Net interest revenue $ 124 $ 97 $ 27 Average loans and lease financing 8,747 7,381 1,366 Average earning assets 12,461 10,340 2,121 Net interest margin 3.99% 3.81% .18% Consolidated: Net interest revenue $ 436 $ 427 $ 9 Average loans and lease financing 31,357 30,123 1,234 Average earning assets 41,605 37,987 3,618 Net interest margin 4.21% 4.56% (.35)%
The $18 million decrease in domestic net interest revenue and the 54 basis point decline in domestic net interest margin from the first quarter of 1995 were primarily due to narrower spreads caused by higher funding costs mainly associated with the introduction and aggressive marketing of a new savings deposit product subsequent to the first quarter of 1995. Also contributing to narrower spreads was the reversal of the trend noted in the first quarter of 1995 whereby increases in rates on average earning assets generally outpaced increases in rates on interest bearing liabilities, particularly certain retail deposit products. The absence of prior year interest recoveries on loans and lower dividends from venture investments also contributed to the declines in net interest revenue and margin. A higher level of average earning assets partially offset the impact of the narrower spreads on net interest revenue. The $27 million increase in international net interest revenue from the first quarter of 1995 reflected an increase of over $2.1 billion in average earning assets, including roughly $1.4 billion in average loans and lease financing, mainly from Brazil and Argentina. Also contributing to the increase in international net interest revenue, and driving the 18 basis point increase in international net interest margin, were wider spreads and an improvement in the mix of earning assets from the Corporation's Brazilian operation. The improvements in earning asset mix represented a shifting from lower yielding treasury assets to higher yielding loans and lease financing. These improvements were partially offset by a decline in Argentine net interest margin. The level of net interest revenue and margin reported for the quarter ended March 31, 1996 is not necessarily indicative of future results. The Corporation could experience continued pressure on margin in the future. Future levels of net interest revenue and margin will be affected by competitive pricing pressure on retail deposits, loans and other products; the mix and volume of assets 14 and liabilities; the current interest rate environment; the economic and political situations in countries where the Corporation does business; and other factors. NONINTEREST INCOME The following table sets forth the components of noninterest income.
Quarters Ended March 31 (in millions) 1996 1995 Change --------- ----- ------ Financial service fees Deposit fees $ 31 $ 30 $ 1 Letter of credit and acceptance fees 16 19 (3) Net mortgage servicing fees (91) 21 (112) Loan-related fees 20 13 7 Other financial service fees 31 23 8 ----- ----- ------ Total financial service fees 7 106 (99) Trust and agency fees 51 53 (2) Trading profits and commissions 12 1 11 Net securities gains 13 6 7 Net equity and mezzanine profits 37 16 21 Net foreign exchange trading profits 12 12 Other income 34 24 10 Gain on sales of businesses 60 75 (15) ----- ----- ------ Total $ 226 $ 293 $ (67) ===== ===== ======
Lower financial service fees reflected approximately $111 million of pre-tax losses ($70 million after-tax), net of decreased servicing amortization, from the change in market value of contracts used to manage the prepayment risk in the mortgage servicing portfolio and the economic value of BBMC pending the completion of its sale to HomeSide. The value of mortgage servicing rights is affected by the expected level of prepayments made by mortgage holders resulting from changes in mortgage rates. The value of the contracts purchased to manage this risk fluctuates inversely with the value of the mortgage servicing assets. Due to the sharp increase in long-term interest rates during the first quarter of 1996, the value of these contracts declined. Concurrently, the value of the mortgage servicing assets and the amount of gain to be recognized by the Corporation on the disposition of BBMC increased. As a result, in the first quarter of 1996, the Corporation recognized a gain of $60 million ($39 million after-tax) on the sale of BBMC, and expects to recognize an additional after-tax gain of approximately $30 million in the second quarter of 1996, when the second phase of the transaction is completed. Excluding the mortgage banking-related losses, financial service fees increased by approximately $12 million over the first quarter of 1995, primarily reflecting higher loan syndication fees resulting from the Corporation's expansion of its capital markets business, and the growth of other financial service fees including increases in capital markets-related advisory fees and credit card fees in Latin America. The lower trust and agency fees reflected the Corporation's sale of its corporate trust business and joint venture of its stock transfer business in the fourth quarter of 1995. Excluding the effects of these transactions, trust and agency fees increased by $10 million from the first quarter of 1995, due to growth in the Corporation's Brazilian mutual funds under management, which have nearly doubled in the past year to $3.0 billion, and due to increased domestic personal trust fees in the first quarter of 1996. Trading profits and commissions increased $11 million due to increases from the Corporation's Latin American and Emerging Markets businesses. The $21 million increase in net equity and mezzanine profits reflected a higher level of sales activity and an increase in income from investments in partnerships. Net securities gains increased $7 million from the prior year as certain domestic securities were sold as part of a repositioning of the available for sale securities portfolio. Other income increased $10 million, which reflected higher profits from various joint ventures, principally those related to the Corporation's Argentine pension management business and domestic stock transfer business. 15 The gain on sales of businesses in 1996 reflected the above-noted gain on the sale of BBMC, and, in 1995, reflected the sale of the Corporation's Maine and Vermont banking subsidiaries for a gain of $75 million ($30 million after-tax). PROVISION FOR CREDIT LOSSES The provision for credit losses was $50 million for the quarter ended March 31, 1996, compared with $90 million, including a special provision of $50 million, for the same period in 1995. The special provision recorded in the first quarter of 1995 reflected management's intent to strengthen further the Corporation's loan loss reserve as a result of the uncertainly caused by economic events in Mexico and their impact on the Argentine economy in the early part of 1995, and industry trends in consumer credit, combined with the growth in the Corporation's Latin American lending and domestic consumer lending portfolios. The provision for credit losses in each quarter reflected management's assessment of the adequacy of the reserve for credit losses, considering the current risk characteristics of the loan portfolio and economic conditions. The amount of future provisions will continue to be a function of the regular quarterly review of the reserve for credit losses, based upon management's assessment of risk at that time, and, as such, there can be no assurance as to the level of future provisions. NONINTEREST EXPENSE The following table sets forth the components of noninterest expense.
Quarters Ended March 31 (in millions) 1996 1995 Change ---- ---- ----- Employee costs $229 $ 217 $ 12 Occupancy and equipment 63 59 4 FDIC insurance premiums 0 12 (12) Other 111 93 18 --- --- --- Noninterest expense before OREO costs 403 381 22 OREO costs 2 2 0 --- --- --- Total $405 $ 383 $ 22 === === ===
The increase in noninterest expense resulted from ongoing expansion in several of the Corporation's growth businesses, mainly Latin America, consumer finance, global capital markets and private banking. The increases stemmed from additional staffing, new product offerings, office openings and technology expenditures, as well as higher levels of advertising and travel expenses. These increases were partially offset by the virtual elimination of FDIC insurance premiums in 1996, lower professional fees and the impact of business divestitures. The Corporation's total staff level declined by about 5 percent, or 1,000, from the end of 1995, principally due to the sale of BBMC at the end of the first quarter of 1996. PROVISION FOR INCOME TAXES The Corporation's tax provision was $88 million in the first quarter of 1996, compared with $121 million in the first quarter of 1995. The 1995 provision included $45 million associated with the $75 million pre-tax gain on the sales of the Maine and Vermont banking subsidiaries. The high level of tax associated with this gain reflected the lower tax bases in these investments as a result of $35 million of non-tax deductible goodwill associated with these subsidiaries. Excluding this gain and related tax provision, the Corporation's effective tax rate in the first quarter of 1995 was 44 percent, compared to an effective tax rate of 43 percent in the first quarter of 1996. The reduction in the effective tax rate reflected the effect of mid-1995 changes in Massachusetts tax law which permit apportionment of a bank's taxable income and reduce the state income tax rate for banks from 12.5 percent to 10.5 percent to be phased in over five years. 16 FINANCIAL CONDITION ------------------- CONSOLIDATED BALANCE SHEET At March 31, 1996, the Corporation's total assets were $46.5 billion compared with $47.4 billion at December 31, 1995. The decline was mainly due to the BBMC transaction during the first quarter of 1996, which removed over $800 million in mortgages held for sale and over $500 million of mortgage servicing rights from the balance sheet. CREDIT PROFILE A discussion of the Corporation's credit management policies is included on page 28 of its 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. The segments of the lending portfolio are as follows:
March 31 Dec. 31 Sept. 30 June 30 March 31 (in millions) 1996 1995 1995 1995 1995 --------- -------- --------- -------- --------- United States Operations: Commercial, industrial and financial $ 11,361 $ 11,439 $ 11,789 $ 11,907 $ 11,684 Commercial real estate: Construction 323 336 412 327 355 Other commercial 2,096 2,272 2,303 2,489 2,645 Consumer-related loans: Secured by 1-4 family properties 3,976 3,861 4,978 4,752 4,635 Other 3,843 3,397 3,131 2,834 2,603 Lease financing 1,414 1,409 1,373 1,356 1,350 Unearned income (217) (216) (216) (211) (216) ------ ------ ------ ------ ------ 22,796 22,498 23,770 23,454 23,056 ------ ------ ------ ------ ------ International Operations: Loans and lease financing, net of unearned income 8,606 8,569 7,921 7,934 7,383 ------ ------ ------ ------ ------ Total loan and lease financing $ 31,402 $ 31,067 $ 31,691 $ 31,388 $ 30,439 ====== ====== ====== ====== ======
Domestic loans and leases increased approximately $300 million from December 31, 1995, principally driven by growth in loans in the national consumer finance portfolio, as well as in the credit card and home equity portfolios. The Corporation reentered the domestic credit card business during the latter part of 1995. Consistent with the Corporation's emphasis on reducing low-return assets, the domestic commercial and industrial portfolio continued to trend downward as growth in the New England and asset-based finance portfolios was more than offset by declines in other areas. The steady decline in the commercial real estate portfolio continued as well. Approximately 72 percent of domestic commercial real estate loans were located in New England at March 31, 1996, compared with approximately 67 percent at December 31, 1995. The Corporation's total loan portfolio at March 31, 1996 and December 31, 1995 included $1.3 billion of highly leveraged transaction (HLT) loans to 101 customers. The average HLT loan size at March 31, 1996 and December 31, 1995 was $13 million. The amount of unused commitments for HLTs at March 31, 1996 was $667 million, compared with $639 million at December 31, 1995. The amount of unused commitments does not necessarily represent the actual future funding requirements of the Corporation, since a portion can be syndicated or assigned to others or may expire without being drawn upon. At March 31, 1996 and December 31, 1995, there were no nonaccrual loans in the HLT portfolio. There were no credit losses from the HLT portfolio in the first quarter of 1996 or in the previous quarter. The Corporation does not currently anticipate a substantial increase in HLT lending over the March 31, 1996 level. 17 A discussion of the Corporation's real estate and HLT lending activities, policies and the effect of these activities on results of operations is included on page 30 of its 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. The modest increase in international loans and lease financing reflected ongoing growth in the Latin American portfolio, partially offset by a decline in the European portfolio. A further discussion of the Argentine and Brazilian operations is included in the "Cross-Border Outstandings" section. NONACCRUAL LOANS AND OREO The details of consolidated nonaccrual loans and OREO are as follows:
March 31 Dec. 31 Sept. 30 June 30 March 31 (dollars in millions) 1996 1995 1995 1995 1995 --------- -------- --------- -------- --------- United States: Commercial, industrial and financial $ 79 $ 66 $ 105 $ 106 $ 111 Commercial real estate: Construction 21 24 23 16 20 Other 74 78 82 85 97 Consumer-related loans: Secured by 1-4 family residential properties 47 43 46 45 44 Other 39 32 30 21 22 ---- ---- ---- ---- ---- 260 243 286 273 294 ---- ---- ---- ---- ---- International 63 66 69 66 57 ---- ---- ---- ---- ---- Total nonaccrual loans 323 309 355 339 351 OREO 48 50 62 78 71 ---- ---- ---- ---- ---- Total $ 371 $ 359 $ 417 $ 417 $ 422 ==== ==== ==== ==== ==== Nonaccrual loans and OREO as a percent of related asset categories 1.2% 1.2% 1.3% 1.3% 1.4%
The increase in nonaccrual loans and OREO included increases in commercial and industrial nonaccrual loans, reflecting higher nonaccrual loans in the diversified and asset-based finance portfolios (primarily one large new nonaccrual loan) partially offset by lower nonaccrual loans in the New England corporate banking portfolio. Increased consumer-related nonaccrual loans occurred in the Fidelity Acceptance Corporation portfolio. Partially offsetting these increases were decreases in nonaccrual loans in the commercial real estate portfolio and in the international portfolio, the latter driven by lower nonaccrual loans in Argentina. The level of nonaccrual loans and OREO is influenced by the economic environment, interest rates, the regulatory environment and other internal and external factors. As such, no assurance can be given as to future levels of nonaccrual loans and leases and OREO. RESERVE FOR CREDIT LOSSES The reserve for credit losses at March 31, 1996 was $732 million, or 2.33 percent of outstanding loans and leases, compared with $736 million, or 2.37 percent, at December 31, 1995. The reserve for credit losses was 227 percent of nonaccrual loans and leases at March 31, 1996, compared with 238 percent at December 31, 1995, and 198 percent at March 31, 1995. Net credit losses were $43 million and $42 million in the first quarters of 1996 and 1995, respectively. During the first quarter of 1996, higher net credit losses from the commercial real estate and consumer-related portfolios were substantially offset by lower net credit losses 18 from the domestic commercial and industrial portfolio, which experienced lower credit losses coupled with higher credit recoveries, and the international portfolios of Argentina, Uruguay and Brazil. The increase in net credit losses from the other consumer-related portfolio, which amounted to $20 million in the first quarter of 1996, compared to $16 million in the fourth quarter of 1995 and $8 million in the first quarter of 1995, was partially due to the 48 percent increase in other consumer-related loans that has occurred since March 31, 1995. As a percentage of average loans and leases on an annualized basis, net credit losses were .54 percent in the first quarter of 1996, compared with .55 percent for the fourth quarter of 1995, and .56 percent for the first quarter of 1995. Net credit losses are as follows:
Quarters ended March 31 (in millions) 1996 1995 ---- ---- United States Operations: Commercial, industrial and $ 9 financial Commercial real estate $ 12 6 Consumer-related loans: Secured by 1-4 family 6 4 residential properties Other 20 8 ---- ---- 38 27 International Operations 5 15 ---- ---- Total $ 43 $ 42 ==== ====
CROSS-BORDER OUTSTANDINGS At March 31, 1996 and December 31, 1995, total cross-border outstandings represented 16 percent of consolidated total assets. In accordance with the bank regulatory rules, cross-border outstandings are: . Amounts payable to the Corporation in U.S. dollars or other non-local currencies. . Amounts payable in local currency but funded with U.S. dollars or other non-local currencies. Included in these outstandings are deposits in other banks, resale agreements, trading securities, securities available for sale, securities held to maturity, loans and lease financing, amounts due from customers on acceptances and accrued interest receivable. In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers are unable to meet their contractual payment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. The Corporation manages its cross-border outstandings using country exposure limits. A discussion of the Corporation's credit management policies is included on page 28 of its 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. Excluded from cross-border outstandings for a given country are: . Local currency assets funded with U.S. dollars or other non-local currency where the providers of funds agree that, in the event their claims cannot be repaid in the designated currency due to currency exchange restrictions in a given country, they may either accept payment in local currency or wait to receive the non-local currency until such time as it becomes available in the local market. At March 31, 1996, such transactions related to emerging markets countries totaled $1.6 billion compared with $1.3 billion at December 31, 1995. . Local currency outstandings funded with local currency. . U.S. dollar or other non-local currency outstandings reallocated as a result of external guarantees or cash collateral. . U.S. dollar or other non-local currency outstandings reallocated as a result of insurance contracts, primarily issued by U.S. government agencies. 19 Cross-border outstandings in countries which individually amounted to 1.0 percent or more of consolidated total assets at March 31, 1996 and December 31, 1995 were approximately as follows:
Consolidated Percentage of Public Banks Other Total Total Assets Commitments (2) ------ ----- ----- ------------ ------------- ----------- (dollars in millions) March 31, 1996(1) Argentina $ 355 $ 55 $ 1,830 $2,240 4.8% $ 45 Brazil 15 40 880 935 2.0 20 Chile 140 175 320 635 1.4 20 December 31, 1995(1) Argentina $ 465 $ 50 $ 1,710 $2,225 4.7% $ 45 Brazil 25 20 980 1,025 2.2 35 Chile 150 125 365 640 1.4 15 United Kingdom 100 570 670 1.4 130
(1) Cross-border outstandings in countries which fell within .75 percent and 1 percent of consolidated total assets at March 31, 1996 and December 31, 1995, were approximately as follows: South Korea $365 million at March 31, 1996 and December 31, 1995. (2) Included within commitments are letters of credit, guarantees and the undisbursed portion of loan commitments. To comply with the regulatory definition of cross-border outstandings, the Corporation included approximately $1.3 billion of Argendollar outstandings in its cross-border totals for Argentina at March 31, 1996 and December 31, 1995. These outstandings are payable to the Corporation in U.S. dollars, which are funded entirely by U.S. dollars borrowed within Argentina. Emerging Markets Countries At March 31, 1996, approximately $4.7 billion of the Corporation's cross-border outstandings, or approximately 10 percent of total assets, were to emerging markets countries, of which the majority were to countries in which the Corporation maintains a branch network and/or subsidiaries, compared to $4.6 billion at December 31, 1995. These cross-border outstandings, of which approximately 83 percent were loans, were mainly comprised of short-term trade credits, non-trade-related loans and leases not subject to country debt rescheduling agreements, government securities and capital investments in branches and subsidiaries. Argentina and Brazil During the first quarter of 1996, the Argentine economy continued to improve slowly with the government's announcement of a series of political and economic measures aimed at stimulating growth. Among these measures was the Argentine Congress' approval of special powers to the executive branch which would allow the government to consolidate public administrative functions and to modify the tax system. The government has expressed expectations for continued low inflation and an increase in credit activity, accompanied by declining interest rates. During the first quarter, the Corporation's Argentine loan levels increased by approximately $280 million from the December 31, 1995 level, including increases in both commercial and consumer lending. The level of Argentine nonaccrual loans declined from $52 million at December 31, 1995, to $46 million at March 31, 1996, and quarterly net credit losses also declined from $10 million in the fourth quarter of 1995, to $4 million in the first quarter of 1996. Since the inception of Brazil's new economic program in July 1994, average monthly inflation has remained relatively stable in comparison to pre-economic program levels. During the first quarter of 1996, Brazil's inflation averaged approximately .5 percent per month, with an increase to 1.6 percent in the month of April 1996, reflecting the strong monetary expansion of recent months and an increase in oil and certain textile prices. This 20 compares to average monthly inflation of 1.9 percent in 1995. The government continued to maintain a floating band exchange rate policy, which currently stands at .97 to 1.06 Reais to the U.S. dollar. The exchange rate at March 31, 1996 was .99 Reais to the U.S. dollar. A number of local Brazilian banks experienced liquidity and other problems in 1995, which continued into the first quarter of 1996. This has generally resulted in customers moving their funds to banks perceived to have more stability, contributing, in part, to the increases in the Corporation's deposit and mutual funds levels. The Corporation's average deposit levels in Brazil increased from the fourth quarter of 1995 by approximately $300 million, or 52 percent, to approximately $860 million during the first quarter of 1996. Additionally, the Corporation's mutual funds under management in Brazil increased approximately $500 million from December 31, 1995, and nearly doubled from a year ago, to $3.0 billion at March 31, 1996. Brazil plans to expand its indigenous banking operations further in 1996 through the opening of new branches, including the expansion of its mutual fund volume and other retail business activities. During the first quarter of 1996, the Corporation's Argentine and Brazilian operations continued to structure their balance sheets to take positions in their local currencies as deemed appropriate. Such positions are taken when the Corporation believes that it can maximize its spread from interest operations by funding local currency assets with U.S. dollars rather than using local currency liabilities or by funding U.S. dollar assets with local currency liabilities. The average currency positions of the Corporation's international operations did not change significantly from amounts previously disclosed at December 31, 1995, with the exception of Brazil. Brazil's average currency position during the first quarter of 1996 was approximately $112 million compared to $14 million during the fourth quarter of 1995. These positions are actively managed and, therefore, it is not unusual for levels to fluctuate from period to period. To date, these positions have been liquid in nature and local management has been able to close and re-open these positions as necessary. For additional information related to the Corporation's currency positions, see page 37 of the Corporation's 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. The economic situation in Latin America can be volatile, including the effect of world financial markets on these economies. As such, changes in the economies of the Latin American countries in which the Corporation does business could have an impact on the Corporation in the future. The Corporation has not experienced any collection problems as a result of currency restrictions or foreign exchange liquidity problems on its current portfolio of cross-border outstandings to emerging markets countries. However, if actions implemented by Latin American governments do not remain effective over time, particularly with regard to liquidity, the Corporation's operations could experience adverse effects, including stress on liquidity, deterioration of credit quality, a decline in the value of its securities portfolio and declines in loan and deposit levels. The Corporation will continue to monitor the economies of Latin American countries in which it has local operations, cross-border outstandings and/or currency positions. Each emerging markets country is at a different stage of development with a unique set of economic fundamentals; therefore, it is not possible to predict what developments will occur and what impact these developments will ultimately have on the economies of these countries or on the Corporation's financial statements. For additional information related to the Corporation's Latin American cross-border outstandings, see pages 35 through 38 of the Corporation's 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. LIQUIDITY MANAGEMENT The Corporation's liquid assets, which consist primarily of interest bearing deposits in other banks, federal funds sold and resale agreements, money market loans and unencumbered U.S. Treasury and government agency securities, stood at $6.3 billion at March 31, 1996, compared with $5.8 billion at December 31, 1995. In addition, the Corporation continues to have access to funds in the public markets at competitive rates. Based on the Corporation's liquid asset level and its ability to access the public markets for additional funding when necessary, management considers overall liquidity at March 31, 1996 to be adequate to meet current obligations, support expectations for future changes in asset and liability levels and carry on normal operations. For additional information related to the Corporation's liquidity management, see pages 38 and 39 of the Corporation's 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. 21 INTEREST RATE RISK Interest rate risk is defined as the exposure of the Corporation's net income or financial position to adverse movements in interest rates. The Corporation manages its interest rate risk within policies and limits established by the Asset and Liability Management Committee (ALCO) and approved by the Board of Directors (Board). ALCO issues strategic directives to specify the extent to which Board-approved rate risk limits are utilized, taking into account the results of the rate risk modeling process as well as other internal and external factors. Interest rate risk related to non-trading, U.S. dollar denominated positions, which represents a significant portion of the consolidated balance sheet at March 31, 1996, is managed centrally through the Boston Treasury Group. Interest rate risk associated with these positions is evaluated and managed through several modeling methodologies. The two principal methodologies used are market value sensitivity and net interest revenue at risk. The results of these models are reviewed monthly with ALCO and at least quarterly with the Board. These methodologies are designed to isolate the effects of market changes in interest rates on the Corporation's existing positions, and they exclude other factors, such as competitive pricing considerations, future changes in asset and liability mix, and other management actions, and, therefore, are not by themselves measures of future levels of net interest revenue. These two methodologies provide different but complementary measures of the level of interest rate risk: the longer term view is modeled through market value sensitivity, while the shorter term view is evaluated through net interest revenue at risk over the next twelve months. Under current ALCO directives, market value sensitivity cannot exceed 3 percent of risk-based capital and net interest revenue at risk cannot exceed 2 percent of net interest revenue over the next twelve-month period. The ALCO market value sensitivity directive was increased during the current quarter from 2 percent of risk-based capital at December 31, 1995, to 3 percent of risk-based capital. The following table shows the Corporation's market value sensitivity and net interest revenue at risk positions at March 31, 1996 and December 31, 1995, respectively. MARKET VALUE SENSITIVITY AND NET INTEREST REVENUE AT RISK POSITIONS
March 31, 1996 December 31, 1995 -------------- ----------------- Quarterly Quarterly (dollars in millions) Quarter-end Average Quarter-end Average - ------------------------------------------------------------------------------- Market Value Sensitivity (1)....... $161 $127 $ 87 $ 84 % of risk-based capital 2.9% 2.4% 1.6% 1.6% - ------------------------------------------------------------------------------- Net Interest Revenue at Risk (2)........... $ 17 $ 19 $ 24 $ 21 % of net interest revenue 1.0% 1.1% 1.4% 1.2% - ------------------------------------------------------------------------------
(1) Decline in market value based on a 100 basis point adverse interest rate shock. (2) Decline in net interest revenue based on the greater of a 100 basis point adverse interest rate shock or a 200 basis point adverse change in interest rates over the next twelve-month period. At March 31, 1996, the adverse position was based upon a 100 basis point upward interest rate shock. At December 31, 1995, the adverse position was based upon a 200 basis point decline in interest rates over the next twelve-month period. See further discussion below. At March 31, 1996, the Corporation's adverse market value sensitivity was to rising interest rates. The increase in the market value sensitivity position since December 31, 1995 was primarily due to an increase in fixed rate assets and, therefore, lengthening asset durations, and the termination of $8.2 billion of a series of interest rate futures contracts that were linked to the Corporation's short-term floating rate wholesale funding. 22 The Corporation's adverse net interest revenue at risk position was to rising interest rates at March 31, 1996, and to declining rates at December 31, 1995. The change in exposure is primarily due to changes in the terms and repricing characteristics of balance sheet and off-balance sheet items at a specific point in time, including the termination of the series of futures contracts discussed above, which resulted in an increase in floating rate liabilities. The market value sensitivity and the net interest revenue at risk positions were in compliance with ALCO directives during the quarter ended March 31, 1996. The level of exposure maintained by the Corporation is a function of the market environment and will change from period to period based on interest rate and other economic expectations. Non-U.S. dollar denominated interest rate risk is managed by the Corporation's overseas units, with oversight by the Boston Treasury group. The Corporation, through ALCO, has established limits for its non-U.S. dollar denominated interest rate risk using cumulative gap limits for each country in which the Corporation has local market interest rate risk. During the first quarter of 1996, the cumulative gap positions in each country were within ALCO limits. The level of interest rate risk positions taken by the overseas units varies based on economic conditions in the country at the particular point in time. Additional information with respect to the Corporation's management of interest rate risk, is included on pages 39 to 43 of the Corporation's 1995 Annual Report to Stockholders which is incorporated by reference into its 1995 Annual Report on Form 10-K. Derivative Financial Instruments The Corporation utilizes a variety of financial instruments to manage interest rate risk, including derivatives. Derivatives provide the Corporation with significant flexibility in managing its interest rate risk exposure, enabling it to manage risk efficiently and respond quickly to changing market conditions by minimizing the impact on balance sheet leverage. The Corporation routinely uses non-leveraged rate-related derivative instruments, primarily interest rate swaps and futures, as part of its asset and liability management (ALM) practices. All derivative activities are managed on a comprehensive basis, are included in the overall market value sensitivity and net interest revenue at risk measures and limits described above, and are subject to credit standards similar to those for balance sheet exposures. 23 The following table summarizes the notional amounts and fair values of interest rate derivatives and foreign exchange contracts included in the Corporation's ALM portfolio.
March 31, 1996 (1) December 31, 1995 (1) ------------------------------------------------- ------------------------------------------------ Notional Fair Value (2)(3) Unrecognized (4) Notional Fair Value (2)(3) Unrecognized (4) (in millions) Amount Asset Liability Gain (Loss) Amount Asset Liability Gain (Loss) - -------------------------- ------------------------------------------------- ------------------------------------------------ Interest rate contracts Futures and forwards $2,442 $ 5 ($66) $12,518 $10 ($89) Interest rate swaps 6,824 35 $46 (3) 5,828 $ 92 7 102 Interest rate options Purchased 390 1 1 3,968 119 2 Written or sold 15 360 34 ------------------------------------------------ ------------------------------------------------ Total interest rate contract $9,671 $41 $46 ($68) $22,674 $211 $51 $15 ================================================ ================================================ Foreign exchange contracts Spot and forward contracts $ 629 $ 3 $ 1 $ 2 $ 1,257 $ 3 $ 5 ($ 2) ------------------------------------------------ ------------------------------------------------ Total foreign exchange contracts $ 629 $ 3 $ 1 $ 2 $ 1,257 $ 3 $ 5 ($ 2) ================================================ ================================================
(1) Contracts under master netting agreements are shown on a net basis. (2) Fair value represents the amount at which a given instrument could be exchanged in an arm's length transaction with a third party as of the balance sheet date. The majority of derivatives that are part of the ALM portfolio are accounted for on the accrual basis, and not carried at fair value. In certain cases, contracts, such as futures, are subject to daily cash settlements; as such, the fair value of these instruments is zero. (3) The credit exposure of interest rate derivatives and foreign exchange contracts at March 31, 1996 and December 31, 1995 is represented by the fair value of contracts reported in the "Asset" column. (4) Unrecognized gain or loss represents the amount of gain or loss, based on fair value, that has not been recognized in the income statement at the balance sheet date. This includes amounts related to contracts which have been terminated. Such amounts are recognized as an adjustment of yield of the linked assets or liabilities over the period being managed. At March 31, 1996, there were $26 million of unrecognized gains and $56 million of unrecognized losses related to terminated contracts that are being amortized as an adjustment of the yield of the assets or liabilities to which they were linked over a weighted average period of 31 months and 21 months, respectively. At December 31, 1995, unrecognized gains of $32 million and unrecognized losses of $2 million related to terminated contracts were being amortized over weighted average periods of 32 months and 23 months, respectively. The decrease in fair value of interest rate derivative contracts, as reflected in the change from a net unrecognized gain of $15 million at December 31, 1995, to a net unrecognized loss of $68 million at March 31, 1996, was primarily due to an increase in long-term interest rates during the quarter, which principally impacted the interest rate swap portfolio and resulted in a decline in its fair value. The Corporation's utilization of derivative instruments is modified from time to time in response to changing market conditions, as well as changes in the characteristics and mix of the Corporation's related assets and liabilities. In this respect, during the current quarter the Corporation terminated $8.2 billion of a series of interest rate futures contracts that were linked to the Corporation's short-term floating rate wholesale funding. The remaining unrecognized loss of $56 million at March 31, 1996 related to the terminated futures contracts will be amortized to net interest revenue as an adjustment of the yield of the short-term liabilities to which they were linked over the remainder of the period being managed. 24 The following table summarizes the remaining maturity of interest rate derivative financial instruments entered into for ALM purposes as of March 31, 1996.
Remaining Maturity (dollars in millions) March December 31, 1996 31, 1995 1996 1997 1998 1999 2000 2001+ Total Total Interest Rate Swaps DOMESTIC Receive fixed rate swaps (1) Notional amount $ 402 $ 151 $ 65 $ 340 $ 1,500 $2,458 $ 2,453 Weighted average receive rate 6.08% 8.94% 5.87% 5.50% 6.38% 6.35% 6.35% Weighted average pay rate 5.33% 5.27% 5.41% 5.39% 5.43% 5.40% 5.86% Pay fixed rate swaps (1) Notional amount $ 123 $ 39 $ 34 $ 44 $ 38 $ 53 $ 331 $ 301 Weighted average receive rate 5.31% 5.55% 5.82% 5.61% 5.63% 5.55% 5.50% 6.19% Weighted average pay rate 6.43% 6.83% 8.70% 7.37% 7.10% 7.18% 7.03% 6.81% Basis swaps (2) Notional amount $ 1,249 $ 50 $ 299 $1,598 $ 1,599 Weighted average receive rate 5.47% 5.72% 5.84% 5.55% 5.97% Weighted average pay rate 5.54% 5.47% 5.67% 5.56% 5.86% TOTAL DOMESTIC INTEREST RATE SWAPS Notional amount $ 1,774 $ 190 $ 99 $ 44 $ 428 $ 1,852 $4,387 $ 4,353 Weighted average receive rate (3) 5.60% 8.24% 5.85% 5.61% 5.54% 6.27% 6.00% 6.20% Weighted average pay rate (3) 5.55% 5.59% 6.54% 7.37% 5.55% 5.52% 5.58% 5.93% TOTAL INTERNATIONAL INTEREST RATE SWAPS Notional Amount (4) $ 2,437 $2,437 $ 1,475 Other Derivative Products Futures and forwards (5) $ 2,442 $2,442 $12,518 Interest rate options (6) Purchased 227 $ 39 $ 81 $ 43 390 3,968 Written or sold 15 15 360 ----- ---- ---- ---- ---- ----- ----- ------ TOTAL CONSOLIDATED NOTIONAL AMOUNT $ 6,895 $ 229 $ 180 $ 87 $ 428 $ 1,852 $9,671 $22,674 ===== ==== ==== ==== ==== ===== ===== ======
(1) Of the receive fixed rate swaps, $1 billion were linked to floating rate loans, and the remainder principally to fixed rate notes payable. Of the swaps linked to notes payable, approximately $1 billion are scheduled to mature in 2001 and thereafter. The majority of pay fixed rate swaps are linked to fixed rate loans and fixed rate securities. (2) Basis swaps represent swaps where both the pay rate and receive rate are floating rates. All of the basis swaps are linked to short-term bank notes and floating rate mortgages. (3) The majority of the Corporation's interest rate swaps accrue at LIBOR (London Interbank Offered Rate). In arriving at the variable weighted average receive and pay rates, LIBOR rates in effect as of March 31, 1996 have been implicitly assumed to remain constant throughout the terms of the swaps. Future changes in LIBOR rates would affect the variable rate information disclosed. (4) The majority of the international portfolio is comprised of swaps entered into by the Corporation's Brazilian operation with a weighted average maturity of less than 90 days. These swaps typically include the exchange of floating rate indices that are limited to the Brazilian market. (5) At December 31, 1995, the majority of the futures used by the Corporation were linked to short-term liabilities and were exchange-traded instruments. The reference instruments for these contracts comprise the major types available, such as Eurodollar deposits and U.S. Treasury notes. During the first quarter of 1996, the Corporation terminated a series of futures contracts which accounts for the majority of the decline from December 31, 1995 (see discussion above). The majority of the futures contracts at March 31, 1996 were entered into by the Corporation's Brazilian operation and are linked to short-term interest bearing assets and liabilities. Average rates are not meaningful for these products. (6) At December 31, 1995, primarily includes interest rate options used to manage prepayment risk related to the mortgage servicing portfolio of the Corporation's mortgage banking subsidiary which was sold in the first quarter of 1996. 25 Derivatives not used for ALM purposes are included in the derivatives trading portfolio. The primary focus of the Corporation's derivatives trading activities is related to providing risk management products to its customers. The following table summarizes the notional amounts and fair values of interest rate derivatives and foreign exchange contracts included in the Corporation's trading portfolio.
March 31, 1996 (1) December 31, 1995 (1) ------------------------------------- --------------------------------------- Notional Fair Value (2)(3)(4) Notional Fair Value (2)(3)(4) (in millions) Amount Asset Liability Amount Asset Liability - ----------------------------------------------------------------------------------------- --------------------------------------- Interest rate contracts Futures and forwards $38,166 $ 40 $ 42 $30,789 Interest rate swaps 8,817 68 70 9,169 $ 91 $ 80 Interest rate options Purchased 3,759 12 3,411 9 Written or sold 4,563 10 3,986 9 ---------------------------------- --------------------------------------- Total interest rate contracts $55,305 $120 $122 $47,355 $100 $ 89 ================================== ======================================== Foreign exchange contracts Spot and forward contracts $18,048 $162 $160 $13,072 $171 $167 Options purchases 987 14 1,044 13 Options written or sold 827 16 1,130 16 ---------------------------------- --------------------------------------- Total foreign exchange contracts $19,862 $176 $176 $15,246 $184 $183 ================================== ========================================
(1) Contracts under master netting agreements are shown on a net basis. (2) Fair value represents the amount at which a given instrument could be exchanged in an arm's length transaction with a third party as of the balance sheet date. The fair value amounts of the trading portfolio are included in other assets or other liabilities, as applicable. In certain cases, contracts, such as futures, are subject to daily cash settlements; as such, the fair value of these instruments is zero. (3) The credit exposure of interest rate derivatives and foreign exchange contracts at March 31, 1996 and December 31, 1995, is represented by the fair value of contracts reported in the "Asset" column. (4) The average asset and liability fair value amounts for interest rate contracts included in the trading portfolio for the quarters ended March 31, 1996 and December 31, 1995, were $110 million and $106 million, respectively, and $89 million and $71 million, respectively. The average asset and liability fair value amounts for foreign exchange contracts included in the trading portfolio were both $180 million for the quarter ended March 31, 1996, and $233 million and $222 million, respectively, for the quarter ended December 31, 1995. Net trading gains from interest rate derivatives for the quarters ended March 31, 1996 and 1995 were $5 million and $3 million, respectively. Net trading gains from foreign exchange activities, which include foreign exchange spot, forward and option contracts, for both quarters ended March 31, 1996 and 1995, were $12 million. Additional information on the Corporation's derivative products, including its accounting policies, is included on pages 40 to 42, and in Notes 1 and 20 to the Financial Statements, of the Corporation's 1995 Annual Report to Stockholders, which is incorporated by reference into its 1995 Annual Report on Form 10-K. 26 CAPITAL The Corporation's Tier 1 and total capital ratios were 8.1 percent and 12.9 percent, respectively, at March 31, 1996, compared with 8.0 percent and 12.8 percent, respectively, at December 31, 1995. The Corporation's leverage ratio at March 31, 1996 was 7.2 percent compared with 7.4 percent at December 31, 1995. The Tier 1 and total capital ratios benefited from a reduction in risk-adjusted assets, principally due to the previously described BBMC transaction as well as from the retention of earnings, offset, in part, by a reduction in capital due to the Corporation's repurchase of 1.5 million shares of its common stock during the first quarter of 1996. In the case of the leverage ratio, the impact of the BBMC transaction, which occurred on March 15 1996, on average assets was less significant than the impact of the share repurchase on capital, causing the ratio to decline slightly from December 31, 1995. As of March 31, 1996, the capital ratios of the Corporation and all of its banking subsidiaries exceeded the minimum capital ratio requirements of the "well capitalized" category under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). The capital categories of the Corporation's banking subsidiaries are determined solely for purposes of applying FDICIA's provisions and, accordingly, such capital categories may not constitute an accurate representation of the overall financial condition or prospects of any of the Corporation's banking subsidiaries. In April 1996, stockholders of the Corporation authorized an increase in the authorized shares of the Corporation's common stock from 200 million shares, par value $2.25 per share, to 300 million shares, par value $1.50 per share. In addition, in April 1996, the Board voted to increase the quarterly common stock dividend by 19 percent, from $.37 to $.44 per share, payable on May 31, 1996. The payment and level of future common dividends will continue to be determined by the Board based on the Corporation's financial condition, recent earnings history and other factors. 27 Consolidated Balance Sheet Averages by Quarter Last Nine Quarters (in millions)
1994 1995 1996 ----------------------------------------------------------------------------------------------- 1 2 3 4 1 2 3 4 1 ------- ------- ------- ------- ------- ------- ------- ------- ------- ASSETS Interest bearing deposits in other banks $ 1,083 $ 902 $ 1,131 $ 1,062 $ 1,262 $ 1,309 $ 1,249 $ 1,350 $ 1,309 Federal funds sold and securities purchased under agreements to resell 2,447 3,485 2,595 1,711 1,364 1,166 824 746 1,249 Trading securities 452 402 618 750 694 787 867 864 1,107 Loans held for sale 960 824 651 315 256 254 478 737 930 Securities 2,945 3,164 3,489 4,435 4,288 4,526 4,824 5,247 5,653 Loans and lease financing 28,615 29,105 30,362 31,076 30,123 30,928 31,625 31,763 31,357 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total earning assets 36,502 37,882 38,846 39,349 37,987 38,970 39,867 40,707 41,605 Other assets 4,712 4,820 5,079 5,051 4,858 5,131 5,318 5,526 5,409 ------- ------- ------- ------- ------- ------- ------- ------- ------- TOTAL ASSETS $41,214 $42,702 $43,925 $44,400 $42,845 $44,101 $45,185 $46,233 $47,014 ======= ======= ======= ======= ======= ======= ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Domestic offices: Noninterest bearing $ 4,633 $ 4,403 $ 4,477 $ 4,701 $ 4,194 $ 4,196 $ 4,291 $ 4,457 $ 4,519 Interest bearing 17,110 16,672 17,309 17,388 15,827 16,228 16,686 17,152 17,107 Overseas offices: Noninterest bearing 497 393 415 481 415 416 501 492 499 Interest bearing 6,375 6,764 7,703 7,875 8,318 7,967 7,790 8,202 8,698 ------- ------- ------- ------- ------- ------- ------- ------- ------- Total deposits 28,615 28,232 29,904 30,445 28,754 28,807 29,268 30,303 30,823 Federal funds purchased and repurchase agreements 3,619 4,014 3,728 3,333 3,699 3,896 3,310 3,892 3,417 Other funds borrowed 2,411 4,124 3,633 3,861 3,585 4,278 5,369 4,620 5,010 Notes payable 2,194 1,957 1,987 2,141 2,133 2,062 2,065 2,109 2,374 Other liabilities 1,433 1,404 1,625 1,491 1,467 1,661 1,643 1,647 1,647 Stockholders' equity 2,942 2,971 3,048 3,129 3,207 3,397 3,530 3,662 3,743 ------- ------- ------- ------- ------- ------- ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,214 $42,702 $43,925 $44,400 $42,845 $44,101 $45,185 $46,233 $47,014 ======= ======= ======= ======= ======= ======= ======= ======= =======
28 Consolidated Statement of Income by Quarter - Taxable Equivalent Basis Last Nine Quarters (in millions, except per share amounts)
1994 1995 1996 1 2 3 4 1 2 3 4 1 ----- ----- ----- ----- ----- ----- ----- ----- ----- Net Interest Revenue: $ 340.7 $ 374.5 $ 423.9 $ 433.4 $ 425.9 $ 434.1 $ 439.4 $ 441.8 $ 433.6 Taxable equivalent adjustment 1.5 1.5 1.3 2.7 1.4 1.9 1.5 5.0 2.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total net interest revenue 342.2 376.0 425.2 436.1 427.3 436.0 440.9 446.8 435.8 Provision for credit losses 45.0 25.0 25.0 35.0 90.0 40.0 45.0 75.0 50.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Net interest revenue after provision for credit losses 297.2 351.0 400.2 401.1 337.3 396.0 395.9 371.8 385.8 ----- ----- ----- ----- ----- ----- ----- ----- ----- Noninterest Income: Financial service fees 92.4 93.9 104.3 105.5 105.6 113.3 117.6 186.2 6.8 Trust and agency fees 47.7 50.3 50.6 53.1 52.7 57.2 58.2 48.9 51.0 Trading profits and commissions 3.9 1.2 10.9 (.1) 1.1 6.1 6.6 8.3 12.3 Net securities gains 3.9 5.9 1.3 2.5 6.1 .2 .8 1.9 13.4 Other income 87.2 41.0 35.1 37.6 127.7 59.3 65.4 67.9 142.7 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total noninterest income 235.1 192.3 202.2 198.6 293.2 236.1 248.6 313.2 226.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- Noninterest Expense: Salaries 157.8 161.5 168.1 177.8 176.4 179.6 191.1 188.8 186.5 Employee benefits 36.9 37.0 38.6 35.1 40.4 40.9 41.5 38.6 42.6 Occupancy expense 31.9 33.1 35.2 34.4 34.9 34.4 35.6 35.3 37.0 Equipment expense 23.6 23.4 24.2 24.9 24.1 25.7 25.2 25.4 26.2 Acquisition-related charges 16.4 5.0 28.2 Other expense 96.5 101.0 107.2 109.7 107.4 111.5 99.8 112.9 112.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total noninterest expense 346.7 372.4 378.3 381.9 383.2 392.1 393.2 429.2 404.5 ----- ----- ----- ----- ----- ----- ----- ----- ----- Income before income taxes and extraordinary item 185.6 170.9 224.1 217.8 247.3 240.0 251.3 255.8 207.5 ----- ----- ----- ----- ----- ----- ----- ----- ----- Provision for income taxes 81.4 74.9 98.8 94.3 120.6 104.8 109.9 108.4 88.8 Taxable equivalent adjustment 1.5 1.5 1.3 2.7 1.4 1.9 1.5 5.0 2.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- 82.9 76.4 100.1 97.0 122.0 106.7 111.4 113.4 91.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Income before extraordinary item 102.7 94.5 124.0 120.8 125.3 133.3 139.9 142.4 116.5 Extraordinary item (6.6) ----- ----- ----- ----- ----- ----- ----- ----- ----- NET INCOME $ 96.1 $ 94.5 $ 124.0 $ 120.8 $ 125.3 $ 133.3 $ 139.9 $ 142.4 $ 116.5 ===== ===== ===== ===== ===== ===== ===== ===== ===== Per Common Share: Income before extraordinary item: Primary $ .88 $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11 $ 1.17 $ 1.18 $ .97 Fully diluted .85 .77 1.04 1.01 1.04 1.10 1.15 1.17 .95 Net Income: Primary $ .82 $ .80 $ 1.07 $ 1.04 $ 1.08 $ 1.11 $ 1.17 $ 1.18 $ .97 Fully diluted .79 .77 1.04 1.01 1.04 1.10 1.15 1.17 .95 Cash dividends declared .22 .22 .22 .27 .27 .27 .37 .37 .37
29 AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis Quarter Ended March 31, 1996 (Dollars In millions)
- --------------------------------------------------------------------------------------------------------------------------- Average Average ASSETS Volume Interest(1) Rate --------------------------------- Interest Bearing Deposits with Other Banks U.S. $ 198 $ 3 5.75% International 1,111 21 7.59 ------- ----- Total 1,309 24 7.31 ------- ----- ----- Federal Funds Sold and Resale Agreements U.S. 189 3 5.13 International 1,060 38 14.64 ------- ----- Total 1,249 41 13.20 ------- ----- ----- Trading Securities U.S. 343 5 5.60 International 764 35 18.81 ------- ----- Total 1,107 40 14.72 ------- ----- ----- Loans Held for Sale U.S. 891 15 7.12 International 39 1 6.14 ------- ----- Total 930 16 7.08 ------- ----- ----- Securities U.S. Available for sale (3) 4,286 71 6.16 Held to maturity 627 10 6.61 International Available for sale (3) 646 20 13.15 Held to maturity 94 4 15.23 ------- ----- Total 5,653 105 7.46 ------- ----- ----- Loans and Leases (Net of Unearned Income) U.S. 22,610 490 8.72 International 8,747 321 14.73 ------- ----- Total loans and lease financing (2) 31,357 811 10.40 ------- ----- ----- Earning assets 41,605 1,037 10.03 ------- ----- ----- Nonearning assets 5,409 ------- Total Assets $47,014 ======= ------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits U.S. Savings deposits $ 9,453 $ 66 2.79% Time deposits 7,654 109 5.75 International 8,698 181 8.36 ------- ----- Total 25,805 356 5.55 ------- ----- ----- Federal Funds Purchased and Repurchase Agreements U.S. 3,319 48 5.82 International 98 2 10.18 ------- ----- Total 3,417 50 5.95 ------- ----- ----- Other Funds Borrowed U.S. 3,940 62 6.29 International 1,070 90 33.96 ------- ----- Total 5,010 152 12.20 ------- ----- ----- Notes Payable U.S. 1,908 32 6.64 International 466 11 9.90 ------- ----- Total 2,374 43 7.28 ------- ----- ----- Total interest bearing liabilities 36,606 601 6.61 ------- ----- ----- Demand deposits U.S. 4,519 Demand deposits International 499 Other noninterest bearing liabilities 1,647 Total Stockholders' Equity 3,743 ------- Total Liabilities and Stockholders' Equity $47,014 ======= --------------------------------------------------------------------------------------------- NET INTEREST REVENUE U.S. $29,144 $ 312 4.31% AS A PERCENTAGE OF International 12,461 124 3.99 AVERAGE INTEREST ------ ----- EARNING ASSETS Total $41,605 $ 436 4.21 ------ ----- ---------------------------------------------------------------------------------------------
(1) Income is shown on a fully taxable equivalent basis. (2) Loans and lease financing includes nonaccrual and renegotiated balances. (3) Average rates for securities available for sale are based on the securities' amortized cost. 30 AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis Quarter Ended March 31, 1995 (Dollars In millions)
- --------------------------------------------------------------------------------------------------------------------------- Average Average ASSETS Volume Interest(1) Rate ---------------------------------- Interest Bearing Deposits with Other Banks U.S. $ 129 $ 2 7.21% International 1,133 63 22.47 ------- ------ Total 1,262 65 20.92 ------- ----- ----- Federal Funds Sold and Resale Agreements U.S. 527 8 6.03 International 837 94 45.76 ------- ----- Total 1,364 102 30.41 ------- ----- ----- Trading Securities U.S. 194 3 6.52 International 500 38 30.59 ------- ----- Total 694 41 23.85 ------- ----- ----- Loans Held for Sale U.S. 256 4 5.95 ------- ----- ----- Securities U.S. Available for sale (3) 2,210 36 6.64 Held to maturity 1,588 26 6.77 International Available for sale (3) 298 10 11.33 Held to maturity 192 4 7.81 ------- ----- Total 4,288 76 7.22 ------- ----- ----- Loans and Leases (Net of Unearned Income) U.S. 22,742 499 8.90 International 7,381 247 13.59 ------- ----- Total loans and lease financing (2) 30,123 746 10.05 ------- ----- ----- Earning assets 37,987 1,034 11.05 ------- ----- ----- Nonearning assets 4,858 ------- Total Assets $42,845 ======= ------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits U.S. Savings deposits $8,699 $ 52 2.44% Time deposits 7,128 91 5.21 International 8,318 218 10.61 ------- ----- Total 24,145 361 6.07 ------- ----- ----- Federal Funds Purchased and Repurchase Agreements U.S. 3,529 44 5.07 International 170 14 32.86 ------ ----- Total 3,699 58 6.34 ------ ----- ----- Other Funds Borrowed U.S. 2,621 40 6.20 International 964 109 45.75 ------ ----- Total 3,585 149 16.83 ------ ----- ----- Notes Payable U.S. 1,996 34 6.95 International 137 5 14.63 ------ ----- Total 2,133 39 7.45 ------ ----- ----- Total interest bearing liabilities 33,562 607 7.34 ------- ----- ----- Demand deposits U.S. 4,194 Demand deposits International 415 Other noninterest bearing liabilities 1,467 Total Stockholders' Equity 3,207 ------- Total Liabilities and Stockholders' Equity $42,845 ======= ------------------------------------------------------------------------------------------- NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S. $27,647 $330 4.85% International 10,340 97 3.81 ------ ----- Total $37,987 $ 427 4.56 ======= ===== -------------------------------------------------------------------------------------------
(1) Income is shown on a fully taxable equivalent basis. (2) Loans and lease financing includes nonaccrual and renegotiated balances. (3) Average rates for securities available for sale are based on the securities' amortized cost. 31 CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS First Quarter 1996 Compared With First Quarter 1995 The following table presents, on a fully taxable equivalent basis, an analysis of the effect on net interest revenue of volume and rate changes. The change due to the volume/rate variance has been allocated to volume, and the change because of the difference in the number of days in the periods has been allocated to rate.
Increase (Decrease) Due to Change In ------------------- (in millions) Volume Rate Net ------- ----- Change ------- Interest income: Loans and lease financing U.S. $ (3) $ (6) $ (9) International 51 23 74 ---- 65 ---- Other earnings assets U.S. 27 1 28 International 24 (114) (90) ---- (62) ---- Total interest income 90 (87) 3 Total interest expense 52 (58) (6) ---- Net interest revenue $ 9 ====
32 PART II -- OTHER INFORMATION Item 1. Legal Proceedings. As previously reported, in March 1993, a complaint was filed in Delaware Chancery Court against the Corporation, Society for Savings Bancorp, Inc. ("Society") and certain Society directors. The action was brought by a Society stockholder, individually and as a class action on behalf of all Society stockholders of record on the date the Corporation's proposed acquisition of Society was announced, and sought an injunction with respect to the acquisition and damages in an unspecified amount. In May 1993, the Chancery Court denied the plaintiff's motion for a preliminary injunction and in July 1993, the Corporation acquired Society. On January 23, 1995, the defendants filed a motion for summary judgment with the Chancery Court and on June 15, 1995, the Court granted summary judgment in favor of the defendants on all claims except for an aiding and abetting claim against the Corporation on which no summary judgment motion has yet been filed. The Chancery Court also denied plaintiff's motion for rehearing. Following the entry of an Order of Final Judgment by the Chancery Court, the plaintiff appealed the June 15, 1995 opinion to the Delaware Supreme Court. The matter was argued before the Delaware Supreme Court on February 21, 1996 and, after supplemental briefing on May 9, 1996, remains under advisement. As previously reported, Fidelity Acceptance Corporation ("FAC"), an indirect subsidiary of the Corporation that is engaged in consumer lending, and/or certain of FAC's subsidiaries (collectively referred to as FAC), are defendants in class action and other lawsuits brought in Illinois, Alabama, Mississippi, Georgia and Missouri by FAC borrowers. These lawsuits, which include claims for punitive damages, often for large dollar amounts, challenge various of FAC's lending and insurance practices, including, among others, the placing of collateral protection insurance, calculating the amount of credit life insurance, and the determination of applicable interest rates. Management, after reviewing all actions and proceedings pending against the Corporation and its subsidiaries, considers that the aggregate loss, if any, resulting from the final outcome of these proceedings should not be material to the Corporation's financial statements. Item 4. Submission of Matters to a Vote of Security Holders. (A) The Annual Meeting of Stockholders of the Corporation was held on April 25, 1996. (B) The following matters were submitted to a vote of the Stockholders of the Corporation: (1) Approval of Merger Agreement with BayBanks ------------------------------------------
Total Votes For 78,558,798 Total Votes Against 308,462 Total Abstentions 474,845 Total Broker Nonvotes 11,060,953
(2) Election of Directors ---------------------
Nominee Total Votes For Total Votes Withheld - ------- --------------- -------------------- Wayne A. Budd 89,317,760 1,085,298 Alice F. Emerson 89,312,951 1,090,107 Charles K. Gifford 89,355,454 1,047,604 Paul C. O'Brien 89,142,873 1,260,185 John W. Rowe 89,252,197 1,150,861
33 (3) Selection of Independent Auditors --------------------------------- Total Votes For 89,958,471 Total Votes Against 256,294 Total Abstentions 188,293
(4) Amendments to Restated Articles of Organization Increasing Authorized --------------------------------------------------------------------- Shares of Common Stock and Changing Par Value --------------------------------------------- Total Votes For 88,527,374 Total Votes Against 1,499,263 Total Abstentions 376,421
(5) 1996 Long-Term Incentive Plan ----------------------------- Total Votes For 73,678,313 Total Votes Against 15,937,352 Total Abstentions 787,393
(6) Stockholder Proposal A regarding Political Activities ----------------------------------------------------- Total Votes For 4,861,964 Total Votes Against 71,265,704 Total Abstentions 3,215,424 Total Broker Nonvotes 11,059,966
(7) Stockholder Proposal B regarding Approval of Certain Transactions ----------------------------------------------------------------- Total Votes For 2,266,320 Total Votes Against 74,893,921 Total Abstentions 2,182,851 Total Broker Nonvotes 11,059,966
(8) Stockholder Proposal C regarding Executive Compensation ------------------------------------------------------- Total Votes For 3,409,528 Total Votes Against 73,659,064 Total Abstentions 2,274,500 Total Broker Nonvotes 11,059,966
(9) Stockholder Proposal D regarding Post-Meeting Reports ----------------------------------------------------- Total Votes For 2,799,181 Total Votes Against 74,027,930 Total Abstentions 2,515,981 Total Broker Nonvotes 11,059,966
34 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits.
3 - Restated Articles of Organization of the Corporation, as amended through April 26, 1996. 11 - Computation of Earnings Per Share. 12(a) _ Computation of the Corporation's Consolidated Ratio of Earnings to Fixed Charges (excluding interest on deposits). 12(b) - Computation of the Corporation's Consolidated Ratio of Earnings to Fixed Charges (including interest on deposits). 27 - Financial Data Schedule
(b) Current Reports on Form 8-K. During the first quarter of 1996, the Corporation filed two Current Reports on Form 8-K. The current reports, dated January 16, 1996 and January 18, 1996, contained information pursuant to Items 5 and 7 of Form 8-K. The Corporation also filed a Current Report on Form 8-K, dated April 18, 1996, which contained information pursuant to Items 5 and 7 of Form 8-K. 35 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. BANK OF BOSTON CORPORATION /s/ Charles K. Gifford -------------------------------------- Charles K. Gifford Chairman of the Board of Directors, President and Chief Executive Officer /s/ William J. Shea -------------------------------------- William J. Shea Vice Chairman, Chief Financial Officer and Treasurer Date: May 15, 1996 36 EX-3 2 RESTATED ARTICLES OF ORGANIZATION, AS AMENDED BANK OF BOSTON CORPORATION Boston, Massachusetts Restated Articles of Organization, as amended BANK OF BOSTON CORPORATION Restated Articles of Organization Table of Contents
Page ARTICLE 1 Name 1 ARTICLE 2 Purpose 1 ARTICLE 3 Authorized Capital Stock 1 ARTICLE 4 Common Stock 1 Preferred Stock, General 1 Preferred Stock, Series A 2 Preferred Stock, Series B 18 Preferred Stock, Series C 34 Preferred Stock, Series D 49 Preferred Stock, Series E 60 Preferred Stock, Series F 70 ARTICLE 5 Transfer Restrictions, if any 80 ARTICLE 6 Amendment of By-Laws 80 Stockholders Meetings 80 Corporation as Partner 80 Limitation on Director Liability 80
BANK OF BOSTON CORPORATION ARTICLES OF ORGANIZATION Restated November 24, 1993 ARTICLE 1 The name by which the corporation shall be known is "Bank of Boston Corporation." ARTICLE 2 The purposes for which the corporation is formed are as follows: To buy, sell, deal in, or hold securities of every kind and description; and in general to carry on any business permitted to corporations organized under Chapter 156B of the Massachusetts General Laws as now in force or hereafter amended. ARTICLE 3 The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue is as follows: Preferred Stock, no par value: 10,000,000 Common Stock par value $2.25 per share: 200,000,000 ARTICLE 4 (A) There shall be a class of common stock having a par value of $2.25 per share consisting of 200,000,000 shares. The holders of record of such common stock shall have one vote for each share of such common stock held by them, respectively. (B) There shall be a class of Preferred Stock consisting of 10,000,000 shares without par value. The shares of the Preferred Stock are to be issuable at any time or from time to time in one or more series as and when established by the Board of Directors, each such series to have such designation or title as may be fixed by the Directors prior to the issuance of any shares thereof, and each such series may differ from every other series already outstanding as may be determined by the Directors prior to the issuance of any shares thereof, in any or all of the following, but in no other respects: (a) the rate of dividend (cumulative or non-cumulative) to which holders of the Preferred Stock of any such series shall be entitled; (b) the terms and manner of the redemption by the corporation of the Preferred Stock of any such series; (c) the special or relative rights of the holders of the Preferred Stock of any such series in the event of the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up of the corporation; (d) the terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of any such series; (e) the right, if any, of the holders of Preferred Stock of any such series to convert the same into stock of any other class or classes or into other securities of the corporation, and the terms and conditions of such conversion; and (f) the voting rights, if any, of the holders of Preferred Stock of any such series. (C) Preferred Stock, Series A 1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this Article 4, the following capitalized words and expressions have the respective meanings set out below: "Applicable Rate" Except as provided below in this definition, the Applicable Rate for any quarterly dividend period commencing on or after June 16, 1984 shall be (x) 1.95% less than (y) the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate 2 and the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such dividend period. If the corporation determines in good faith that: (i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate cannot be determined for any particular quarterly dividend period, then the Applicable Rate for such dividend period shall be 1.95% less than the higher of whichever two of such rates can be so determined; (ii) only one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate can be determined for any particular quarterly dividend period, then the Applicable Rate for such dividend period shall be 1.95% less than the rate that can be so determined; or (iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate can be determined for any particular quarterly dividend period, then the Applicable Rate in effect for the preceding quarterly dividend period shall be continued for such dividend period. However, the Applicable Rate for any quarterly dividend period shall in no event be less than six percent (6%) per annum nor greater than thirteen percent (13%) per annum. "Articles of Organization" mean the Articles of Organization of the corporation as amended and in effect from time to time, including the amendment thereof effected pursuant to this paragraph. "Board of Governors" means the Board of Governors of the Federal Reserve System or any governmental entity which may be granted the powers referred to herein currently exercised by the Board of Governors. "Calendar Period" means a period of fourteen calendar days. 3 "Common Stock" means the capital stock of the corporation so designated and authorized from time to time and being stock which is junior to all series of the Preferred Stock in respect of dividend payments and of distributions or payments upon Liquidation. "corporation" means Bank of Boston Corporation and includes any successor corporation by merger, consolidation or otherwise if the stockholders of the former continue as stockholders of the continuing or combined corporation. "Junior Dividend Stock" means (i) the Common Stock and (ii) any series of the Preferred Stock which is specifically made junior to the Series A Stock, and any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of payments of dividends. "Junior Liquidation Stock" means (i) the Common Stock and (ii) any series of the Preferred Stock which is specifically made junior to the Series A Stock and any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of distributions or payments upon Liquidation. "Junior Stock" means the Common Stock, the Junior Dividend Stock and the Junior Liquidation Stock. "Liquidation" means the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding up of the corporation, but shall not include (i) merger or consolidation of the corporation with another corporation pursuant to any statute which provides in effect that the stockholders of the former shall continue as stockholders of the continuing or combined corporation and (ii) the acquisition by the corporation of assets or stock of another corporation. "Preferred Stock" means the authorized class of the capital stock of the corporation so designated of which there are currently 10,000,000 shares authorized. "Series A Stock" means the series of Preferred Stock created by this paragraph. 4 "Special Securities" means securities which can, at the option of the holder, be surrendered at face value in payment of federal estate taxes or which provide tax benefits for the holder and are priced to reflect such tax benefits or which were issued at a deep or substantial discount. "Ten Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of ten years). "Ten Year Constant Maturity Rate" Except as provided below in this definition, the Ten Year Constant Maturity Rate for each quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield shall be published during the relevant Calendar Period) as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series A Stock is being determined. If the Board of Governors does not publish such a weekly per annum Ten Year Average Yield during any such Calendar Period, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum Ten Year Average Yield shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per 5 annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than 12 years, as published for such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Ten Year Constant Maturity Rate for any dividend period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than 12 years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers in U.S. Government securities selected by the corporation. "Treasury Bill Rate" Except as provided below in this definition, the Treasury Bill Rate for any quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. Treasury bills, as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series A Stock is being determined. If the Board of Governors does not publish such a weekly per annum market 6 discount rate during any such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) of all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such rates, by any Federal Reserve Bank or by any such U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason no such U.S. Treasury bill rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable non-interest bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers in U.S. Government securities selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Treasury Bill Rate for any dividend period as provided above in this paragraph, the Treasury Bill Rate for such dividend period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of 7 the issues of marketable interest-bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by a least three recognized dealers in U.S. Government securities selected by the corporation. "Twenty Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). "Twenty Year Constant Maturity Rate" Except as provided below in this definition, the Twenty Year Constant Maturity Yield for any quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series A Stock is being determined. If the Board of Governors does not publish such a weekly per annum Twenty Year Average Yield during any such Calendar Period, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum Twenty Year Average Yield shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such dividend 8 period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than 18 nor more than 22 years, as published during such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Twenty Year Constant Maturity Rate for any dividend period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than 18 nor more than 22 years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers of national reputation in U.S. Government securities selected by the corporation. 2. NUMBER OF SHARES AND DESIGNATION. 1,045,712 shares of Preferred Stock are hereby constituted as a series of Preferred Stock, liquidation preference $50 per share, and designated as Adjustable Rate Cumulative Preferred Stock, Series A. No additional shares of Preferred Stock may be issued as Series A Stock. 3. PREFERENCES. The preferences of each share of the Series A Stock with respect to dividend payments or to distributions or payments upon Liquidation will be in every respect on a parity with the preferences of every other share of Preferred Stock and of every other class of the capital stock of the corporation (other than Common Stock) from time to time outstanding, which other shares of the Preferred Stock and which other classes of capital stock are 9 not made senior or junior to the Series A Stock as to dividend payments or to distributions or payments upon Liquidation. 4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series A Stock shall be entitled, before any distribution or payment is made upon any of the Junior Liquidation Stock, to be paid in cash an amount equal to $50 per share of Series A Stock so held by them plus all accrued and unpaid dividends thereon (whether or not earned or declared) to the date fixed for such payment. If upon Liquidation, the amounts payable with respect to shares of Series A Stock and to any other shares of the capital stock of the corporation ranking as to any such distribution on a parity with the Series A Stock are not paid in full, the holders of shares of the Series A Stock and of such other shares shall share ratably in any such distribution of assets of the corporation in proportion to the full respective preferential amounts to which they are entitled. Notice of Liquidation, stating the date when and the place where the amount payable on Liquidation will be paid, shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but no more than sixty (60) days prior to the date fixed for such liquidation payment, to the holders of the shares of the Series A Stock, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series A Stock, or any defect in such notice, shall not affect the validity of the proceedings for the making of liquidation payments on any other shares of the Series A Stock or of any other series or class of the capital stock of the corporation. If such notice shall have been duly mailed and if, on or before the date fixed for liquidation payments designated in such notice, the funds necessary for such liquidation payments shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series A Stock shall not have been delivered for cancellation, the shares represented 10 thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date fixed for such liquidation payments so designated, and all rights with respect to the shares of the Series A Stock shall terminate forthwith after such liquidation payment date, excepting only the right of the holder to receive the liquidation price thereof of $50 per share plus unpaid dividends accrued to such liquidation payment date but without interest thereon. The corporation's obligation to provide funds for liquidation payments shall be deemed fulfilled if, on or before the liquidation payment date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having capital and surplus of at least $50,000,000, funds necessary for such liquidation payments, in trust, with irrevocable instructions that such funds be applied to such liquidation payments. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such liquidation payment date shall be released or repaid to the corporation, after which the holder or holders of shares of Series A Stock shall look only to the corporation for payment of liquidation payments. 5. DIVIDENDS. (a) Dividend Rate. Dividends on each share of the Series A Stock shall be payable (i) at a quarterly rate of 10.60% per annum for the quarter ended June 15, 1984 and (ii) for each quarterly dividend period commencing on or after June 16, 1984, at a rate computed by multiplying $50 by the Applicable Rate (as defined herein) for such period and multiplying the result by the fraction of a year represented by such period, based upon a year of 365 or 366 days, as the case may be. (b) Payment of Dividends. Dividends on each share of the Series A Stock shall be fully cumulative and shall accrue whether or not earned, without interest, from the date of issuance of each share, and shall be payable in arrears on the 15th day of March, June, September and December in each year in which such shares are outstanding out of funds legally available for the payment of dividends, when, as and if declared by the Board of Directors. 11 In the event that there shall be outstanding shares of any other series of the Preferred Stock or of any other class of the capital stock of the corporation ranking on a parity as to dividends with shares of the Series A Stock, the corporation, in making any dividend payment on account of arrears on shares of the Series A Stock or such other series of the Preferred Stock or such other class of capital stock, shall make payment ratably upon all outstanding shares of the Series A Stock, such other series of the Preferred Stock and such other class of capital stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of the Series A Stock, such other series of the Preferred Stock and such other class of capital stock to the date of such dividend payment. So long as any shares of the Series A Stock are outstanding, the corporation shall not (i) declare or pay or set apart for payment any dividend or other distribution (other than dividends or distributions payable in shares of Junior Stock) for any period upon any Junior Stock or any stock of the corporation ranking on a parity with the Series A Stock as to dividends or upon Liquidation or (ii) redeem, purchase or otherwise acquire for any consideration any shares of Junior Stock or any capital stock of the corporation ranking on a parity with the Series A Stock as to dividends or upon Liquidation, unless, in either case, all dividends payable to holders of shares of the Series A Stock and of any stock of the corporation ranking on a parity therewith as to dividends for its current dividend period and all past dividend periods have been paid (or are contemporaneously being paid), or a sum sufficient for the payment thereof has been irrevocably set aside in trust for the holders of all such shares; except that, notwithstanding clause (i) of this paragraph 5(b), the corporation may pay dividends on the shares of the Series A Stock and shares of stock of the corporation ranking on a parity therewith as to dividends ratably in accordance with the sums which would be payable on such shares if all dividends, including accumulations, if any, were declared and paid in full. 12 6. REDEMPTION. (a) Redemption Price. Shares of the Series A Stock shall not be redeemable on or prior to March 30, 1989. After March 30, 1989, and in accordance with this paragraph 6, the shares of the Series A Stock shall be redeemable at any time or from time to time, in whole or in part, at the option of the corporation by vote of its Board of Directors; provided, however, that any partial redemption, in the opinion of an investment banking firm of national reputation selected by the corporation, shall not adversely affect the marketability of those shares of Series A Stock not redeemed. The redemption price shall be $51.50 per share if shares are redeemed on or prior to March 30, 1994 and $50 per share if shares are redeemed thereafter, plus in each case an amount equal to all unpaid dividends, whether or not earned or declared, accrued to the date fixed for redemption. (b) Redemption Procedure. Notice of any proposed redemption of all or any of the shares of the Series A Stock under this paragraph 6 shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but not more than sixty (60) days prior to the date fixed for such redemption, to the holders of the shares of the Series A Stock to be redeemed, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series A Stock designated for redemption, or any defect in such notice, shall not affect the validity of the proceedings for the redemption of any other shares of the Series A Stock. If such notice of redemption shall have been duly mailed and if, on or before the date fixed for redemption designated in such notice, the funds necessary for the redemption shall have been provided by the corporation in accordance with the provisions of the following sentence, then notwithstanding that any certificate of shares of Series A Stock so called for redemption shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such 13 funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date of redemption so designated, and all rights with respect to the shares of the Series A Stock so called for redemption shall terminate forthwith after such redemption date, excepting only the right of each holder to receive the redemption price thereof plus unpaid dividends accrued to such redemption date but without interest thereon. The corporation's obligation to provide funds for redemption shall be deemed fulfilled if, on or before the redemption date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having capital and surplus of at least $50,000,000, funds necessary for such redemption, in trust, with irrevocable instructions that such funds be applied to the redemption of the shares of Series A Stock so called for redemption. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such redemption date shall be released or repaid to the corporation, after which the holder or holders of such shares of Series A Stock so called for redemption shall look only to the corporation for payment of the redemption price. (c) Pro Rata Redemption. If any proposed redemption of shares of the Series A Stock shall be of less than all then outstanding shares of Series A Stock, such redemption shall be made on a pro rata basis, as nearly as possible, among all holders of shares of the Series A Stock outstanding at the time of redemption in the same proportion that each such holder's then respective holding of such shares shall bear to the aggregate number of such shares then outstanding. (d) Dividend Arrearages. Notwithstanding the foregoing provisions of this paragraph 6, if any dividends on shares of the Series A Stock are in arrears, no other shares of the Preferred Stock shall be redeemed, and the corporation shall not purchase or otherwise acquire any shares of the Preferred Stock unless all outstanding shares of the Series A Stock are simultaneously redeemed in accordance with the foregoing provisions of this paragraph 6, and the corporation shall not purchase or otherwise acquire any shares of the Series A Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of 14 shares of the Series A Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series A Stock. 7. VOTING RIGHTS. (a) General. The holders of shares of Series A Stock shall not, by virtue of their ownership thereof, be entitled to vote upon any matter except as otherwise provided in the Articles of Organization or by law. Whenever the holders of any shares of the Series A Stock shall be entitled to vote upon any matter, each outstanding share of the Series A Stock entitled to vote on such matter shall be entitled to one (1) vote. (b) Two-Thirds Approval. So long as any shares of the Series A Stock are outstanding, the corporation shall not, without first obtaining the consent, given in writing or in person or by proxy or at a meeting called for the purpose, of the holders of at least two-thirds (2/3rds) of the outstanding shares of the Series A Stock: (i) authorize or create any other class of capital stock (or series thereof) the shares of which rank prior to shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of stock of any other class of capital stock (or series thereof) the shares of which rank prior to the shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; (ii) authorize or create any other series of Preferred Stock, the shares of which rank prior to shares of Series A Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of any other series of Preferred Stock which rank prior to the shares of Series A Stock in respect of dividend payments or distributions or payments upon Liquidation; 15 (iii) reclassify any shares of any class of capital stock into a class ranking prior to the Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; reclassify any shares of Preferred Stock into a series which ranks prior to Series A Stock in respect of dividend payments or distributions or payments upon Liquidation; or reclassify any shares of Junior Stock into Series A Stock; or (iv) authorize any amendment to the Articles of Organization which would adversely affect the rights of the holders of the Series A Stock. For the purposes of this subparagraph (iv), the term "adversely affects" shall have the meaning as it has in Section 77 of Chapter 156B of the Massachusetts General Laws, as in effect on April 29, 1983. (c) Special Voting Rights. Notwithstanding the foregoing, in the event that, at any time after the date of original issue of the shares of the Series A Stock, an amount equal to the full accrued dividends for six or more quarterly dividend periods, whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof irrevocably set aside in trust for the holders of all of such shares, the Board of Directors of the corporation shall promptly take all necessary actions to increase the authorized number of directors of the corporation by one (1) and the holders of the shares of the Series A Stock then outstanding shall be entitled (by series, voting as a single class) to elect one (1) person director to the Board of Directors of the corporation (such right to elect one (1) director being hereinafter sometimes referred to as the "special voting rights"), each outstanding share having such right being entitled for such purpose to one vote; provided, however, that at such time as the arrearage in payment of dividends which gave rise to the exercise of the special voting rights has been cured with regard to the Series A Stock by waiver or payment of all accrued dividends, the right of the holders of such shares so to vote as provided in this paragraph 7(c) shall cease (subject to renewal from time to time upon the same terms and conditions) and the term of office of the person who is at that time a director elected by 16 such holders shall terminate and the number of directors of the corporation shall be automatically reduced by one (1). (d) Special Voting Rights; Procedure. At any time after the special voting rights shall have become vested in the holders of the shares of the Series A Stock as provided in paragraph 7(c), the Clerk of the corporation, as promptly as possible but in any event within twenty (20) days after receipt of the written request of the holders of 10% of the shares of the Series A Stock then outstanding, addressed to the corporation at its principal office, shall call a special meeting of the holders of the shares of the Series A Stock for the purpose of electing such additional director, such meeting to be held at any place as provided by the By-Laws of the corporation for meetings of the corporation's stockholders, and upon not less than ten (10) nor more than twenty (20) days notice. If such meeting shall not be so called within twenty (20) days after receipt of the request by the Clerk of the corporation, then the holders of 10% of the shares of the Series A Stock then outstanding may, by written notice to the Clerk of the corporation, designate any person to call such meeting, and the person so designated may call such meeting at any such place as provided above and upon not less than ten (10) nor more than twenty (20) days notice and for that purpose shall have access to the stockholder record books of the corporation. No such special meeting of the holders of the shares of the Series A Stock and no adjournment thereof shall be held on a date later than thirty days before the annual meeting of stockholders of the corporation. At any meeting so called or at any annual meeting held at any time when the special voting rights are in effect, the holders of a majority of the shares of the Series A Stock then outstanding, present in person or by proxy, shall be sufficient to constitute a quorum for the election of such additional director, and such additional director, together with any and all other directors who are then members of the Board of Directors, shall constitute the duly elected directors of the corporation. (e) Vacancy in Office of Director Elected by Holders of Series A Stock. With respect to a vacancy arising in the directorship referred to in paragraph 7(c) at any time 17 when the special voting rights are in effect pursuant to paragraph 7(c), upon the written request of the holders of 10% of the shares of the Series A Stock then outstanding, addressed to the corporation at its principal office, the Clerk of the corporation shall give notice of a special meeting of holders of the shares of the Series A Stock of the election of a director to fill such vacancy caused by the death, resignation or other inability to serve as a director elected by such holders, to be held not less than ten (10) nor more than twenty (20) days following receipt by the Clerk of the corporation of such written request. So long as special voting rights are in effect pursuant to paragraph 7(c), any director who shall have been so elected by the holders of the Series A Stock may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. 8. STATUS OF REDEEMED SHARES OF SERIES A STOCK. All shares of Series A Stock which have been redeemed by the corporation pursuant to paragraph 6 shall have, after such redemption, the status of authorized but unissued shares of Preferred Stock without designation of series and may be reissued but not as shares of Series A Stock. (D) Preferred Stock, Series B 1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this Article 4, the following capitalized words and expressions have the respective meanings set out below: "Applicable Rate" Except as provided below in this definition, the Applicable Rate for any quarterly dividend period commencing on or after September 16, 1985 shall be (x) 2.20% less than (y) the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such dividend period. If the corporation determines in good faith that: 18 (i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate cannot be determined for any particular quarterly dividend period, then the Applicable Rate for such dividend period shall be 2.20% less than the higher of whichever two of such rates can be so determined; (ii) only one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate can be determined for any particular quarterly dividend period, then the Applicable Rate for such dividend period shall be 2.20% less than the rate that can be so determined; or (iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate can be determined for any particular quarterly dividend period, then the Applicable Rate in effect for the preceding quarterly dividend period shall be continued for such dividend period. However, the Applicable Rate for any quarterly dividend period shall in no event be less than six percent (6%) per annum nor greater than thirteen percent (13%) per annum. "Articles of Organization" means the Articles of Organization of the corporation as amended and in effect from time to time, including the amendment thereof effected pursuant to this paragraph. "Board of Governors" means the Board of Governors of the Federal Reserve System or any governmental entity which may be granted the powers referred to herein currently exercised by the Board of Governors. "Calendar Period" means a period of fourteen calendar days. "Common Stock" means the capital stock of the corporation so designated and authorized from time to time and being stock which is junior to all series of the Preferred Stock in respect of dividend payments and of distributions or payments upon Liquidation. 19 "corporation" means Bank of Boston Corporation and includes any successor corporation by merger, consolidation or otherwise if the stockholders of the former continue as stockholders of the continuing or combined corporation. "Junior Dividend Stock" means (i) the Common Stock and (ii) any series of the Preferred Stock which is specifically made junior to the Series B Stock and any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of payments of dividends. "Junior Liquidation Stock" means (i) the Common Stock and (ii) any series of the Preferred Stock which is specifically made junior to the Series B Stock and any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of distributions or payments upon Liquidation. "Junior Stock" means the Common Stock, the Junior Dividend Stock and the Junior Liquidation Stock. "Liquidation" means the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding up of the corporation, but shall not include (i) the merger or consolidation of the corporation with another corporation pursuant to any statute which provides in effect that the stockholders of the former shall continue as stockholders of the continuing or combined corporation and (ii) the acquisition by the corporation of assets or stock of another corporation. "Preferred Stock" means the authorized class of the capital stock of the corporation so designated of which there are currently 10,000,000 shares authorized. "Series B Stock" means the series of Preferred Stock created by this paragraph. "Special Securities" means securities which can, at the option of the holder, be surrendered at face value in payment of federal estate taxes or which provide tax benefits for the holder and are priced to reflect such 20 tax benefits or which were issued at a deep or substantial discount. "Ten Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 10 years). "Ten Year Constant Maturity Rate" Except as provided below in this definition, the Ten Year Constant Maturity Rate for each quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield shall be published during the relevant Calendar Period) as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series B Stock is being determined. If the Board of Governors does not publish such a weekly per annum Ten Year Average Yield during any such Calendar Period, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum Ten Year Average Yield shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight 21 nor more than 12 years, as published for such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Ten Year Constant Maturity Rate for any dividend period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than 12 years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers in U.S. Government securities selected by the corporation. "Treasury Bill Rate" Except as provided below in this definition, the Treasury Bill Rate for any quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. Treasury bills, as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series B Stock is being determined. If the Board of Governors does not publish such a weekly per annum market discount rate during any such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. 22 Treasury bills, as published weekly during such Calendar Period by any Federal Reserve Bank or any U.S. Government department or agency selected by the corporation. If a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) of all of the U.S. Treasury Bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such rates, by any Federal Reserve Bank or by any such U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason no such U.S. Treasury Bill rates are published as provided above during such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable non-interest bearing U.S. Treasury securities with a maturity of not less than 80 or more than 100 days from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the 23 corporation by at least three recognized dealers in U.S. Government securities selected by the corporation. "Twenty Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years). "Twenty Year Constant Maturity Rate" Except as provided below in this definition, the Twenty Year Constant Maturity Yield for any quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series B Stock is being determined. If the Board of Governors does not publish such a weekly per annum Twenty Year Average Yield during any such Calendar Period, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields, (or the one weekly per annum Twenty Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum Twenty Year Average Yield shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) 24 then having maturities of not less than 18 nor more than 22 years, as published during such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Twenty Year Constant Maturity Rate for any dividend period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than 18 nor more than 22 years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers of national reputation in U.S. Government securities selected by the corporation. 2. NUMBER OF SHARES AND DESIGNATION. 1,576,068 shares of Preferred Stock are hereby constituted as a series of Preferred Stock, liquidation preference $50 per share, and designated as Adjustable Rate Cumulative Preferred Stock, Series B. No additional shares of Preferred Stock may be issued as Series B Stock. 3. PREFERENCES. The preferences of each share of the Series B Stock with respect to dividend payments or to distributions or payments upon Liquidation will be in every respect on a parity with the preferences of every other share of Preferred Stock and of every other class of the capital stock of the corporation (other than Common Stock), from time to time outstanding, which other shares of the Preferred Stock and which other classes of capital stock are not made senior or junior to the Series B Stock as to dividend payments or to distributions or payments upon Liquidation. 4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series B Stock shall be entitled, before any distribution or payment is made upon any of the Junior 25 Liquidation Stock, to be paid in cash an amount equal to $50 per share of Series B Stock so held by them plus all accrued and unpaid dividends thereon (whether or not earned or declared) to the date fixed for such payment. If upon Liquidation, the amounts payable with respect to shares of Series B Stock and to any other shares of the capital stock of the corporation ranking as to any such distribution on a parity with the Series B Stock are not paid in full, the holders of shares of the Series B Stock and of such other shares shall share ratably in any such distribution of assets of the corporation in proportion to the full respective preferential amounts to which they are entitled. Notice of Liquidation, stating the date when and the place where the amount payable on Liquidation will be paid, shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but no more than sixty (60) days prior to the date fixed for such liquidation payment, to the holders of the shares of the Series B Stock, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series B Stock, or any defect in such notice, shall not affect the validity of the proceedings for the making of liquidation payments on any other shares of the Series B Stock or of any other series or class of the capital stock of the corporation. If such notice shall have been duly mailed and if, on or before the date fixed for liquidation payments designated in such notice, the funds necessary for such liquidation payments shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series B Stock shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been set aside, the dividends thereon shall cease to accrue from and after the date fixed for such liquidation payments so designated, and all rights with respect to the shares of the Series B Stock shall terminate forthwith after such liquidation payment date, excepting only the right of the holder to receive the liquidation price thereof of $50 per share plus unpaid dividends accrued to such liquidation payment date but 26 without interest thereon. The corporation's obligation to provide funds for liquidation payments shall be deemed fulfilled if, on or before the liquidation payment date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such liquidation payments, in trust, with irrevocable instructions that such funds be applied to such liquidation payments. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such liquidation payment date shall be released or repaid to the corporation, after which the holder or holders of shares of Series B Stock shall look only to the corporation for payment of liquidation payments. 5. DIVIDENDS. (a) Dividend Rate. Dividends on each share of the Series B Stock shall be payable (i) at a quarterly rate of 8.30% per annum for the quarter ended September 15, 1985, and (ii) for each quarterly dividend period commencing on or after September 16, 1985, at a rate computed by multiplying $50 by the Applicable Rate (as defined herein) for such period and multiplying the result by the fraction of a year represented by such period, based upon a year of 365 or 366 days, as the case may be. (b) Payment of Dividends. Dividends on each share of the Series B Stock shall be fully cumulative and shall accrue whether or not earned, without interest, from the date of issuance of each share, and shall be payable in arrears on the 15th day of March, June, September, and December in each year in which such shares are outstanding out of funds legally available for the payment of dividends, when, as and if declared by the Board of Directors. In the event that there shall be outstanding shares of any other series of the Preferred Stock or of any other class of the capital stock of the corporation ranking on a parity as to dividends with shares of the Series B Stock, the corporation, in making any dividend payment on account of arrears on shares of the Series B Stock or such other 27 series of the Preferred Stock or such other class of capital stock, shall make payment ratably upon all outstanding shares of the Series B Stock, such other series of the Preferred Stock and such other class of capital stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of the Series B Stock, such other series of the Preferred Stock and such other class of capital stock to the date of such dividend payment. So long as any shares of the Series B Stock are outstanding, the corporation shall not (i) declare or pay or set apart for payment any dividend or other distribution (other than dividends or distributions payable in shares of Junior Stock) for any period upon any Junior Stock or any stock of the corporation ranking on a parity with the Series B Stock as to dividends or upon Liquidation or (ii) redeem, purchase or otherwise acquire for any consideration any shares of Junior Stock or any capital stock of the corporation ranking on a parity with the Series B Stock as to dividends or upon Liquidation, unless, in either case, all dividends payable to holders of shares of the Series B Stock and of any stock of the corporation ranking on a parity therewith as to dividends for its current dividend period and all past dividend periods have been paid (or are contemporaneously being paid), or a sum sufficient for the payment thereof has been irrevocably set aside in trust for the holders of all such shares; except that, notwithstanding clause (i) of this paragraph 5(b) the corporation may pay dividends on the shares of the Series B Stock and shares of stock of the corporation ranking on a parity therewith as to dividends ratably in accordance with the sums which would be payable on such shares if all dividends, including accumulations, if any, were declared and paid in full. 6. REDEMPTION. (a) Redemption Price. Shares of the Series B Stock shall not be redeemable on or prior to June 20, 1990. After June 20, 1990, and in accordance with this paragraph 6, the shares of the Series B Stock shall be redeemable at any time or from time to time, in whole or in part, at the option of the corporation by vote of its Board of Directors; provided, however, that any partial redemption, 28 in the opinion of an investment banking firm of national reputation selected by the corporation, shall not adversely affect the marketability of those shares of Series B Stock not redeemed. The redemption price shall be $51.50 per share if shares are redeemed on or prior to June 20, 1995 and $50 per share if shares are redeemed thereafter, plus in each case an amount equal to all unpaid dividends, whether or not earned or declared, accrued to the date fixed for redemption. (b) Redemption Procedure. Notice of any proposed redemption of all or any of the shares of the Series B Stock under this paragraph 6 shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but not more than sixty (60) days prior to the date fixed for such redemption, to the holders of the shares of the Series B Stock to be redeemed, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series B Stock designated for redemption, or any defect in such notice, shall not affect the validity of the proceedings for the redemption of any other shares of the Series B Stock. If such notice of redemption shall have been duly mailed and if, on or before the date fixed for redemption designated in such notice, the funds necessary for the redemption shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series B Stock so called for redemption shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been set aside, the dividends thereon shall cease to accrue from and after the date of redemption so designated, and all rights with respect to the shares of the Series B Stock so called for redemption shall terminate forthwith after such redemption date, excepting only the right of each holder to receive the redemption price thereof plus unpaid dividends accrued to such redemption date but without interest thereon. The corporation's obligation to provide funds for redemption shall be deemed fulfilled if, on or before the redemption 29 date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such redemption, in trust, with irrevocable instructions that such funds be applied to the redemption of the shares of Series B Stock so called for redemption. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such redemption date shall be released or repaid to the corporation, after which the holder or holders of shares of Series B Stock so called for redemption shall look only to the corporation for payment of the redemption price. (c) Pro Rata Redemption. If any proposed redemption of shares of the Series B Stock shall be less than all then outstanding shares of Series B Stock, such redemption shall be made on a pro rata basis, as nearly as possible, among all holders of shares of the Series B Stock outstanding at the time of redemption in the same proportion that each such holder's then respective holding of such shares shall bear to the aggregate number of such shares then outstanding. (d) Dividend Arrearages. Notwithstanding the foregoing provisions of this paragraph 6, if any dividends on shares of the Series B Stock are in arrears, no other shares of the Preferred Stock shall be redeemed, and the corporation shall not purchase or otherwise acquire any shares of the Preferred Stock, unless all outstanding shares of the Series B Stock are simultaneously redeemed in accordance with the foregoing provisions of this paragraph 6, and the corporation shall not purchase or otherwise acquire any shares of the Series B Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of the Series B Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series B Stock. 7. VOTING RIGHTS. (a) General. The holders of shares of Series B Stock shall not, by virtue of their ownership thereof, be entitled to vote upon any matter except as otherwise provided in the Articles of Organization or by law. 30 Whenever the holders of any shares of the Series B Stock shall be entitled to vote upon any matter, each outstanding share of the Series B Stock entitled to vote on such matter shall be entitled to one (1) vote. (b) Two-Thirds Approval. So long as any shares of the Series B Stock are outstanding, the corporation shall not, without first obtaining the consent, given in writing or in person or by proxy or at a meeting called for the purpose, of the holders of at least two-thirds (2/3rds) of the outstanding shares of the Series B Stock: (i) authorize or create any other class of capital stock (or series thereof), the shares of which rank prior to shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of stock of any other class of capital stock (or series thereof) the shares of which rank prior to the shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; (ii) authorize or create any other series of Preferred Stock, the shares of which rank prior to shares of Series B Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of any other series of Preferred Stock which rank prior to the shares of Series B Stock in respect of dividend payments or distributions or payments upon Liquidation; (iii) reclassify any shares of any class of capital stock into a class ranking prior to the Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; reclassify any shares of Preferred Stock into a series which ranks prior to Series B Stock in respect of dividend payments or distributions or payments upon Liquidation; or reclassify any shares of Junior Stock into Series B Stock; or 31 (iv) authorize any amendment to the Articles of Organization which would adversely affect the rights of the holders of the Series B Stock. For the purposes of this subparagraph (iv), the term "adversely affects" shall have the same meaning as it has in Section 77 of Chapter 156B of the Massachusetts General Laws, as in effect on November 25, 1983. (c) Special Voting Rights. Notwithstanding the foregoing, in the event that, at any time after the date of original issue of the shares of the Series B Stock, an amount equal to the full accrued dividends for six (6) or more quarterly dividend periods, whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof irrevocably set aside in trust for the holders of all of such shares, the Board of Directors of the corporation shall promptly take all necessary actions to increase the authorized number of directors of the corporation by one (1) and the holders of the shares of the Series B Stock then outstanding shall be entitled (by series, voting as a single class) to elect one (1) person director to the Board of Directors of the corporation (such right to elect one (1) director being hereinafter sometimes referred to as the "special voting rights"), each outstanding share having such right being entitled for such purpose to one vote; provided, however, that at such time as the arrearage in payment of dividends which gave rise to the exercise of the special voting rights has been cured with regard to the Series B Stock by waiver or payment of all accrued dividends, the right of the holders of such shares so to vote as provided in this paragraph 7(c) shall cease (subject to renewal from time to time upon the same terms and conditions) and the term of office of the person who is at that time a director elected by such holders shall terminate and the number of directors of the corporation shall be automatically reduced by one (1). (d) Special Voting Rights; Procedure. At any time after the special voting rights shall have become vested in the holders of the shares of the Series B Stock as provided in paragraph 7(c), the Clerk of the corporation, as promptly as possible but in any event within twenty (20) days after receipt of the written request of the holders of 10% of 32 the shares of the Series B Stock then outstanding, addressed to the corporation at its principal office, shall call a special meeting of the holders of the shares of the Series B Stock for the purpose of electing such additional director, such meeting to be held at any place as provided by the By-Laws of the corporation for meetings of the corporation's stockholders, and upon not less than ten (10) nor more than twenty (20) days notice. If such meeting shall not be so called within twenty (20) days after receipt of the request by the Clerk of the corporation, then the holders of 10% of the shares of the Series B Stock then outstanding may, by written notice to the Clerk of the corporation, designate any person to call such meeting, and the person so designated may call such meeting, at any such place as provided above and upon not less than ten (10) nor more than twenty (20) days notice and for that purpose shall have access to the stockholder record books of the corporation. No such special meeting of the holders of the shares of the Series B Stock and no adjournment thereof shall be held on a date later than thirty (30) days before the annual meeting of stockholders of the corporation. At any meeting so called or at any annual meeting held at any time when the special voting rights are in effect, the holders of a majority of the shares of the Series B Stock then outstanding, present in person or by proxy, shall be sufficient to constitute a quorum for the election of such additional director, and such additional director, together with any and all other directors who are then members of the Board of Directors, shall constitute the duly elected directors of the corporation. (e) Vacancy in Office of Director Elected by Holders of Series B Stock. With respect to a vacancy arising in the directorship referred to in paragraph 7(c) at any time when the special voting rights are in effect pursuant to paragraph 7(c), upon the written request of the holders of 10% of the shares of the Series B Stock then outstanding, addressed to the corporation at its principal office, the Clerk of the corporation shall give notice of a special meeting of holders of the shares of the Series B Stock of the election of a director to fill such vacancy caused by the death, resignation or other inability to serve as a director elected by such holders, to be held not less than ten (10) nor more than twenty (20) days following receipt 33 by the Clerk of the corporation of such written request. So long as special voting rights are in effect pursuant to paragraph 7(c), any director who shall have been so elected by the holders of the Series B Stock may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. 8. STATUS OF REDEEMED SHARES OF SERIES B STOCK. All shares of the Series B Stock which have been redeemed by the corporation pursuant to paragraph 6 shall have, after such redemption, the status of authorized but unissued shares of Preferred Stock without designation of series and may be reissued but not as shares of Series B Stock. (E) Preferred Stock, Series C 1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this Article 4, the following capitalized words and expressions have the respective meanings set out below: "Applicable Rate" Except as provided below in this definition, the Applicable Rate for any quarterly dividend period commencing on or after December 16, 1985 shall be (x) 2.75% less than (y) the highest of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate (each as hereinafter defined) for such dividend period. If the corporation determines in good faith that: (i) any one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate cannot be determined for any particular quarterly dividend period, then the Applicable Rate for such dividend period shall be 2.75% less than the higher of whichever two of such rates can be so determined; (ii) only one of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate can be determined for any particular 34 quarterly dividend period, then the Applicable Rate for such dividend period shall be 2.75% less than the rate that can be so determined; or (iii) none of the Treasury Bill Rate, the Ten Year Constant Maturity Rate and the Twenty Year Constant Maturity Rate can be determined for any particular quarterly dividend period, then the Applicable Rate in effect for the preceding quarterly dividend period shall be continued for such dividend period. However, the Applicable Rate for any quarterly dividend period shall in no event be less than five and one-half percent (5 1/2%) per annum nor greater than twelve and one-half percent (12 1/2%) per annum. "Articles of Organization" means the Articles of Organization of the corporation as amended and in effect from time to time, including the amendment thereof effected pursuant to this paragraph. "Board of Governors" means the Board of Governors of the Federal Reserve System or any governmental entity which may be granted the powers referred to herein currently exercised by the Board of Governors. "Calendar Period" means a period of fourteen calendar days. "Common Stock" means the capital stock of the corporation so designated and authorized from time to time and being stock which is junior to all series of the Preferred Stock in respect of dividend payments and of distributions or payments upon Liquidation. "corporation" means Bank of Boston Corporation and includes any successor corporation by merger, consolidation or otherwise if the stockholders of the former continue as stockholders of the continuing or combined corporation. "Junior Dividend Stock" means (i) the Common Stock and (ii) any series of the Preferred Stock which is specifically made junior to the Series C Stock, and any class of capital stock of the corporation which is 35 specifically made junior to the Preferred Stock, in respect of payments of dividends. "Junior Liquidation Stock" means (i) the Common Stock and (ii) any series of the Preferred Stock which is specifically made junior to the Series C Stock and any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of distributions or payments upon Liquidation. "Junior Stock" means the Common Stock, the Junior Dividend Stock and the Junior Liquidation Stock. "Liquidation" means the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding up of the corporation, but shall not include (i) the merger or consolidation of the corporation with another corporation pursuant to any statute which provides in effect that the stockholders of the former shall continue as stockholders of the continuing or combined corporation and (ii) the acquisition by the corporation of assets or stock of another corporation. "Preferred Stock" means the authorized class of the capital stock of the corporation so designated of which there are currently 10,000,000 shares authorized. "Series C Stock" means the series of Preferred Stock created by this paragraph. "Special Securities" means securities which can, at the option of the holder, be surrendered at face value in payment of federal estate taxes or which provide tax benefits for the holder and are priced to reflect such tax benefits or which were issued at a deep or substantial discount. "Ten Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 10 years). "Ten Year Constant Maturity Rate" Except as provided below in this definition, the Ten Year Constant Maturity Rate for each quarterly dividend period shall be the 36 arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield shall be published during the relevant Calendar Period) as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series C Stock is being determined. If the Board of Governors does not publish such a weekly per annum Ten Year Average Yield during any such Calendar Period, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum Ten Year Average Yields (or the one weekly per annum Ten Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum Ten Year Average Yield shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than eight nor more than 12 years, as published for such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Ten Year Constant Maturity Rate for any dividend period as provided above in this paragraph, then the Ten Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the per annum average yields to maturity based upon the 37 closing bids during such Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than eight nor more than 12 years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers in the U.S. Government securities selected by the corporation. "Treasury Bill Rate" Except as provided below in this definition, the Treasury Bill Rate for any quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. Treasury bills, as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series C Stock is being determined. If the Board of Governors does not publish such a weekly per annum market discount rate during any such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum market discount rates, (or the one weekly per annum market discount rate, if only one such rate shall be published during the relevant Calendar Period) for three-month U.S. Treasury bills as published weekly during such Calendar Period by any Federal Reserve Bank or any U.S. Government department or agency selected by the corporation. If a per annum market discount rate for three-month U.S. Treasury bills shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum market discount rates (or the one weekly per annum market discount rate, if only one such 38 rate shall be published during the relevant Calendar Period) of all of the U.S. Treasury bills then having maturities of not less than 80 nor more than 100 days, as published during such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such rates, by any Federal Reserve Bank or by any such U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason no such U.S. Treasury bill rates are published as provided above during such Calendar Period, or if for any reason the corporation cannot determine the Treasury Bill Rate for any quarterly dividend period as provided above in this paragraph, then the Treasury Bill Rate for such dividend period shall be the arithmetic average of the per annum market discount rates based upon the closing bids during such Calendar Period for each of the issues of marketable non-interest bearing U.S. Treasury securities with a maturity of not less than 80 nor more than 100 days from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall be generally available) to the corporation by at least three recognized dealers in U.S. Government securities selected by the corporation. "Twenty Year Average Yield" means the average yield to maturity for actively traded marketable U.S. Treasury fixed interest rate securities (adjusted to constant maturities of 20 years. "Twenty Year Constant Maturity Rate" Except as provided below in this definition, the Twenty Year Constant Maturity Yield for any quarterly dividend period shall be the arithmetic average (rounded, if not a whole multiple of five hundredths of a percentage point, to the nearest whole such fraction of a percentage point) of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly by the Board of Governors during the Calendar Period immediately prior to the 10 calendar days preceding the 15th day of March, June, September or December, as the case may be, occurring prior to the commencement of the dividend period for which the dividend rate on the shares of the Series C Stock is 39 being determined. If the Board of Governors does not publish such a weekly per annum Twenty Year Average Yield during any such Calendar Period, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum Twenty Year Average Yields (or the one weekly per annum Twenty Year Average Yield, if only one such yield shall be published during the relevant Calendar Period), as published weekly during such Calendar Period by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If a per annum Twenty Year Average Yield shall not be published by the Board of Governors or by any Federal Reserve Bank or by any U.S. Government department or agency during such Calendar Period, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the two most recent weekly per annum average yields to maturity (or the one weekly per annum average yield to maturity, if only one such yield shall be published during the relevant Calendar Period) for all of the actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) then having maturities of not less than 18 nor more than 22 years, as published during such Calendar Period by the Board of Governors or, if the Board of Governors shall not publish such yields, by any Federal Reserve Bank or by any U.S. Government department or agency selected by the corporation. If the corporation determines in good faith that for any reason the corporation cannot determine the Twenty Year Constant Maturity Rate for any dividend period as provided above in this paragraph, then the Twenty Year Constant Maturity Rate for such dividend period shall be the arithmetic average of the per annum average yields to maturity based upon the closing bids during Calendar Period for each of the issues of actively traded marketable U.S. Treasury fixed interest rate securities (other than Special Securities) with a final maturity date not less than 18 nor more than 22 years from the date of each such quotation, as chosen and quoted daily for each business day in New York City (or less frequently if daily quotations shall not be generally available) to the corporation by at least three recognized dealers of national reputation in U.S. Government securities selected by the corporation. 40 2. NUMBER OF SHARES AND DESIGNATION. 775,390 shares of Preferred Stock are hereby constituted as a series of Preferred Stock, liquidation preference $100 per share, and designated as Adjustable Rate Cumulative Preferred Stock, Series C. No additional shares of Preferred Stock may be issued as Series C Stock. 3. PREFERENCES. The preferences of each share of the Series C Stock with respect to dividend payments or to distributions or payments upon Liquidation will be in every respect on a parity with the preferences of every other share of Preferred Stock and of every other class of the capital stock of the corporation (other than Common Stock), from time to time outstanding, which other shares of the Preferred Stock and which other classes of capital stock are not made senior or junior to the Series C Stock as to dividend payments or to distributions or payments upon Liquidation. 4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series C Stock shall be entitled, before any distribution or payment is made upon any of the Junior Liquidation Stock, to be paid in cash an amount equal to $100 per share of Series C Stock so held by them plus all accrued and unpaid dividends thereon (whether or not earned or declared) to the date fixed for such payment. If upon Liquidation, the amounts payable with respect to shares of Series C Stock and to any other shares of the capital stock of the corporation ranking as to any such distribution on a parity with the Series C Stock are not paid in full, the holders of shares of the Series C Stock and of such other shares shall share ratably in any such distribution of assets of the corporation in proportion to the full respective preferential amounts to which they are entitled. Notice of Liquidation, stating the date when and the place where the amount payable on Liquidation will be paid, shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but no more than sixty (60) days prior to the date fixed for such liquidation payment, to the holders of the shares of the Series C Stock, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, 41 and failure duly to give such notice by mail to any holder of shares of Series C Stock, or any defect in such notice, shall not affect the validity of the proceedings for the making of liquidation payments on any other shares of the Series C Stock or of any other series or class of the capital stock of the corporation. If such notice shall have been duly mailed and if, on or before the date fixed for liquidation payments designated in such notice, the funds necessary for such liquidation payments shall have been provided by the corporation in accordance with the provisions of the following sentence, then notwithstanding that any certificate of shares of Series C Stock shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date fixed for such liquidation payments so designated, and all rights with respect to the shares of the Series C Stock shall terminate forthwith after such liquidation payment date, excepting only the right of the holder to receive the liquidation price thereof of $100 per share plus unpaid dividends accrued to such liquidation payment date but without interest thereon. The corporation's obligation to provide funds for liquidation payments shall be deemed fulfilled if, on or before the liquidation payment date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such liquidation payments, in trust, with irrevocable instructions that such funds be applied to such liquidation payments. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such liquidation payment date shall be released or repaid to the corporation, after which the holder or holders of shares of Series C Stock shall look only to the corporation for payment of liquidation payments. 5. DIVIDENDS. (a) Dividend Rate. Dividends on each share of the Series C Stock shall be payable (i) at a quarterly rate of 7.70% per annum for the period ended December 15, 1985, and (ii) for each quarterly dividend period commencing on or after December 16, 1985, at a rate computed by multiplying $100 42 by the Applicable Rate (as defined herein) for such period and multiplying the result by the fraction of a year represented by such period, based upon a year of 365 or 366 days, as the case may be. (b) Payment of Dividends. Dividends on each share of the Series C Stock shall be fully cumulative and shall accrue whether or not earned, without interest, from the date of issuance of each share, and shall be payable in arrears on the 15th day of March, June, September and December in each year in which such shares are outstanding out of funds legally available for the payment of dividends, when, as and if declared by the Board of Directors. In the event that there shall be outstanding shares of any other series of the Preferred Stock or of any other class of the capital stock of the corporation ranking on a parity as to dividends with shares of the Series C Stock, the corporation, in making any dividend payment on account of arrears on shares of the Series C Stock or such other series of the Preferred Stock or such other class of capital stock, shall make payment ratably upon all outstanding shares of the Series C Stock, such other series of the Preferred Stock and such other class of capital stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of the Series C Stock, such other series of the Preferred Stock and such other class of capital stock to the date of such dividend payment. So long as any shares of the Series C Stock are outstanding, the corporation shall not (i) declare or pay or set apart for payment any dividend or other distribution (other than dividends or distributions payable in shares of Junior Stock) for any period upon any Junior Stock or any stock of the corporation ranking on a parity with the Series C Stock as to dividends or upon Liquidation or (ii) redeem, purchase or otherwise acquire for any consideration any shares of Junior Stock or any capital stock of the corporation ranking on a parity with the Series C Stock as to dividends or upon Liquidation, unless, in either case, all dividends payable to holders of shares of the Series C Stock and of any stock of the corporation ranking on a parity therewith as to dividends for its current dividend period and all past dividend 43 periods have been paid (or are contemporaneously being paid), or a sum sufficient for the payment thereof has been irrevocably set aside in trust for the holders of all such shares; except that, notwithstanding clause (i) of this paragraph 5(b), the corporation may pay dividends on the shares of the Series C Stock and shares of stock of the corporation ranking on a parity therewith as to dividends ratably in accordance with the sums which would be payable on such shares if all dividends, including accumulations, if any, were declared and paid in full. 6. REDEMPTION. (a) Redemption Price. Shares of the Series C Stock shall not be redeemable on or prior to November 14, 1990. After November 14, 1990 and in accordance with this paragraph 6, the shares of the Series C Stock shall be redeemable at any time or from time to time, in whole or in part, at the option of the corporation by vote of its Board of Directors; provided, however, that any partial redemption, in the opinion of an investment banking firm of national reputation selected by the corporation, shall not adversely affect the marketability of those shares of Series C Stock not redeemed. The redemption price shall be $103.00 per share if shares are redeemed on or prior to November 14, 1995 and $100 per share if shares are redeemed thereafter, plus in each case an amount equal to all unpaid dividends, whether or not earned or declared, accrued to the date fixed for redemption. (b) Redemption Procedure. Notice of any proposed redemption of all or any of the shares of the Series C Stock under this paragraph 6 shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but not more than sixty (60) days prior to the date fixed for such redemption, to the holders of the shares of the Series C Stock to be redeemed, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series C Stock designated for redemption, or any defect in such notice, shall not affect the validity of the proceedings for the redemption of any 44 other shares of the Series C Stock. If such notice of redemption shall have been duly mailed and if, on or before the date fixed for redemption designated in such notice, the funds necessary for the redemption shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series C Stock so called for redemption shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date of redemption so designated, and all rights with respect to the shares of the Series C Stock so called for redemption shall terminate forthwith after such redemption date, excepting only the right of each holder to receive the redemption price thereof plus unpaid dividends accrued to such redemption date but without interest thereon. The corporation's obligation to provide funds for redemption shall be deemed fulfilled if, on or before the redemption date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such redemption, in trust, with irrevocable instructions that such funds be applied to the redemption of the shares of Series C Stock so called for redemption. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such redemption date shall be released or repaid to the corporation, after which the holder or holders of shares of Series C Stock so called for redemption shall look only to the corporation for payment of the redemption price. (c) Pro Rata Redemption. If any proposed redemption of shares of the Series C Stock shall be less than all then outstanding shares of Series C Stock, such redemption shall be made on a pro rata basis, as nearly as possible, among all holders of shares of the Series C Stock outstanding at the time of redemption in the same proportion that each such holder's then respective holding of such shares shall bear to the aggregate number of such shares then outstanding. 45 (d) Dividend Arrearages. Notwithstanding the foregoing provisions of this paragraph 6, if any dividends on shares of the Series C Stock are in arrears, no other shares of the Preferred Stock shall be redeemed, and the corporation shall not purchase or otherwise acquire any shares of the Preferred Stock, unless all outstanding shares of the Series C Stock are simultaneously redeemed, and the corporation shall not purchase or otherwise acquire any shares of the Series C Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of the Series C Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series C Stock. 7. VOTING RIGHTS. (a) General. The holders of shares of Series C Stock shall not, by virtue of their ownership thereof, be entitled to vote upon any matter except as otherwise provided in the Articles of Organization or by law. Whenever the holders of any shares of the Series C Stock shall be entitled to vote upon any matter, each outstanding share of the Series C Stock entitled to vote on such matter shall be entitled to one (1) vote. (b) Two-Thirds Approval. So long as any shares of the Series C Stock are outstanding, the corporation shall not, without first obtaining the consent, given in writing or in person or by proxy or at a meeting called for the purpose, of the holders of at least two-thirds (2/3rds) of the outstanding shares of the Series C Stock: (i) authorize or create any other class of capital stock (or series thereof), the shares of which rank prior to shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of stock of any other class of capital stock (or series thereof) the shares of which rank prior to the shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; 46 (ii) authorize or create any other series of Preferred Stock, the shares of which rank prior to shares of Series C Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of any other series of Preferred Stock which rank prior to the shares of Series C Stock in respect of dividend payments or distributions or payments upon Liquidation; (iii) reclassify any shares of any class of capital stock into a class ranking prior to the Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; reclassify any shares of Preferred Stock into a series which ranks prior to Series C Stock in respect of dividend payments or distributions or payments upon Liquidation; or reclassify any shares of Junior Stock into Series C Stock; or (iv) authorize any amendment to the Articles of Organization which would adversely affect the rights of the holders of the Series C Stock. For the purposes of this subclause (iv), the term "adversely affects" shall have the same meaning as it has in Section 77 of Chapter 156B of the Massachusetts General Laws, as in effect on February 10, 1984. (c) Special Voting Rights. Notwithstanding the foregoing, in the event that, at any time after the date of original issue of the shares of the Series C Stock, an amount equal to the full accrued dividends for six (6) or more quarterly dividend periods, whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof irrevocably set aside in trust for the holders of all of such shares, the Board of Directors of the corporation shall promptly take all necessary actions to increase the authorized number of directors of the corporation by one (1) and the holders of the shares of the Series C Stock then outstanding shall be entitled (by series, voting as a single class) to elect one (1) person director to the Board of Directors of the corporation (such right to elect one (1) director being 47 hereinafter sometimes referred to as the "special voting rights"), each outstanding share having such right being entitled for such purpose to one vote; provided, however, that at such time as the arrearage in payment of dividends which gave rise to the exercise of the special voting rights has been cured with regard to the Series C Stock by waiver or payment of all accrued dividends, the right of the holders of such shares so to vote as provided in this paragraph 7(c) shall cease (subject to renewal from time to time upon the same terms and conditions) and the term of office of the person who is at that time a director elected by such holders shall terminate and the number of directors of the corporation shall be automatically reduced by one (1). (d) Special Voting Rights; Procedure. At any time after the special voting rights shall have become vested in the holders of the shares of the Series C Stock as provided in paragraph 7(c), the Clerk of the corporation, as promptly as possible but in any event within twenty (20) days after receipt of the written request of the holders of 10% of the shares of the Series C Stock then outstanding, addressed to the corporation at its principal office, shall call a special meeting of the holders of the shares of the Series C Stock for the purpose of electing such additional director, such meeting to be held at any place as provided by the By-Laws of the corporation for meetings of the corporation's stockholders, and upon not less than ten (10) nor more than twenty (20) days notice. If such meeting shall not be so called within twenty (20) days after receipt of the request by the Clerk of the corporation, then the holders of 10% of the shares of the Series C Stock then outstanding may, by written notice to the Clerk of the corporation, designate any person to call such meeting, and the person so designated may call such meeting, at any such place as provided above and upon not less than ten (10) nor more than twenty (20) days notice and for that purpose shall have access to the stockholder record books of the corporation. No such special meeting of the holders of the shares of the Series C Stock and no adjournment thereof shall be held on a date later than thirty (30) days before the annual meeting of stockholders of the corporation. At any meeting so called or at any annual meeting held at any time when the special voting rights are in effect, the holders of a majority of the 48 shares of the Series C Stock then outstanding, present in person or by proxy, shall be sufficient to constitute a quorum for the election of such additional director, and such additional director, together with any and all other directors who are then members of the Board of Directors, shall constitute the duly elected directors of the corporation. (e) Vacancy in Office of Director Elected by Holders of Series C Stock. With respect to a vacancy arising in the directorship referred to in paragraph 7(c) at any time when the special voting rights are in effect pursuant to paragraph 7(c), upon the written request of the holders of 10% of the shares of the Series C Stock then outstanding, addressed to the corporation at its principal office, the Clerk of the corporation shall give notice of a special meeting of holders of the shares of the Series C Stock of the election of a director to fill such vacancy caused by the death, resignation or other inability to serve as a director elected by such holders, to be held not less than ten (10) nor more than twenty (20) days following receipt by the Clerk of the corporation of such written request. So long as special voting rights are in effect pursuant to paragraph 7(c), any director who shall have been so elected by the holders of the Series C Stock may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. 8. STATUS OF REDEEMED SHARES OF SERIES C STOCK. All shares of the Series C Stock which have been redeemed by the corporation pursuant to paragraph 6 shall have, after such redemption, the status of authorized but unissued shares of Preferred Stock without designation of series and may be reissued but not as shares of Series C Stock. (F) Preferred Stock, Series D 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Junior Participating Preferred Stock, 49 Series D" and the number of shares constituting such series shall be 200,000. 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the prior and superior rights of the holders of any shares of any series of preferred stock ranking prior and superior to the shares of Junior Participating Preferred Stock, Series D with respect to dividends, the holders of shares of Junior Participating Preferred Stock, Series D shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 15th day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Participating Preferred Stock, Series D, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $3.10 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all noncash dividends or other distributions other than a dividend payable in shares of common stock, par value $2.25 per share, of the corporation (the "Common Stock") or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Participating Preferred Stock, Series D. In the event the corporation shall at any time after June 28, 1990 ( the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Junior Participating Preferred Stock, Series D were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock 50 outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The corporation shall declare a dividend or distribution on the Junior Participating Preferred Stock, Series D as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $3.10 per share on the Junior Participating Preferred Stock, Series D shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Participating Preferred Stock, Series D from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Junior Participating Preferred Stock, Series D, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Participating Preferred Stock, Series D entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Participating Preferred Stock, Series D in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Participating Preferred Stock, Series D entitled to receive payment of a dividend or distribution declared thereon, which record date shall be 51 no more than 30 days prior to the date fixed for the payment thereof. 3. VOTING RIGHTS. The holders of shares of Junior Participating Preferred Stock, Series D shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Junior Participating Preferred Stock, Series D shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the corporation. In the event the corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Junior Participating Preferred Stock, Series D were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Junior Participating Preferred Stock, Series D and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the corporation. (C)(i) If at any time dividends on any Junior Participating Preferred Stock, Series D shall be in arrears in an amount equal to the full accrued dividends for six (6) or more quarterly dividends periods, whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof irrevocably set aside in trust for the holders of all of such shares, the Board of Directors of the corporation shall promptly take all necessary actions to increase the authorized number of directors of the corporation by one (1) and the holders of the shares of the Junior Participating Preferred Stock, Series D then outstanding shall be 52 entitled (by series, voting as a single class) to elect one (1) person director to the Board of Directors of the corporation (such right to elect one (1) director being hereinafter sometimes referred to as the "special voting rights"), each outstanding share having such right being entitled for such purpose to one vote; provided, however, that at such time as the arrearage in payment of dividends which gave rise to the exercise of the special voting rights has been cured with regard to the Junior Participating Preferred Stock, Series D by waiver or payment of all accrued dividends, the right of the holders of such shares so to vote as provided in this paragraph (C)(i) of this Section 3 shall cease (subject to renewal from time to time upon the same terms and conditions) and the term of office of the person who is at that time a director elected by such holders shall terminate and the number of directors of the corporation shall be automatically reduced by one (1). (ii) At any time after the special voting rights shall have become vested in the holders of the shares of the Junior Participating Preferred Stock, Series D as provided in paragraph (C)(i) of this Section 3, the Clerk of the corporation, as promptly as possible but in any event within twenty (20) days after receipt of the written request of the holders of 10% of the shares of the Junior Participating Preferred Stock, Series D then outstanding, addressed to the corporation at its principal office, shall call a special meeting of the holders of the shares of the Junior Participating Preferred Stock, Series D for the purpose of electing such additional director, such meeting to be held at any place as provided by the Bylaws of the corporation for meetings of the corporation's stockholders, and upon not less then ten (10) nor more than twenty (20) days notice. If such meeting shall not be so called within twenty (20) days after receipt of the request by the Clerk of the corporation, then the holders of 10% of the shares of the Junior Participating Preferred Stock, Series D then outstanding may, by written notice to the Clerk of the corporation, designate any person to call such meeting, and the person so designated may call such meeting, at any such place as provided above and upon not less then ten (10) nor more than twenty (20) days notice and for that purpose shall have access to the stockholder record books of the corporation. No such special meeting 53 of the holders of the shares of the Junior Participating Preferred Stock, Series D and no adjournment thereof shall be held on a date later than thirty (30) days before the annual meeting of stockholders of the corporation. At any meeting so called or at any annual meeting held at any time when the special voting rights are in effect, the holders of a majority of the shares of the Junior Participating Preferred Stock, Series D then outstanding, present in person or by proxy, shall be sufficient to constitute a quorum for the election of such additional director, and such additional director, together with any and all other directors who are then members of the Board of Directors, shall constitute the duly elected directors of the corporation. (C)(iii) With respect to a vacancy arising in the directorship referred to in paragraph (C)(i) of this Section 3 at any time when the special voting rights are in effect pursuant to paragraph (C)(i) of this Section 3, upon the written request of the holders of 10% of the shares of the Junior Participating Preferred Stock, Series D then outstanding, addressed to the corporation at its principal office, the Clerk of the corporation shall give notice of a special meeting of holders of the shares of the Junior Participating Preferred Stock, Series D of the election of a director to fill such vacancy caused by death, resignation or other inability to serve as a director elected by such holders, to be held not less than ten (10) nor more than twenty (20) days following receipt by the Clerk of the corporation of such written request. So long as special voting rights are in effect pursuant to paragraph (i) of this Section 3(c), any director who shall have been so elected by the holders of the Junior Participating Preferred Stock, Series D may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. (D) Except as set forth herein, holders of Junior Participating Preferred Stock, Series D shall have no special voting rights and their consent shall not be 54 required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Junior Participating Preferred Stock, Series D as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Participating Preferred Stock, Series D outstanding shall have been paid in full, the corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Stock, Series D; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Stock, Series D, except dividends paid ratably on the Junior Participating Preferred Stock, Series D and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Participating Preferred Stock, Series D, provided that the corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Participating Preferred Stock, Series D; 55 (iv) purchase or otherwise acquire for consideration any shares of Junior Participating Preferred Stock, Series D, or any shares of stock ranking on a parity with the Junior Participating Preferred Stock, Series D, except pursuant to Section 8 or in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. REACQUIRED SHARES. Any shares of Junior Participating Preferred Stock, Series D purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Participating Preferred Stock, Series D unless, prior thereto, the holders of shares of Junior Participating Preferred Stock, Series D shall have received $1,000.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series D 56 Liquidation Preference"). Following the payment of the full amount of the Series D Liquidation Preference, no additional distributions shall be made to the holders of shares of Junior Participating Preferred Stock, Series D unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series D Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii) immediately above being referred to as the "Adjustment Number"). Following the payment of the full amount of the Series D Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Junior Participating Preferred Stock, Series D and Common Stock, respectively, holders of Junior Participating Preferred Stock, Series D and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one (1) with respect to such Junior Participating Preferred Stock, Series D and Common Stock, on a per share basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series D Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Junior Participating Preferred Stock, Series D, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted 57 by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, then in any such case the shares of Junior Participating Preferred Stock, Series D shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1000 times the aggregate amount of stock, securities, cash or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Participating Preferred Stock, Series D shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 8. REDEMPTION. The outstanding shares of Junior Participating Preferred Stock, Series D may be redeemed at the option of the Board of Directors as a whole, but not in part, at any time, or from time to time, at a cash price per share equal to 100 percent of (i) the product of the Adjustment Number times the Average Market Value (as such term is hereinafter defined) of the Common Stock, plus (ii) all dividends which on the redemption date have accrued on the shares to be redeemed and have not been paid, or declared and a sum sufficient for the payment thereof set apart, without interest. The "Average Market Value" is the average of the closing sale prices of the Common Stock 58 during the 30 day period immediately preceding the date before the redemption date on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the average of the closing sale prices with respect to a share of Common Stock during such 30 day period, as quoted on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value of the Common Stock as determined by the Board of Directors in good faith. 9. RANKING. The Junior Participating Preferred Stock, Series D shall rank junior to all other series of the corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. 10. AMENDMENT. At such time as shares of Junior Participating Preferred Stock, Series D are outstanding, the Articles of Organization of the corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Junior Participating Preferred Stock, Series D so as to affect them adversely without the affirmative vote of the holders of two-thirds or more of the outstanding shares of Junior Participating Preferred Stock, Series D, voting separately as a class. 11. FRACTIONAL SHARES. Junior Participating Preferred Stock, Series D may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Junior Participating Preferred Stock, Series D. 12. CANCELLATION. Any shares of the Junior Participating Preferred Stock, Series D redeemed, exchanged, or purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and canceled promptly after the 59 acquisition thereof; all such shares shall upon their cancellation become authorized but unissued shares of preferred stock. (G) Preferred Stock, Series E 1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this Article 4, the following capitalized words and expressions have the respective meanings set out below: "Articles of Organization" means the Articles of Organization of the corporation as amended and in effect from time to time, including the amendment thereof effected pursuant to this paragraph. "Common Stock" means the capital stock of the corporation so designated and authorized from time to time and being stock which is junior to all series of the Preferred Stock in respect of dividend payments and of distribution or payments upon Liquidation. "corporation" means Bank of Boston Corporation and includes any successor corporation by merger, consolidation or otherwise if the stockholders of the former continue as stockholders of the continuing or combined corporation. "Junior Dividend Stock" means (i) the Common Stock, (ii) any series of the Preferred Stock which is specifically made junior to the Series E Stock, including the corporation's Junior Participating Preferred Stock, Series D and (iii) any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of payments of dividends. "Junior Liquidation Stock" means (i) the Common Stock, (ii) any series of the Preferred Stock which is specifically made junior to the Series E Stock, including the corporation's Junior Participating Preferred Stock, Series D and (iii) any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of distributions or payments upon Liquidation. "Junior Stock" means the Common Stock, the Junior Dividend Stock and the Junior Liquidation Stock. 60 "Liquidation" means the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding up of the corporation, but shall not include (i) the merger or consolidation of the corporation with another corporation pursuant to any statute which provides in effect that the stockholders of the former shall continue as stockholders of the continuing or combined corporation and (ii) the acquisition by the corporation of assets or stock of another corporation. "Preferred Stock" means the authorized class of the capital stock of the corporation so designated of which there are currently 10,000,000 shares authorized. "Series E Stock" means the series of Preferred Stock created by this paragraph. 2. NUMBER OF SHARES AND DESIGNATION. 920,000 shares of Preferred Stock are hereby constituted as a series of Preferred Stock, liquidation preference $250 per share, and designated as 8.60% Cumulative Preferred Stock, Series E. No additional shares of Preferred Stock may be issued as Series E Stock. 3. PREFERENCES. The preferences of each share of the Series E Stock with respect to dividend payments or to distributions or payments upon Liquidation will be in every respect on a parity with the preferences of every other share of Preferred Stock and of every other class of the capital stock of the corporation (other than Common Stock), from time to time outstanding, which other shares of the Preferred Stock and which other classes of capital stock are not made senior or junior to the Series E Stock as to dividend payments or to distributions or payments upon Liquidation. 4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series E Stock shall be entitled, before any distribution or payment is made upon any of the Junior Liquidation Stock, to be paid in cash an amount equal to $250 per share of Series E Stock so held by them plus all accrued and unpaid dividends thereon (whether or not earned or declared) to the date fixed for such payment. If upon Liquidation, the amounts payable with respect to shares of 61 Series E Stock and to any other shares of the capital stock of the corporation ranking as to any such distribution on a parity with the Series E Stock are not paid in full, the holders of shares of the Series E Stock and of such other shares shall share ratably in any such distribution of assets of the corporation in proportion to the full respective preferential amounts to which they are entitled. Notice of Liquidation, stating the date when and the place where the amount payable on Liquidation will be paid, shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but no more than sixty (60) days prior to the date fixed for such liquidation payment, to the holders of the shares of the Series E Stock, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series E Stock, or any defect in such notice, shall not affect the validity of the proceedings for the making of liquidation payments on any other shares of the Series E Stock or of any other series or class of the capital stock of the corporation. If such notice shall have been duly mailed and if, on or before the date fixed for liquidation payments designated in such notice, the funds necessary for such liquidation payments shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series E Stock shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date fixed for such liquidation payments so designated, and all rights with respect to the shares of the Series E Stock shall terminate forthwith after such liquidation payment date, excepting only the right of the holder to receive the liquidation price thereof of $250 per share plus unpaid dividends accrued to such liquidation payment date but without interest thereon. The corporation's obligation to provide funds for liquidation payments shall be deemed fulfilled if, on or before the liquidation payment date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a 62 capital and surplus of at least $50,000,000, funds necessary for such liquidation payments, in trust, with irrevocable instructions that such funds be applied to such liquidation payments. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such liquidation payment date shall be released or repaid to the corporation, after which the holder or holders of shares of Series E Stock shall look only to the corporation for payment of liquidation payments. 5. DIVIDENDS. (a) Dividend Rate. Dividends on each share of the Series E Stock shall be payable quarterly based on an annual rate of 8.60% multiplied by $250. Dividends payable on the Series E Stock for any period less than a full dividend period shall be computed on the basis of a 360-day year consisting of twelve 30- day months. (b) Payment of Dividends. Dividends on each share of the Series E Stock shall be fully cumulative and shall accrue whether or not earned, without interest, from the date of issuance of each share, and shall be payable in arrears on the 15th day of March, June, September and December in each year, commencing on December 15, 1992, in which such shares are outstanding out of funds legally available for the payment of dividends, when, as and if declared by the Board of Directors. In the event that there shall be outstanding shares of any other series of the Preferred Stock or of any other class of the capital stock of the corporation ranking on a parity as to dividends with shares of the Series E Stock, the corporation, in making any dividend payment on account of arrears on shares of the Series E Stock or such other series of the Preferred Stock or such other class of capital stock, shall make payment ratably upon all outstanding shares of the Series E Stock, such other series of the Preferred Stock and such other class of capital stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of the Series E Stock, such other series of the Preferred Stock and such other class of capital stock to the date of such dividend payment. 63 So long as any shares of the Series E Stock are outstanding, the corporation shall not (i) declare or pay or set apart for payment any dividend or other distribution (other than dividends or distributions payable in shares of Junior Stock) for any period upon any Junior Stock or any stock of the corporation ranking on a parity with the Series E Stock as to dividends or upon Liquidation or (ii) redeem, purchase or otherwise acquire for any consideration any shares of Junior Stock or any capital stock of the corporation ranking on a parity with the Series E Stock as to dividends or upon Liquidation, unless, in either case, all dividends payable to holders of shares of the Series E Stock and of any stock of the corporation ranking on a parity therewith as to dividends for its current dividend period and all past dividend periods have been paid (or are contemporaneously being paid), or a sum sufficient for the payment thereof has been irrevocably set aside in trust for the holders of all such shares; except that, notwithstanding clause (i) of this paragraph 5(b), the corporation may pay dividends on the shares of the Series E Stock and shares of stock of the corporation ranking on a parity therewith as to dividends ratably in accordance with the sums which would be payable on such shares if all dividends, including accumulations, if any, were declared and paid in full. 6. REDEMPTION. (a) Redemption Price. Shares of the Series E Stock shall not be redeemable prior to September 15, 1997. On and after such date, and in accordance with this paragraph 6, the shares of the Series E Stock shall be redeemable at any time or from time to time, in whole or in part, at the option of the corporation by vote of its Board of Directors, with the prior approval of the Board of Governors of the Federal Reserve System (if such approval is required at the time of redemption). The redemption price shall be $250 per share plus an amount equal to all unpaid dividends, whether or not earned or declared, accrued to the date fixed for redemption. (b) Redemption Procedure. Notice of any proposed redemption of all or any of the shares of the Series E Stock under this paragraph 6 shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but not more than sixty (60) days prior to the 64 date fixed for such redemption, to the holders of the shares of the Series E Stock to be redeemed, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series E Stock designated for redemption, or any defect in such notice, shall not affect the validity of the proceedings for the redemption of any other shares of the Series E Stock. If such notice of redemption shall have been duly mailed and if, on or before the date fixed for redemption designated in such notice, the funds necessary for the redemption shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series E Stock so called for redemption shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date of redemption so designated, and all rights with respect to the shares of the Series E Stock so called for redemption shall terminate forthwith after such redemption date, excepting only the right of each holder to receive the redemption price thereof plus unpaid dividends accrued to such redemption date but without interest thereon. The corporation's obligation to provide funds for redemption shall be deemed fulfilled if, on or before the redemption date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such redemption, in trust, with irrevocable instructions that such funds be applied to the redemption of the shares of Series E Stock so called for redemption. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such redemption date shall be released or repaid to the corporation, after which the holder or holders of shares of Series E Stock so called for redemption shall look only to the corporation for payment of the redemption price. (c) Pro Rata Redemption. If any proposed redemption of shares of the Series E Stock shall be less than all then outstanding shares of Series E Stock, such redemption shall 65 be made on a pro rata basis, as nearly as possible, among all holders of shares of the Series E Stock outstanding at the time of redemption in the same proportion that each such holder's then respective holding of such shares shall bear to the aggregate number of such shares then outstanding. (d) Dividend Arrearages. Notwithstanding the foregoing provisions of this paragraph 6, if any dividends on shares of the Series E Stock are in arrears, no other shares of the Preferred Stock shall be redeemed, and the corporation shall not purchase or otherwise acquire any shares of the Preferred Stock, unless all outstanding shares of the Series E Stock are simultaneously redeemed in accordance with the foregoing provisions of this paragraph 6, and the corporation shall not purchase or otherwise acquire any shares of the Series E Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of the Series E Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series E Stock. 7. VOTING RIGHTS. (a) General. The holders of shares of Series E Stock shall not, by virtue of their ownership thereof, be entitled to vote upon any matter except as otherwise provided in the Articles of Organization or by law. Whenever the holders of any shares of the Series E Stock shall be entitled to vote upon any matter, each outstanding share of the Series E Stock entitled to vote on such matter shall be entitled to one (1) vote. (b) Two-Thirds Approval. So long as any shares of the Series E Stock are outstanding, the corporation shall not, without first obtaining the consent, given in writing or in person or by proxy or at a meeting called for the purpose, of the holders of at least two-thirds (2/3rds) of the outstanding shares of the Series E Stock: (i) authorize or create any other class of capital stock (or series thereof), the shares of which rank prior to shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or 66 other securities by their terms convertible into or evidencing a right to purchase shares of stock of any other class of capital stock (or series thereof) the shares of which rank prior to the shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; (ii) authorize or create any other series of Preferred Stock, the shares of which rank prior to shares of Series E Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of any other series of Preferred Stock which rank prior to the shares of Series E Stock in respect of dividend payments or distributions or payments upon Liquidation ; (iii) reclassify any shares of any class of capital stock into a class ranking prior to the Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; reclassify any shares of Preferred Stock into a series which ranks prior to Series E Stock in respect of dividend payments or distributions or payments upon Liquidation; or reclassify any shares of Junior Stock into Series E Stock; or (iv) authorize any amendment to the Articles of Organization which would adversely affect the rights of the holders of the Series E Stock. For the purposes of this subparagraph (iv), the term "adversely affects" shall have the same meaning as it has in Section 77 of Chapter 156B of the Massachusetts General Laws, as in effect on August 6, 1992. (c) Special Voting Rights. Notwithstanding the foregoing, in the event that, at any time after the date of original issue of the shares of the Series E Stock, an amount equal to the full accrued dividends for six (6) or more quarterly dividend periods, whether or not consecutive, 67 shall not have been paid or declared and a sum sufficient for the payment thereof irrevocably set aside in trust for the holders of all of such shares, the Board of Directors of the corporation shall promptly take all necessary actions to increase the authorized number of directors of the corporation by one (1), and the holders of the shares of the Series E Stock then outstanding shall be entitled (by series, voting as a single class) to elect one (1) person director to the Board of Directors of the corporation (such right to elect one (1) director being hereinafter sometimes referred to as the "special voting rights"), each outstanding share having such right being entitled for such purpose to one vote; provided, however, that at such time as the arrearage in payment of dividends which gave rise to the exercise of the special voting rights has been cured with regard to the Series E Stock by waiver or payment of all accrued dividends, the right of the holders of such shares so to vote as provided in this paragraph 7(c) shall cease (subject to renewal from time to time upon the same terms and conditions), and the term of office of the person who is at that time a director elected by such holders shall terminate and the number of directors of the corporation shall be automatically reduced by one (1). (d) Special Voting Rights; Procedure. At any time after the special voting rights shall have become vested in the holders of the shares of the Series E Stock as provided in paragraph 7(c), the Clerk of the corporation, as promptly as possible but in any event within twenty (20) days after receipt of the written request of the holders of 10% of the shares of the Series E Stock then outstanding, addressed to the corporation at its principal office, shall call a special meeting of the holders of the shares of the Series E Stock for the purpose of electing such additional director, such meeting to be held at any place as provided by the By-Laws of the corporation for meetings of the corporation's stockholders, and upon not less than ten (10) nor more than twenty (20) days notice. If such meeting shall not be so called within twenty (20) days after receipt of the request by the Clerk of the corporation, then the holders of 10% of the shares of the Series E Stock then outstanding may, by written notice to the Clerk of the corporation, designate any person to call such meeting, and the person so designated may call such meeting, at any such place as provided above and upon not less than ten (10) nor more than 68 twenty (20) days notice and for that purpose shall have access to the stockholder record books of the corporation. No such special meeting of the holders of the shares of the Series E Stock and no adjournment thereof shall be held on a date later than thirty (30) days before the annual meeting of stockholders of the corporation. At any meeting so called or at any annual meeting held at any time when the special voting rights are in effect, the holders of a majority of the shares of the Series E Stock then outstanding, present in person or by proxy, shall be sufficient to constitute a quorum for the election of such additional director, and such additional director, together with any and all other directors who are then members of the Board of Directors, shall constitute the duly elected directors of the corporation. (e) Vacancy in Office of Director Elected by Holders of Series E Stock. With respect to a vacancy arising in the directorship referred to in paragraph 7(c) at any time when the special voting rights are in effect pursuant to paragraph 7(c), upon the written request of the holders of 10% of the shares of the Series E Stock then outstanding, addressed to the corporation at its principal office, the Clerk of the corporation shall give notice of a special meeting of holders of the shares of the Series E Stock of the election of a director to fill such vacancy caused by the death, resignation or other inability to serve as a director elected by such holders, to be held not less than ten (10) nor more than twenty (20) days following receipt by the Clerk of the corporation of such written request. So long as special voting rights are in effect pursuant to paragraph 7(c), any director who shall have been so elected by the holders of the Series E Stock may be removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. 8. STATUS OF REDEEMED SHARES OF SERIES E STOCK. All shares of the Series E Stock which have been redeemed by the corporation pursuant to paragraph 6 shall have, after such redemption, the status of authorized but unissued shares of 69 Preferred Stock without designation of series and may be reissued but not as shares of Series E Stock. (H) Preferred Stock, Series F 1. DEFINITIONS OF CERTAIN EXPRESSIONS USED IN THIS PARAGRAPH. As used in this Section 4, the following capitalized words and expressions have the respective meanings set out below: "Articles of Organization" mean the Articles of Organization of the corporation as amended and in effect from time to time, including the amendment thereof effected pursuant to this paragraph. "Common Stock" means the capital stock of the corporation so designated and authorized from time to time and being stock which is junior to all series of the Preferred Stock in respect of dividend payments and of distributions or payments upon Liquidation. "corporation" means Bank of Boston Corporation and includes any successor corporation by merger, consolidation or otherwise if the stockholders of the former continue as stockholders of the continuing or combined corporation. "Junior Dividend Stock" means (i) the Common Stock, (ii) any series of the Preferred Stock which is specifically made junior to the Series F Stock, including the corporation's Junior Participating Preferred Stock, Series D and (iii) any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of payments of dividends. "Junior Liquidation Stock" means (i) the Common Stock, (ii) any series of the Preferred Stock which is specifically made junior to the Series F Stock, including the corporation's Junior Participating Preferred Stock, Series D and (iii) any class of capital stock of the corporation which is specifically made junior to the Preferred Stock, in respect of distributions or payments upon Liquidation. 70 "Junior Stock" means the Common Stock, the Junior Dividend Stock and the Junior Liquidation Stock. "Liquidation" means the voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding up of the corporation, but shall not include (i) the merger or consolidation of the corporation with another corporation pursuant to any statute which provides in effect that the stockholders of the former shall continue as stockholders of the continuing or combined corporation and (ii) the acquisition by the corporation of assets or stock of another corporation. "Preferred Stock" means the authorized class of the capital stock of the corporation so designated of which there are currently 10,000,000 shares authorized. "Series F Stock" means the series of Preferred Stock created by this paragraph. 2. NUMBER OF SHARES AND DESIGNATION. 280,000 shares of Preferred Stock are hereby constituted as a series of Preferred Stock, liquidation preference $250 per share, and designated as 7 7/8% Cumulative Preferred Stock, Series F. No additional shares of Preferred Stock may be issued as Series F Stock. 3. PREFERENCES. The preferences of each share of the Series F Stock with respect to dividend payments or to distributions or payments upon Liquidation will be in every respect on a parity with the preferences of every other share of Preferred Stock and of every other class of the capital stock of the corporation (other than Common Stock), from time to time outstanding, which other shares of the Preferred Stock and which other classes of capital stock are not made senior or junior to the Series F Stock as to dividend payments or to distributions or payments upon Liquidation. 4. LIQUIDATION. Upon Liquidation, the holders of the then outstanding Series F Stock shall be entitled, before any distribution or payment is made upon any of the Junior Liquidation Stock, to be paid in cash an amount equal to $250 per share of Series F Stock so held by them plus all accrued and unpaid dividends thereon (whether or not earned 71 or declared) to the date fixed for such payment. If upon Liquidation, the amounts payable with respect to shares of Series F Stock and to any other shares of the capital stock of the corporation ranking as to any such distribution on a parity with the Series F Stock are not paid in full, the holders of shares of the Series F Stock and of such other shares shall share ratably in any such distribution of assets of the corporation in proportion to the full respective preferential amounts to which they are entitled. Notice of Liquidation, stating the date when and the place where the amount payable on Liquidation will be paid, shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but no more than sixty (60) days prior to the date fixed for such liquidation payment, to the holders of the shares of the Series F Stock, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series F Stock, or any defect in such notice, shall not affect the validity of the proceedings for the making of liquidation payments on any other shares of the Series F Stock or of any other series or class of the capital stock of the corporation. If such notice shall have been duly mailed and if, on or before the date fixed for liquidation payments designated in such notice, the funds necessary for such liquidation payments shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series F Stock shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date fixed for such liquidation payments so designated, and all rights with respect to the shares of the Series F Stock shall terminate forthwith after such liquidation payment date, excepting only the right of the holder to receive the liquidation price thereof of $250 per share plus unpaid dividends accrued to such liquidation payment date but without interest thereon. The corporation's obligation to provide funds for liquidation payments shall be deemed fulfilled if, on or before the liquidation payment date, the 72 corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such liquidation payments, in trust, with irrevocable instructions that such funds be applied to such liquidation payments. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such liquidation payment date shall be released or repaid to the corporation, after which the holder or holders of shares of Series F Stock shall look only to the corporation for payment of liquidation payments. 5. DIVIDENDS. (a) Dividend Rate. Dividends on each share of the Series F Stock shall be payable quarterly based on an annual rate of 7 7/8% multiplied by $250. Dividends payable on the Series F Stock shall be computed (i) for any period other than a full dividend period, on the basis of a 360-day year consisting of twelve 30-day months and (ii) for each full dividend period, by dividing the annual dividend rate by four. (b) Payment of Dividends. Dividends on each share of the Series F Stock shall be fully cumulative and shall accrue whether or not earned, without interest, from the date of issuance of each share, and shall be payable in arrears on the 15th day of March, June, September and December in each year, commencing on September 15, 1993, in which such shares are outstanding out of funds legally available for the payment of dividends, when, as and if declared by the Board of Directors. In the event that there shall be outstanding shares of any other series of the Preferred Stock or of any other class of the capital stock of the corporation ranking on a parity as to dividends with shares of the Series F Stock, the corporation, in making any dividend payment on account of arrears on shares of the Series F Stock or such other series of the Preferred Stock or such other class of capital stock, shall make payment ratably upon all outstanding shares of the Series F Stock, such other 73 series of the Preferred Stock and such other class of capital stock in proportion to the respective amounts of dividends in arrears upon all such outstanding shares of the Series F Stock, such other series of the Preferred Stock and such other class of capital stock to the date of such dividend payment. So long as any shares of the Series F Stock are outstanding, the corporation shall not (i) declare or pay or set apart for payment any dividend or other distribution (other than dividends or distributions payable in shares of Junior Stock) for any period upon any Junior Stock or any stock of the corporation ranking on a parity with the Series F Stock as to dividends or upon Liquidation or (ii) redeem, purchase or otherwise acquire for any consideration any shares of Junior Stock or any capital stock of the corporation ranking on a parity with the Series F Stock as to dividends or upon Liquidation, unless, in either case, all dividends payable to holders of shares of the Series F Stock and of any stock of the corporation ranking on a parity therewith as to dividends for its current dividend period and all past dividend periods have been paid (or are contemporaneously being paid), or a sum sufficient for the payment thereof has been irrevocably set aside in trust for the holders of all such shares; except that, notwithstanding clause (i) of this paragraph 5(b), the corporation may pay dividends on the shares of the Series F Stock and shares of stock of the corporation ranking on a parity therewith as to dividends ratably in accordance with the sums which would be payable on such shares if all dividends, including accumulations, if any, were declared and paid in full. 6. REDEMPTION. (a) Redemption Price. Shares of the Series F Stock shall not be redeemable prior to July 15, 1998. On and after such date, and in accordance with this paragraph 6, the shares of the Series F Stock shall be redeemable at any time or from time to time, in whole or in part, at the option of the corporation by vote of its Board of Directors, with the prior approval of the Board of Governors of the Federal Reserve System (if such approval is required at the time of redemption). The redemption price shall be $250 per share plus an amount equal to all 74 unpaid dividends, whether or not earned or declared, accrued to the date fixed for redemption. (b) Redemption Procedure. Notice of any proposed redemption of all or any of the shares of the Series F Stock under this paragraph 6 shall be sent by the Clerk of the corporation by first class mail, postage prepaid, at least thirty (30) but not more than sixty (60) days prior to the date fixed for such redemption, to the holders of the shares of the Series F Stock to be redeemed, at their respective addresses appearing on the books of the corporation. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, and failure duly to give such notice by mail to any holder of shares of Series F Stock designated for redemption, or any defect in such notice, shall not affect the validity of the proceedings for the redemption of any other shares of the Series F Stock. If such notice of redemption shall have been duly mailed and if, on or before the date fixed for redemption designated in such notice, the funds necessary for the redemption shall have been provided by the corporation in accordance with the provisions of the following sentence, then, notwithstanding that any certificate of shares of Series F Stock so called for redemption shall not have been delivered for cancellation, the shares represented thereby shall no longer be deemed outstanding on and after the date such funds shall have been so provided, the dividends thereon shall cease to accrue from and after the date of redemption so designated, and all rights with respect to the shares of the Series F Stock so called for redemption shall terminate forthwith after such redemption date, excepting only the right of each holder to receive the redemption price thereof plus unpaid dividends accrued to such redemption date but without interest thereon. The corporation's obligation to provide funds for redemption shall be deemed fulfilled if, on or before the redemption date, the corporation shall deposit with a bank or trust company (which may be an affiliate of the corporation), having a capital and surplus of at least $50,000,000, funds necessary for such redemption, in trust, with irrevocable instructions that such funds be applied to the redemption of the shares of Series F Stock so called for 75 redemption. Any interest accrued on such funds shall be paid to the corporation from time to time. Any funds so deposited and unclaimed at the end of five years from such redemption date shall be released or repaid to the corporation, after which the holder or holders of shares of Series F Stock so called for redemption shall look only to the corporation for payment of the redemption price. (c) Pro Rata Redemption. If any proposed redemption of shares of the Series F Stock shall be less than all then outstanding shares of Series F Stock, such redemption shall be made on a pro rata basis, as nearly as possible, among all holders of shares of the Series F Stock outstanding at the time of redemption in the same proportion that each such holder's then respective holding of such shares shall bear to the aggregate number of such shares then outstanding. (d) Dividend Arrearages. Notwithstanding the foregoing provisions of this paragraph 6, if any dividends on shares of the Series F Stock are in arrears, no other shares of the Preferred Stock shall be redeemed, and the corporation shall not purchase or otherwise acquire any shares of the Preferred Stock, unless all outstanding shares of the Series F Stock are simultaneously redeemed in accordance with the foregoing provisions of this paragraph 6, and the corporation shall not purchase or otherwise acquire any shares of the Series F Stock; provided, however, that the foregoing shall not prevent the purchase or acquisition of shares of the Series F Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of the Series F Stock. 7. VOTING RIGHTS. (a) General. The holders of shares of Series F Stock shall not, by virtue of their ownership thereof, be entitled to vote upon any matter except as otherwise provided in the Articles of Organization or by law. Whenever the holders of any shares of the Series F Stock shall be entitled to vote upon any matter, each outstanding share of the Series F Stock entitled to vote on such matter shall be entitled to one (1) vote. 76 (b) Two-Thirds Approval. So long as any shares of the Series F Stock are outstanding, the corporation shall not, without first obtaining the consent, given in writing or in person or by proxy or at a meeting called for the purpose, of the holders of at least two-thirds (2/3rds) of the outstanding shares of the Series F Stock: (i) authorize or create any other class of capital stock (or series thereof), the shares of which rank prior to shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of stock of any other class of capital stock (or series thereof) the shares of which rank prior to the shares of Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; (ii) authorize or create any other series of Preferred Stock, the shares of which rank prior to shares of Series F Stock in respect of dividend payments or distributions or payments upon Liquidation; or authorize, create or issue any bonds, notes, debentures, obligations, stock or other securities by their terms convertible into or evidencing a right to purchase shares of any other series of Preferred Stock which rank prior to the shares of Series F Stock in respect of dividend payments or distributions or payments upon Liquidation; (iii) reclassify any shares of any class of capital stock into a class ranking prior to the Preferred Stock in respect of dividend payments or distributions or payments upon Liquidation; reclassify any shares of Preferred Stock into a series which ranks prior to Series F Stock in respect of dividend payments or distributions or payments upon Liquidation; or reclassify any shares of Junior Stock into Series F Stock; or (iv) authorize any amendment to the Articles of Organization which would adversely affect the rights of the holders of the Series F Stock. For the purposes of 77 this subparagraph (iv), the term "adversely affects" shall have the same meaning as it has in Section 77 of Chapter 156B of the Massachusetts General Laws, as in effect on June 24, 1993. (c) Special Voting Rights. Notwithstanding the foregoing, in the event that, at any time after the date of original issue of the shares of the Series F Stock, an amount equal to the full accrued dividends for six (6) or more quarterly dividend periods, whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof irrevocably set aside in trust for the holders of all of such shares, the Board of Directors of the corporation shall promptly take all necessary actions to increase the authorized number of directors of the corporation by one (1), and the holders of the shares of the Series F Stock then outstanding shall be entitled (by series, voting as a single class) to elect one (1) person director to the Board of Directors of the corporation (such right to elect one (1) director being hereinafter sometimes referred to as the "special voting rights"), each outstanding share having such right being entitled for such purpose to one vote; provided, however, that at such time as the arrearage in payment of dividends which gave rise to the exercise of the special voting rights has been cured with regard to the Series F Stock by waiver or payment of all accrued dividends, the right of the holders of such shares so to vote as provided in this paragraph 7(c) shall cease (subject to renewal from time to time upon the same terms and conditions), and the term of office of the person who is at that time a director elected by such holders shall terminate and the number of directors of the corporation shall be automatically reduced by one (1). (d) Special Voting Rights; Procedure. At any time after the special voting rights shall have become vested in the holders of the shares of the Series F Stock as provided in paragraph 7(c), the Clerk of the corporation, as promptly as possible but in any event within twenty (20) days after receipt of the written request of the holders of 10% of the shares of the Series F Stock then outstanding, addressed to the corporation at its principal office, shall call a special meeting of the holders of the shares of the Series F Stock for the purpose of electing such 78 additional director, such meeting to be held at any place as provided by the By-Laws of the corporation for meetings of the corporation's stockholders, and upon not less than ten (10) nor more than twenty (20) days notice. If such meeting shall not be so called within twenty (20) days after receipt of the request by the Clerk of the corporation, then the holders of 10% of the shares of the Series F Stock then outstanding may, by written notice to the Clerk of the corporation, designate any person to call such meeting, and the person so designated may call such meeting, at any such place as provided above and upon not less than ten (10) nor more than twenty (20) days notice and for that purpose shall have access to the stockholder record books of the corporation. No such special meeting of the holders of the shares of the Series F Stock and no adjournment thereof shall be held on a date later than thirty (30) days before the annual meeting of stockholders of the corporation. At any meeting so called or at any annual meeting held at any time when the special voting rights are in effect, the holders of a majority of the shares of the Series F Stock then outstanding, present in person or by proxy, shall be sufficient to constitute a quorum for the election of such additional director, and such additional director, together with any and all other directors who are then members of the Board of Directors, shall constitute the duly elected directors of the corporation. (e) Vacancy in Office of Director Elected by Holders of Series F Stock. With respect to a vacancy arising in the directorship referred to in paragraph 7(c) at any time when the special voting rights are in effect pursuant to paragraph 7(c), upon the written request of the holders of 10% of the shares of the Series F Stock then outstanding, addressed to the corporation at its principal office, the Clerk of the corporation shall give notice of a special meeting of holders of the shares of the Series F Stock of the election of a director to fill such vacancy caused by the death, resignation or other inability to serve as a director elected by such holders, to be held not less than ten (10) nor more than twenty (20) days following receipt by the Clerk of the corporation of such written request. So long as special voting rights are in effect pursuant to paragraph 7(c), any director who shall have been so elected by the holders of the Series F Stock may be 79 removed at any time, either with or without cause, only by the affirmative vote of the holders of the shares at the time entitled to cast a majority of the votes entitled to be cast for the election of such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. 8. STATUS OF REDEEMED SHARES OF SERIES F STOCK. All shares of the Series F Stock which have been redeemed by the corporation pursuant to paragraph 6 shall have, after such redemption, the status of authorized but unissued shares of Preferred Stock without designation of series and may be reissued but not as shares of Series F Stock. ARTICLE 5 The restrictions, if any, imposed by these Articles of Organization upon the transfer of shares of stock of any class are as follows: None. ARTICLE 6 (A) The Directors may amend, add to or repeal the By-Laws in whole or in part except with respect to any provision thereof which, by law or the By-Laws requires action of the stockholders. (B) Meetings of the stockholders may be held anywhere in the United States. (C) The corporation may be a partner in any business enterprise which the corporation would have the power to conduct by itself. (D) No director shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that this provision shall not eliminate the liability of a director, to the extent that such liability is provided by applicable law, (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve 80 intentional misconduct or a knowing violation of law, (iii) under Section 61 or 62 (or successor provisions) of Chapter 156B of the Massachusetts General Laws or (iv) for any transaction from which the director derived an improper personal benefit. This provision shall not eliminate the liability of a director for any act or omission occurring prior to the date upon which this provision becomes effective. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. 81 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE WILLIAM F. GALVIN, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLE OF AMENDMENT FEDERAL IDENTIFICATION General Laws, Chapter 156B, Section 72 No. 04-2471221 We Charles K. Gifford President, and Gary A. Spiess Clerk, of Bank of Boston Corporation - -------------------------------------------------------------------------------- (EXACT Name of Corporation) located at: 100 Federal Street, Boston, Massachusetts 02110 ------------------------------------------------------------------- (MASSACHUSETTS Address of Corporation) do hereby certify that these ARTICLES OF AMENDMENT affecting Articles Numbered: 3 - ----- - -------------------------------------------------------------------------------- (Number those articles 1,2,3,4,5, and/or 6 being amended hereby) of the Articles of Organization were duly adopted at a meeting held on April 25 -------- 1996 by vote of : - --- Common Stock 88,527,374 Shares of Par Value $2.25 per share out of 110,507,016 shares - ------------ ------------------------- ----------- type, class & series, (if any) outstanding, ____________ Shares of _________________________ out of ________ shares type, class & series, (if any) outstanding, ____________ shares of _________________________ out of _________ shares type, class & series, (if any) outstanding, being at least a majority of each type, class or series outstanding and entitled to vote thereon: VOTED: That the Restated Articles of Organization of the Corporation be amended by increasing and changing the authorized shares of Common Stock from 200,000,000 shares, par value $2.25 per share to 300,000,000 shares, par value $1.50 per share. To CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is:
WITHOUT PAR VALUE STOCKS - --------------------------------- TYPE NUMBER OF SHARES - --------------------------------- COMMON: - --------------------------------- PREFERRED: 10,000,000* - ---------------------------------
WITH PAR VALUE STOCKS - -------------------------------------------- TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------- COMMON: 200,000,000 $2.25 - -------------------------------------------- PREFERRED: - --------------------------------------------
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS - --------------------------------- TYPE NUMBER OF SHARES - --------------------------------- COMMON: - --------------------------------- PREFERRED: 10,000,000* - ---------------------------------
WITH PAR VALUE STOCKS - -------------------------------------------- TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------- COMMON: 300,000,000 $1.50 - -------------------------------------------- PREFERRED: - --------------------------------------------
*Of the 10,000,000 shares of Preferred Stock, the following series have been authorized: 1,045,712 shares of Adjustable Rate Cumulative Preferred Stock, Series A, (ii) 1,576,068 shares of Adjustable Rate Cumulative Preferred Stock, Series B, (iii) 775,390 shares of Adjustable Rate Cumulative Preferred Stock, Series C, (iv) 200,000 shares of Junior Participating Preferred Stock, Series D, (v) 920,000 shares of 8.60% Cumulative Preferred Stock, Series E and (vi) 280,000 shares of 7 7/8% Cumulative Preferred Stock, Series F. The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. EFFECTIVE DATE:_____________________ IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this 26th day of April in the year 1996. /s/ CHARLES K. GIFFORD President - ----------------------------------------------------------- Charles K. Gifford /s/ GARY S. SPIESS Clerk - ----------------------------------------------------------- Gary A. Spiess EX-11 3 COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11 BANK OF BOSTON CORPORATION Computation of Earnings Per Common Share
Quarters Ended March 31 EARNINGS (in millions) 1996 1995 -------- ---- ---- 1. Net income $ 117 $ 125 2. Less: Preferred dividends 9 9 ------- ------- 3. Net income applicable to primary and fully diluted earnings per common share $ 108 $ 116 ======= ======= SHARES (in thousands) ------ 4. Weighted average number of common shares outstanding 111,034 107,278 5. Incremental shares from assumed exercise of dilutive stock options as of the beginning of the period using the treasury stock method 1,830 970 6. Incremental shares from assumed conversion of debentures at beginning of period 3,572 ------- ------- 7. Adjusted number of common shares 112,864 111,820 ======= ======= PER SHARE CALCULATION --------------------- 8. Primary net income per common share $ .97 $ 1.08 (Item 3/Item 4) 9. Fully diluted net income per common share $ .95 $ 1.04 (Item 3/Item 7)
EX-12.A 4 COMPUTAT OF CONSOLID RATIO OF EARNINGS EXCLUDING BANK OF BOSTON CORPORATION EXHIBIT 12(a) COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Excluding Interest on Deposits) The Corporation's ratios of earnings to fixed charges (excluding interest on deposits) for the three months ended March 31, 1996 and 1995 and for the five years ended December 31, 1995 were as follows:
Three Months Ended March 31, Years Ended December 31, (dollars in millions) 1996 1995 1995 1994 1993 1992 1991 ---- ---- ----- ----- ---- ---- ---- Net income (loss) $ 117 $ 125 $ 541 $ 435 $ 299 $ 279 $ (113) Extraordinary items, net of tax 7 (73) (8) Cumulative effect of changes in accounting principles, net of tax (24) Income tax expense (benefit) 88 121 444 349 215 153 (58) ---- ---- ----- ----- ---- ---- ---- Pretax earnings (loss) $ 205 $ 246 $ 985 $ 791 $ 490 $ 359 $ (179) ==== ==== ===== ===== ==== ==== ==== Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 7 8 29 27 27 28 30 Interest on borrowed funds 245 245 1,021 998 378 345 362 ---- ---- ----- ------ ---- ---- ---- Total fixed charges 252 253 1,050 1,025 405 373 392 ---- ---- ----- ------ ---- ---- ---- Earnings (for ratio calculation) $ 457 $ 499 $ 2,035 $ 1,816 $ 895 $ 732 $ 213 ==== ==== ===== ====== ====== ==== ==== Total fixed charges $ 252 $ 253 $ 1,050 $ 1,025 $ 405 $ 373 $ 392 ==== ==== ===== ===== ==== ==== ==== Ratio of earnings to fixed charges 1.81 1.97 1.94 1.77 2.21 1.96 .54 ==== ==== ===== ===== ==== ==== ====
For purposes of computing the consolidated ratio of earnings to fixed charges "earnings" represent income (loss) before extraordinary items and cumulative effect of changes in accounting principles plus applicable income taxes and fixed charges. "Fixed charges" include gross interest expense (excluding interest on deposits) and the proportion deemed representative of the interest factor of rent expense, net of income from subleases. For the year ended December 31, 1991, earnings were insufficient to cover fixed charges. Additional earnings necessary for the year ended December 31, 1991 to bring the ratio of earnings to fixed charges to a one-to-one basis are $179 million. EX-12.B 5 COMPUTAT OF CONSOLIDA. RATIO OF EARNINGS INCLUDING BANK OF BOSTON CORPORATION EXHIBIT 12(b) COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Including Interest on Deposits) The Corporation's ratios of earnings to fixed charges (including interest on deposits) for the three months ended March 31, 1996 and 1995 and for the five years ended December 31, 1995 were as follows:
Three Months Ended March 31, Years Ended December 31, (dollars in millions) 1996 1995 1995 1994 1993 1992 1991 ---- ---- ----- ----- ----- ----- ----- > Net income (loss) $ 117 $ 125 $ 541 $ 435 $ 299 $ 279 $ (113) Extraordinary items, net of tax 7 (73) (8) Cumulative effect of changes in accounting principles, net of tax (24) Income tax expense (benefit) 88 121 444 349 215 153 (58) ---- ---- ----- ----- ----- ----- ----- Pretax earnings (loss) $ 205 $ 246 $ 985 $ 791 $ 490 $ 359 $ (179) ==== ==== ===== ===== ===== ===== ===== Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 7 8 29 27 27 28 30 Interest on borrowed funds 245 245 1,021 998 378 345 362 Interest on deposits 356 362 1,557 1,148 1,016 1,407 1,808 ---- ---- ----- ----- ----- ----- ----- Total fixed charges 608 615 2,607 2,173 1,421 1,780 2,200 ---- ---- ----- ----- ----- ----- ----- Earnings (for ratio calculation) $ 813 $ 861 $ 3,592 $ 2,964 $ 1,911 $ 2,139 $ 2,021 ==== ==== ===== ===== ===== ===== ===== Total fixed charges $ 608 $ 615 $ 2,607 $ 2,173 $ 1,421 $ 1,780 $ 2,200 ==== ==== ===== ===== ===== ===== ===== Ratio of earnings to fixed charges 1.34 1.40 1.38 1.36 1.34 1.20 .92 ==== ==== ===== ===== ===== ===== =====
For purposes of computing the consolidated ratio of earnings to fixed charges "earnings" represent income (loss) before extraordinary items and cumulative effect of changes in accounting principles plus applicable income taxes and fixed charges. "Fixed charges" include gross interest expense (including interest on deposits) and the proportion deemed representative of the interest factor of rent expense, net of income from subleases. For the year ended December 31, 1991, earnings were insufficient to cover fixed charges. Additional earnings necessary for the year ended December 31, 1991 to bring the ratio of earnings to fixed charges to a one-to-one basis are $179 million. EX-27 6 FINANCIAL DATA SCHEDULE
9 THE SCHEDULE CONTAINS SUMMARY FINANIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1996 2,208 1,425 1,426 1,302 5,064 647 639 31,402 (732) 46,457 31,235 5,073 1,811 2,499 0 508 253 2,950 46,457 810 103 122 1,035 356 601 434 50 13 111 205 117 0 0 117 .97 .95 4.21 323 9 17 0 736 (58) 15 732 397 191 144
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