-----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, NSuQx0R6H/xWaCcMFOGDUCOe9ySzJC+gQzd9pKDURxrEm31gfuQpqgjVMylF7Y9U nE8NO/BOUZZHYpV2AHjkZg== 0000927016-97-001481.txt : 19970520 0000927016-97-001481.hdr.sgml : 19970520 ACCESSION NUMBER: 0000927016-97-001481 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97607224 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 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1997 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 BANKBOSTON CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2471221 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 100 FEDERAL STREET, BOSTON, MASSACHUSETTS 02110 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 434-2200 FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT: BANK OF BOSTON CORPORATION 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, 1997: Common Stock, $1.50 par value_____________________________________146,867,354 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BANKBOSTON CORPORATION TABLE OF CONTENTS
PAGE ---- CONSOLIDATED SELECTED FINANCIAL DATA.................................... 3 PART I FINANCIAL INFORMATION ITEM 1. Financial Statements BankBoston 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.............................................. 35 ITEM 4. Submission of Matters to a Vote of Security Holders............ 35 ITEM 6. Exhibits and Reports on Form 8-K............................... 36 SIGNATURES.............................................................. 37 LIST OF TABLES Consolidated Average Balance Sheet--Nine Quarters.................... 30 Consolidated Statement of Income--Nine Quarters...................... 31 Average Balances and Interest Rates--Quarter......................... 32 Change in Net Interest Revenue--Volume and Rate Analysis............. 34
2 BANKBOSTON CORPORATION CONSOLIDATED SELECTED FINANCIAL DATA (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1997 1996 ------- ------- QUARTERS ENDED MARCH 31 INCOME STATEMENT DATA(1) Net interest revenue...... $ 620 $ 566 Provision for credit loss- es....................... 60 57 Noninterest income........ 330 285 Noninterest expense....... 544 527 Net income................ 207 155 Per common share Primary................. 1.29 .94 Fully diluted........... 1.27 .93 Market value per common share High.................... 78 3/4 50 Low..................... 63 7/8 41 5/8 AT MARCH 31 BALANCE SHEET DATA(1) Loans and lease financ- ing...................... $41,019 $39,268 Total assets.............. 64,780 58,015 Deposits.................. 42,307 41,349 Total stockholders' equi- ty....................... 4,861 4,686 Book value per common share.................... 28.67 27.14 Regulatory capital ratios Risk-based capital ratios Tier 1.................. 9.0% 8.7% Total................... 13.0 12.9 Leverage ratio........... 7.8 7.4
- -------- (1) Financial data for 1996 has been restated to give retroactive effect to the acquisition of BayBanks, Inc., which was completed in July 1996 and accounted for as a pooling of interests. 3 BANKBOSTON CORPORATION CONSOLIDATED BALANCE SHEET (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31 DECEMBER 31 1997 1996 -------- ----------- ASSETS Cash and due from banks................................... $ 3,841 $ 4,273 Interest bearing deposits in other banks.................. 1,968 1,634 Federal funds sold and securities purchased under agreements to resell..................................... 2,304 1,857 Trading securities........................................ 1,482 1,238 Securities Available for sale...................................... 9,082 7,804 Held to maturity (fair value of $680 in 1997 and $675 in 1996).................................................. 692 680 Loans and lease financing United States Operations................................ 31,175 31,175 International Operations................................ 9,844 9,886 -------- -------- Total loans and lease financing (net of unearned income of $359 in 1997 and $380 in 1996)..................... 41,019 41,061 Reserve for credit losses................................. (864) (883) -------- -------- Net loans and lease financing........................... 40,155 40,178 Premises and equipment, net............................... 927 894 Due from customers on acceptances......................... 544 438 Accrued interest receivable............................... 561 546 Other assets.............................................. 3,224 2,764 -------- -------- TOTAL ASSETS.............................................. $ 64,780 $ 62,306 ======== ========
The accompanying notes are an integral part of these financial statements. 4 BANKBOSTON CORPORATION CONSOLIDATED BALANCE SHEET (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED)
MARCH 31 DECEMBER 31 1997 1996 -------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Domestic offices Noninterest bearing..................................... $ 7,556 $ 8,340 Interest bearing........................................ 24,404 24,709 Overseas offices Noninterest bearing..................................... 880 751 Interest bearing........................................ 9,467 9,031 ------- ------- Total deposits........................................ 42,307 42,831 Funds borrowed Federal funds purchased.................................. 2,184 527 Term federal funds purchased............................. 1,416 1,442 Securities sold under agreements to repurchase........... 2,873 2,034 Other funds borrowed..................................... 5,366 5,155 Acceptances outstanding................................... 544 448 Accrued expenses and other liabilities.................... 2,021 1,614 Notes payable............................................. 2,708 2,821 Guaranteed preferred beneficial interest in Corporation's junior subordinated debt................................. 500 500 ------- ------- TOTAL LIABILITIES......................................... 59,919 57,372 ------- ------- 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 $1.50 Authorized shares--300,000,000 Issued shares--154,265,361 in 1997 and 153,172,672 in 1996 Outstanding shares--151,806,747 in 1997 and 153,172,672 in 1996................................................ 231 230 Surplus.................................................. 1,259 1,202 Retained earnings........................................ 3,038 2,925 Net unrealized gain on securities available for sale, net of tax.................................................. 21 76 Treasury stock, at cost (2,458,614 shares in 1997)....... (187) Cumulative translation adjustments, net of tax........... (9) (7) ------- ------- TOTAL STOCKHOLDERS' EQUITY................................ 4,861 4,934 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $64,780 $62,306 ======= =======
The accompanying notes are an integral part of the financial statements. 5 BANKBOSTON CORPORATION CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1997 1996 -------- -------- QUARTERS ENDED MARCH 31 INTEREST INCOME Loans and lease financing, including fees.................. $ 975 $ 978 Securities................................................. 170 137 Trading securities......................................... 28 41 Mortgages held for sale.................................... 17 Federal funds sold and securities purchased under agreements to resell...................................... 68 43 Deposits in other banks.................................... 34 24 -------- -------- Total interest income.................................... 1,275 1,240 -------- -------- INTEREST EXPENSE Deposits of domestic offices............................... 229 233 Deposits of overseas offices............................... 171 187 Funds borrowed............................................. 193 211 Notes payable.............................................. 62 43 -------- -------- Total interest expense................................... 655 674 -------- -------- NET INTEREST REVENUE......................................... 620 566 Provision for credit losses................................ 60 57 -------- -------- Net interest revenue after provision for credit losses..... 560 509 -------- -------- NONINTEREST INCOME Financial service fees..................................... 138 52 Trust and agency fees...................................... 66 57 Trading profits and commissions............................ 19 13 Net securities gains....................................... 9 13 Other income............................................... 98 150 -------- -------- Total noninterest income................................. 330 285 -------- -------- NONINTEREST EXPENSE Salaries................................................... 258 241 Employee benefits.......................................... 53 52 Occupancy expense.......................................... 51 51 Equipment expense.......................................... 36 34 Other expense.............................................. 146 149 -------- -------- Total noninterest expense................................ 544 527 -------- -------- Income before income taxes................................... 346 267 Provision for income taxes................................... 139 112 -------- -------- NET INCOME................................................... $ 207 $ 155 ======== ======== NET INCOME APPLICABLE TO COMMON STOCK........................ $ 198 $ 146 ======== ======== PER COMMON SHARE Net income Primary.................................................... $ 1.29 $ .94 Fully diluted.............................................. $ 1.27 $ .93 Dividends declared........................................... $ .44 $ .37 AVERAGE NUMBER OF COMMON SHARES (IN THOUSANDS) Primary.................................................... 153,421 154,988 Fully diluted.............................................. 155,592 156,844
The accompanying notes are an integral part of these financial statements. 6 BANKBOSTON CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN MILLIONS)
1997 1996 ------ ------ QUARTERS ENDED MARCH 31 PREFERRED STOCK Balance, January 1............................................ $ 508 $ 508 ------ ------ Balance, March 31............................................. 508 508 ------ ------ COMMON STOCK Balance, January 1............................................ 230 350 Common stock issued Exercise of stock options.................................... 1 Restricted stock grants, net of forfeitures.................. 1 ------ ------ Balance, March 31............................................. 231 351 ------ ------ SURPLUS Balance, January 1............................................ 1,202 1,240 Dividend reinvestment and common stock purchase plan.......... 4 Exercise of stock options..................................... 10 (11) Additional purchase price for prior business combination...... 7 Restricted stock grants....................................... 19 2 Other, principally employee benefit plans..................... 17 6 ------ ------ Balance, March 31............................................. 1,259 1,237 ------ ------ RETAINED EARNINGS Balance, January 1............................................ 2,925 2,548 Net income.................................................... 207 155 Restricted stock grants....................................... (17) (9) Payment on ESOP loan.......................................... 3 Cash dividends declared Preferred stock.............................................. (9) (10) Common stock................................................. (68) (53) ------ ------ Balance, March 31............................................. 3,038 2,634 ------ ------ NET UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE Balance, January 1............................................ 76 82 Change in net unrealized gain on securities available for sale, net of tax............................................. (55) (32) ------ ------ Balance, March 31............................................. 21 50 ------ ------ TREASURY STOCK Balance, January 1............................................ (22) Purchases of treasury stock................................... (191) (121) Treasury stock reissued Dividend reinvestment and common stock purchase plan......... 10 Exercise of stock options.................................... 3 23 Additional purchase price for prior business combination..... 7 Restricted stock grants...................................... 1 10 Other, principally employee benefit plans.................... 4 ------ ------ Balance, March 31............................................. (187) (89) ------ ------ CUMULATIVE TRANSLATION ADJUSTMENTS Balance, January 1............................................ (7) (4) Change in translation adjustments, net of tax................. (2) (1) ------ ------ Balance, March 31............................................. (9) (5) ------ ------ TOTAL STOCKHOLDERS' EQUITY, MARCH 31.......................... $4,861 $4,686 ====== ======
The accompanying notes are an integral part of these financial statements. 7 BANKBOSTON CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (IN MILLIONS)
1997 1996 ------- ------- QUARTERS ENDED MARCH 31 CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 207 $ 155 Reconciliation of net income to net cash provided from (used for) operating activities Provision for credit losses............................... 60 57 Depreciation and amortization............................. 39 34 Provision for deferred taxes.............................. 3 50 Net gains on sales of securities and other assets......... (46) (108) Change in trading securities.............................. (244) (179) Net change in mortgages held for sale..................... 134 Net change in interest receivables and payables........... (56) 27 Other, net................................................ (45) (24) ------- ------- Net cash provided from (used for) operating activities.. (82) 146 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Net cash used for interest bearing deposits in other banks.. (334) (72) Net cash used for federal funds sold and securities purchased under agreements to resell....................... (447) (36) Securities available for sale Sales..................................................... 331 963 Maturities................................................ 520 1,272 Purchases................................................. (2,268) (1,968) Securities held to maturity Maturities................................................ 9 12 Purchases................................................. (22) (46) Loans and lease financing originated by nonbank entities.... (8,464) (3,378) Loans and lease financing collected by nonbank entities..... 8,311 3,064 Proceeds from sales of loan portfolios by bank subsidiaries............................................... 1,295 Net cash used for lending and lease activities of bank subsidiaries............................................... (1,193) (172) Proceeds from sales of other real estate owned.............. 5 10 Expenditures for premises and equipment..................... (64) (59) Proceeds from sales of business units, premises and equipment.................................................. 7 144 Other, net.................................................. 163 60 ------- ------- Net cash used for investing activities.................. (2,151) (206) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided from (used for) deposits.................. (524) 171 Net cash provided from (used for) funds borrowed............ 2,681 (753) Repayments of notes payable................................. (199) (50) Net proceeds from issuance of notes payable................. 86 360 Net proceeds from issuance of common stock.................. 27 27 Purchases of treasury stock................................. (191) (121) Dividends paid.............................................. (77) (63) ------- ------- Net cash provided from (used for) financing activities.. 1,803 (429) Effect of foreign currency translation on cash.............. (2) (6) ------- ------- NET CHANGE IN CASH AND DUE FROM BANKS....................... (432) (495) CASH AND DUE FROM BANKS AT JANUARY 1........................ 4,273 3,561 ------- ------- CASH AND DUE FROM BANKS AT MARCH 31......................... $ 3,841 $ 3,066 ======= ======= Interest payments made...................................... $ 696 $ 1,057 Income tax payments made.................................... $ 112 $ 71
The accompanying notes are an integral part of these financial statements. 8 BANKBOSTON CORPORATION NOTES TO FINANCIAL STATEMENTS 1.The accompanying interim consolidated financial statements of BankBoston 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. Prior period financial statements have been restated to give retroactive effect to the acquisition of BayBanks, Inc. (BayBanks) completed in July 1996, which was accounted for as a pooling of interests. Certain amounts reported in prior periods have been reclassified for comparative purposes. This information should be read in conjunction with the Corporation's 1996 Annual Report on Form 10-K. 2. SECURITIES: A summary comparison of securities available for sale by type is as follows:
MARCH 31, 1997 DECEMBER 31, 1996 --------------- ------------------- CARRYING CARRYING COST VALUE COST VALUE ------ -------- -------- ---------- (IN MILLIONS) U.S. Treasury............................... $2,011 $1,998 $ 1,669 $ 1,675 U.S. government agencies and corporations-- mortgage-backed securities................. 4,651 4,617 3,789 3,801 States and political subdivisions........... 182 182 172 173 Foreign debt securities..................... 1,275 1,308 1,095 1,133 Other debt securities....................... 170 170 250 256 Marketable equity securities................ 167 210 156 217 Other equity securities..................... 597 597 549 549 ------ ------ -------- -------- $9,053 $9,082 $ 7,680 $ 7,804 ====== ====== ======== ========
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, 1997 DECEMBER 31, 1996 -------------------- -------------------- AMORTIZED AMORTIZED COST FAIR VALUE COST FAIR VALUE --------- ---------- --------- ---------- (IN MILLIONS) U.S. Treasury........................ $ 5 $ 5 $ 3 $ 3 U.S. government agencies and corporations-- mortgage-backed securities.......... 529 517 535 530 States and political subdivisions.... 5 5 6 6 Other debt securities................ 6 6 Foreign debt securities.............. 21 21 11 11 Other equity securities.............. 126 126 125 125 ---- ---- ---- ---- $692 $680 $680 $675 ==== ==== ==== ====
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. 9 BANKBOSTON CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. LOANS AND LEASE FINANCING: The following are the details of loan and lease financing balances:
MARCH 31 DECEMBER 31 1997 1996 -------- ----------- (IN MILLIONS) United States Operations Commercial, industrial and financial..................... $14,203 $13,162 Commercial real estate Construction............................................ 265 284 Other................................................... 3,129 3,240 Consumer-related loans Residential mortgages................................... 3,067 3,184 Home equity loans....................................... 2,908 2,878 Credit card loans....................................... 1,404 1,395 Other................................................... 4,708 5,503 Lease financing.......................................... 1,766 1,816 Unearned income.......................................... (275) (287) ------- ------- 31,175 31,175 ------- ------- International Operations Loans and lease financing................................ 9,928 9,979 Unearned income.......................................... (84) (93) ------- ------- 9,844 9,886 ------- ------- $41,019 $41,061 ======= =======
10 BANKBOSTON CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. RESERVE FOR CREDIT LOSSES: An analysis of the reserve for credit losses is as follows:
1997 1996 QUARTERS ENDED MARCH 31 ---- ---- (IN MILLIONS) BALANCE, BEGINNING OF PERIOD..................................... $883 $890 Provision........................................................ 60 57 Reserves of entities sold........................................ (12) Domestic credit losses Commercial, industrial and financial........................... (20) (8) Commercial real estate......................................... (1) (13) Consumer-related loans Residential mortgages........................................ (2) (6) Credit card loans............................................ (20) (3) Home equity loans............................................ (3) (3) Other........................................................ (43) (30) International credit losses...................................... (8) (9) ---- ---- Total credit losses........................................ (97) (72) ---- ---- Domestic recoveries Commercial, industrial and financial........................... 2 5 Commercial real estate......................................... 1 2 Consumer-related loans Residential mortgages........................................ 1 2 Credit card loans............................................ 1 Home equity loans............................................ 1 1 Other........................................................ 8 7 International recoveries......................................... 4 4 ---- ---- Total recoveries........................................... 18 21 ---- ---- Net credit losses................................................ (79) (51) ---- ---- BALANCE, END OF PERIOD........................................... $864 $884 ==== ====
At March 31, 1997, loans for which impairment has been recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," totaled $231 million, of which $55 million related to loans with no valuation reserve and $176 million related to loans with a valuation reserve of $46 million. At March 31, 1996, impaired loans totaled $264 million, of which $92 million related to loans with no valuation reserve and $172 million related to loans with a valuation reserve of $38 million. For the quarters ended March 31, 1997 and 1996, average impaired loans were approximately $245 million and $253 million, respectively. Interest recognized on impaired loans during these periods was not material. 5. GUARANTEED PREFERRED BENEFICIAL INTEREST IN CORPORATION'S JUNIOR SUBORDINATED DEBT: In 1996, BankBoston Capital Trust I and BankBoston Capital Trust II (the Trusts) were formed for the exclusive purpose of issuing capital securities (Trust Securities) and investing the proceeds from the sale of the Trust Securities in junior subordinated debentures issued by the Corporation. The Corporation is the owner of all the beneficial interests of the Trusts represented by common securities, and has unconditionally guaranteed all of the Trusts' obligations under the Trust Securities. In November and December 1996, a total of $500 million of Trust Securities were issued, consisting of $250 million of 8 1/4% Trust Securities issued by BankBoston Capital 11 BANKBOSTON CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) Trust I and $250 million of 7 3/4% Trust Securities issued by BankBoston Capital Trust II. Both issues of Trust Securities have a liquidation preference of $1,000 per Trust Security and are scheduled to mature on December 15, 2026. 6. 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 condition or results of operations. 7. RESTRUCTURING AND MERGER-RELATED COSTS: During 1996, the Corporation recorded $180 million of restructuring and merger-related costs in connection with its acquisition of BayBanks. Included in these costs were employee-related severance and property-related costs; professional fees and other costs of effecting the acquisition; and systems and other costs incurred during the period. During the first quarter of 1997, cash outlays charged against the related reserves amounted to $41 million. These cash outlays primarily consisted of early retirement benefits and payments to terminated employees. Approximately 400 employees were either terminated or left the Corporation through enhanced retirement programs during the first quarter of 1997. The remaining reserves of $56 million at March 31, 1997 consist primarily of expected cash outlays related to severance and property-related costs, which are expected to occur throughout the integration process. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL The Corporation's name was changed from "Bank of Boston Corporation" to "BankBoston Corporation" effective April 25, 1997. In addition, the name of the Corporation's principal banking subsidiary, formerly "The First National Bank of Boston," was changed to "BankBoston, N.A." effective April 24, 1997. All prior period information included in this report has been restated to give effect to the Corporation's acquisition of BayBanks, Inc. (BayBanks), which was completed in July 1996 and accounted for as a pooling of interests. The Corporation's net income for the first quarter of 1997 was $207 million, compared to $155 million for the first quarter of 1996. Net income per common share was $1.29 on a primary basis and $1.27 on a fully diluted basis in 1997, compared with $.94 on a primary basis and $.93 on a fully diluted basis in 1996. The first quarter of 1996 included a loss of $111 million ($70 million after-tax) related to contracts entered into to protect the value of the Corporation's mortgage servicing rights and the economic value of its mortgage banking subsidiary, offset, in part, by a gain of $60 million ($39 million after-tax) from the completion of the first phase of the sale of this subsidiary. Excluding these items, first quarter 1996 net income was $186 million or $1.13 per share on a fully diluted basis. The Corporation continues to take strategic initiatives focused on leveraging its core competencies over attractive markets, and continues to explore, on an ongoing basis, acquisition, divestiture and joint venture opportunities, as well as analyze each of its businesses in the context of competitive advantages, industry dynamics and growth potential. In this connection, in April 1997 the Corporation announced an agreement to sell Ganis Credit Corporation (Ganis), one of its national consumer lending businesses. In March 1997 the Corporation sold approximately $950 million of Ganis loans for a gain of $7.5 million ($4.5 million after-tax). The Corporation is continuing its strategic review of its other national consumer lending businesses (Fidelity Acceptance Corporation and the national credit card portfolio), which have aggregate loans of approximately $2 billion. In addition, the Corporation is evaluating its Regional Consumer business in order to enhance its profitability and value to stockholders. In this regard, the Corporation may take various actions to achieve its goals, which could include a restructuring of certain components of the business. 13 NET INTEREST REVENUE--(FULLY TAXABLE EQUIVALENT BASIS) This 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, presented elsewhere in this report. For this review of net interest revenue, 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 loans and lease financing and average earning asset balances and net interest margin for United States and International Operations.
1997 1996 CHANGE QUARTERS ENDED MARCH 31 ------- ------- ------ (DOLLARS IN MILLIONS) United States Operations Net interest revenue................................ $ 469 $ 447 $ 22 Average loans and lease financing................... 31,732 30,432 1,300 Average earning assets.............................. 41,950 39,711 2,239 Net interest margin................................. 4.54% 4.53% 0.01% International Operations Net interest revenue................................ $ 156 $ 124 $ 32 Average loans and lease financing................... 10,000 8,747 1,253 Average earning assets.............................. 14,691 12,461 2,230 Net interest margin................................. 4.30% 3.99% 0.31% Consolidated Net interest revenue................................ $ 625 $ 571 $ 54 Average loans and lease financing................... 41,732 39,179 2,553 Average earning assets.............................. 56,641 52,172 4,469 Net interest margin................................. 4.47% 4.40% 0.07%
Domestic net interest revenue increased $22 million from the 1996 period primarily due to an increase in average earning assets of $2.2 billion, including a $1.3 billion increase in average loan and lease volume. Contributing to the average loan volume increase was a higher level of consumer-related loans, reflecting growth in the credit card portfolio of approximately $800 million and growth in home equity and installment loans of $700 million. On March 31, 1997, the Corporation sold $950 million of consumer loans from the Ganis franchise. This sale had no effect on first quarter 1997 net interest revenue. In addition, commercial and industrial loans increased by $900 million. The increases were partially offset by a $1.1 billion decrease in domestic residential mortgages resulting from the sale of $500 million of loans in connection with the sale of 20 branches in the fourth quarter of 1996 and other residential mortgage sales. The increase in average earning assets also included increases in trading and available for sale securities of approximately $1.1 billion, an increase of $750 million of federal funds sold and resale agreements and interest bearing bank deposits, partially offset by a decrease of $900 million in loans held for sale resulting from the sale of the Corporation's mortgage banking subsidiary in the 1996 period. Domestic net interest margin was relatively unchanged from the 1996 period. The improvement in credit card spreads resulting from the expiration of introductory promotional rates during the latter part of 1996 and the first quarter of 1997, and the above mentioned sale of residential mortgages, had a positive impact on net interest margin. This positive impact was offset by a higher level of lower yielding assets, mainly trading and available for sale securities compared with the first quarter of 1996. Information with respect to the Corporation's management of interest rate risk is discussed in the "Market Risk Management" section. International net interest revenue increased $32 million, primarily due to increases in average earning assets, reflecting increases in the Corporation's operations in Latin America, mainly in Brazil and Argentina. The increase in average earning assets included increases in average loans and leases of $600 million in Brazil and 14 $175 million in Argentina. In addition, other average earning assets increased by $265 million and $370 million in Brazil and Argentina, respectively. The increase in net interest revenue was also due to an increase in net interest margin, reflecting, in part, increased dividends from equity investments in the first quarter of 1997. As compared to the fourth quarter of 1996, consolidated net interest revenue increased $9 million. A decrease in domestic net interest revenue of $6 million was more than offset by an increase in international net interest revenue of $15 million. Consolidated net interest margin was unchanged. The decrease in domestic net interest revenue was primarily due to an 11 basis point decline in net interest margin, partially offset by an increase in average earning assets, mainly available for sale securities. The decrease in domestic net interest margin was due to a decrease in interest bearing deposits resulting from the sale of 20 branches at the end of the fourth quarter of 1996, with such deposits replaced with more expensive wholesale funding. Also contributing to the decrease in net interest margin was a decrease in loans due to the sale of 20 branches mentioned above, and an increase in lower yielding available for sale securities. The increase in international net interest revenue was due to an increase in net interest margin of 33 basis points, an increase in dividends from equity investments and an increase in average earning assets of approximately $550 million. The Corporation expects 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 and liabilities; the interest rate environment; the economic and political conditions in the countries where the Corporation does business; and other factors such as the Corporation's strategic initiatives. PROVISION FOR CREDIT LOSSES The provision for credit losses was $60 million in the first quarter of 1997, compared with $57 million in the first quarter of 1996. The provision for credit losses in each period reflects 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 be a function of the regular quarterly review of the reserve for credit losses, based upon management's assessment of risk at the time, and, as such, there can be no assurance as to the level of future provisions. See the "Reserve for Credit Losses" section for discussion of the reserve for credit losses and net credit losses. 15 NONINTEREST INCOME The following table presents the components of noninterest income.
1997 1996 CHANGE QUARTERS ENDED MARCH 31 ---- ---- ------ (IN MILLIONS) Financial service fees Deposit and ATM-related fees............................... $ 57 $ 59 $ (2) Letter of credit and acceptance fees....................... 17 17 0 Syndication and agent fees................................. 14 10 4 Other loan-related fees.................................... 9 11 (2) Net mortgage servicing fees................................ (89) 89 Other financial service fees............................... 41 44 (3) ---- ---- ---- Total financial service fees............................. 138 52 86 Mutual fund fees............................................. 25 21 4 Personal trust fees.......................................... 34 32 2 Other trust and agency fees.................................. 7 4 3 Trading profits and commissions.............................. 19 13 6 Securities portfolio gains, net.............................. 9 13 (4) Net equity and mezzanine profits............................. 37 37 0 Net foreign exchange trading profits......................... 19 13 6 Other income................................................. 39 40 (1) Net gain from decrease in joint venture interest............. 3 3 Gain on sale of business..................................... 60 (60) ---- ---- ---- Total.................................................... $330 $285 $ 45 ==== ==== ====
Excluding net mortgage servicing fees, financial service fees declined $3 million compared with the 1996 period. The $4 million increase in syndication and agent fees, reflecting a higher volume of transactions generated by the Corporation's Corporate Finance business, was more than offset by declines in other fee categories. The first quarter 1996 net losses from mortgage servicing included $111 million of losses from risk management activities, net of decreased servicing amortization. These losses resulted from the change in market value of contracts used to manage prepayment risk in the mortgage servicing portfolio which, in turn, protected the economic value of the mortgage banking subsidiary pending the completion of its sale to HomeSide, Inc. (HomeSide). The value of mortgage servicing rights is affected by the expected level of prepayments made by mortgage holders as a result of changes in mortgage rates. The value of the contracts purchased to manage this risk fluctuated 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 recognized by the Corporation on the disposition of the mortgage banking subsidiary increased. As a result, the losses from risk management activities were substantially offset by the pre-tax gain of $106 million realized on the sale of the mortgage banking subsidiary, of which $60 million was realized in the first quarter of 1996 upon completion of the first phase of the transaction and is included in gain on sale of business. The remainder of the gain was realized in the second quarter of 1996 upon completion of the second phase of the transaction. Mutual fund fees increased due to higher fees from the Corporation's Brazilian and Argentine mutual fund businesses, reflecting growth in these funds. The increase in other trust and agency fees was due to higher custody fees in 1997. The increase in trading profits and commissions was mainly due to increases from the Corporation's Brazilian operations, which included trading international debt securities and local Brazilian equity 16 securities. The decrease in securities portfolio gains was due to the sale of certain domestic securities in 1996 in connection with the repositioning of the available for sale portfolio. The increase in net foreign exchange and trading profits was due to an increased volume of business coupled with favorable market conditions in the first quarter of 1997. Other income for 1997 included a $7.5 million gain from the sale of $950 million of Ganis loans. The net gain from decrease in joint venture interest reflects a $5 million gain relating to HomeSide's initial public offering in January 1997, offset by a $2 million loss from the early extinguishment of outstanding debt, which was extinguished with the proceeds of the offering. This initial public offering resulted in a reduction of the Corporation's one-third interest in HomeSide to approximately 26 percent. Gain on sale of business in 1996 reflected a pre-tax gain of $60 million on the sale of the Corporation's mortgage banking subsidiary discussed above. NONINTEREST EXPENSE The following table presents the components of noninterest expense.
1997 1996 CHANGE QUARTERS ENDED MARCH 31 ---- ---- ------ (IN MILLIONS) Employee costs................................................. $311 $293 $18 Occupancy and equipment........................................ 87 85 2 Professional fees.............................................. 12 13 (1) Advertising and public relations............................... 22 27 (5) Communications................................................. 26 26 0 Amortization of goodwill and other intangibles................. 7 5 2 Other.......................................................... 77 76 1 ---- ---- --- Noninterest expense before OREO.............................. 542 525 17 OREO........................................................... 2 2 0 ---- ---- --- Total........................................................ $544 $527 $17 ==== ==== ===
The increase in noninterest expense before other real estate owned (OREO) costs primarily reflected increases in employee costs related to merit increases, higher levels of incentive compensation related to improved business performance, and costs related to the hiring of sales and trading professionals in the Global Capital Markets businesses. In addition, employee costs increased due to branch expansion in Brazil and the acquisition of The Boston Bancorp in the second quarter of 1996. These increases were partially offset by reduced employee costs from the integration of BayBanks, including the sale of 20 branches in the fourth quarter of 1996, and the sale of the Corporation's mortgage banking subsidiary in the first half of 1996. The decrease in advertising and public relations was due to a temporary decline in promotional campaigns pending the completion of the integration of deposit systems and rollout of new products. The complex process of the BayBanks integration is well underway and the major systems and branch conversions are expected to be completed by the middle of 1997. Costs related to the conversion of systems and various other integration related activities will be recorded in the future as they are incurred during the conversion and integration process. In addition, the Corporation is evaluating its Regional Consumer business in order to enhance its profitability and value to stockholders. In this regard, the Corporation may take various actions to achieve its goals, which could include a restructuring of certain components of the business. 17 PROVISION FOR INCOME TAXES The first quarter 1997 income tax provision was $139 million, compared with $112 million for the first quarter of 1996. The Corporation's effective tax rate was 40 percent in 1997 compared with 42 percent in 1996. The reduction in the Corporation's effective tax rate from the 1996 period was largely due to reductions in the rates of state tax to which the Corporation's operations were subject and to the low rate of state tax benefit associated with the net loss on the sale of the mortgage servicing business recorded in the first quarter of 1996. FINANCIAL CONDITION CONSOLIDATED BALANCE SHEET At March 31, 1997, the Corporation's total assets were $64.8 billion, compared with $62.3 billion at December 31, 1996. The $2.5 billion increase in total assets was due to a $1.3 billion increase in available for sale securities, as well as increases in interest bearing bank deposits and securities purchased under agreements to resell. In addition, trading account securities increased $244 million as a result of the continued growth of the Corporation's trading business. The increase in assets was principally funded with federal funds purchased and securities sold under agreements to repurchase. Deposits declined $524 million from December 31, 1996, reflecting the absence of the unusually high level of noninterest bearing deposits at year end 1996. Notes payable decreased $113 million from December 31, 1996, mainly due to the maturity of $125 million of the Corporation's senior medium- term notes. CREDIT PROFILE A discussion of the Corporation's credit risk management policies is included on page 29 of its 1996 Annual Report to Stockholders, which is incorporated by reference into its 1996 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 1997 1996 1996 1996 1996 -------- ------- -------- ------- -------- (DOLLARS IN MILLIONS) United States Operations Commercial, industrial and financial...................... $14,203 $13,162 $13,828 $12,915 $12,677 Commercial real estate Construction.................. 265 284 323 410 383 Other......................... 3,129 3,240 3,228 3,326 3,242 Consumer-related loans Residential mortgages......... 3,067 3,184 4,156 4,133 4,218 Home equity loans............. 2,908 2,878 2,842 2,775 2,644 Credit card................... 1,404 1,395 1,320 1,223 810 Other......................... 4,708 5,503 5,349 5,218 5,200 Lease financing................. 1,766 1,816 1,778 1,627 1,565 Unearned income................. (275) (287) (272) (245) (240) ------- ------- ------- ------- ------- 31,175 31,175 32,552 31,382 30,499 ------- ------- ------- ------- ------- International Operations Loans and lease financing, net of unearned income............. 9,844 9,886 9,501 9,271 8,769 ------- ------- ------- ------- ------- Total loans and lease financing...................... $41,019 $41,061 $42,053 $40,653 $39,268 ======= ======= ======= ======= =======
18 Total loans and lease financing decreased approximately $42 million from December 31, 1996, reflecting a $1 billion increase in commercial, industrial and financial loans, an $870 million decrease in consumer-related loans, a $130 million decrease in commercial real estate loans and a $42 million decrease in international loans. The increases in commercial, industrial and financial loans resulted from increases in various loan portfolios, including New England Corporate Banking, Specialized Industries and Diversified Finance. Loan levels are also affected by the timing of syndication activity. The decrease in consumer-related loans was primarily due to the sale of $950 million of Ganis loans during the first quarter of 1997. The decrease in commercial real estate loans was the result of loan sales which also occurred in the first quarter of 1997. At March 31, 1997 approximately 66 percent of domestic commercial real estate loans were to borrowers domiciled in New England, compared with approximately 70 percent at December 31, 1996. The portion of domestic commercial real estate loans located outside of New England was dispersed among 29 and 30 states at March 31, 1997 and December 31, 1996, respectively. The Corporation's total loan portfolio at March 31, 1997 and December 31, 1996 included $1.7 billion and $1.3 billion of highly leveraged transaction (HLT) loans to 124 and 116 customers, respectively. The average HLT loan size at March 31, 1997 and December 31, 1996 was $14 million and $11 million, respectively. The amount of unused commitments for HLTs at March 31, 1997 was $788 million, compared with $677 million at December 31, 1996. 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, 1997 and December 31, 1996, there were no nonaccrual HLT loans. In addition, there were no credit losses from HLT loans in the first quarter of 1997. 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 31 of its 1996 Annual Report to Stockholders, which is incorporated by reference into its 1996 Annual Report on Form 10-K. 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 1997 1996 1996 1996 1996 -------- ------- -------- ------- -------- (DOLLARS IN MILLIONS) United States Commercial, industrial and financial......................... $ 72 $ 82 $114 $140 $ 93 Commercial real estate Construction..................... 4 6 9 10 22 Other............................ 47 67 84 86 102 Consumer-related loans Residential mortgages............ 65 57 60 45 46 Home equity loans................ 25 23 22 20 16 Credit card...................... 23 17 5 2 Other............................ 41 44 44 38 42 ---- ---- ---- ---- ---- 277 296 338 341 321 International...................... 119 106 106 57 63 ---- ---- ---- ---- ---- Total nonaccrual loans........... 396 402 444 398 384 OREO............................... 49 50 52 62 65 ---- ---- ---- ---- ---- Total............................ $445 $452 $496 $460 $449 ==== ==== ==== ==== ==== Nonaccrual loans and OREO as a percent of related asset categories........................ 1.1% 1.1% 1.2% 1.1% 1.1%
19 Total nonaccrual loans and OREO decreased $7 million to $445 million at March 31, 1997, from $452 million at December 31, 1996. The decrease from December 31, 1996 reflects decreases in the domestic commercial and industrial loan portfolio as well as the domestic commercial real estate loan portfolio. The decreases were partially offset by increases in domestic consumer-related nonaccrual loans, primarily driven by the credit card and residential mortgage portfolios, and increases in the international nonaccrual loan portfolio. Included in the Corporation's nonaccrual loan balance is a $50 million loan to a large international customer. In addition, the Corporation holds in available for sale securities approximately $50 million of commercial paper of this same customer, on which earnings are not being recognized. The customer's restructuring plan is currently being negotiated and the amount of chargeoff on the loan and loss on the investment will be dependent upon the outcome of these negotiations. The level of nonaccrual loans and leases and OREO is influenced by the economic environment, interest rates 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 Corporation determines the level of its reserve for credit losses considering evaluations of individual credits and concentrations of credit risks, net losses charged to the reserve, changes in quality of the credit portfolio, levels of nonaccrual loans and leases, current economic conditions, cross-border risks, changes in size and character of the credit risks and other pertinent factors. The credit risk of off-balance-sheet exposures is managed as part of the overall extension of credit to individual customers and is considered in assessing the overall adequacy of the reserve for credit losses. The amount of the reserve for credit losses associated with off- balance-sheet exposures is not significant. The amount of the reserve for credit losses is reviewed by management quarterly. The reserve for credit losses at March 31, 1997 was $864 million, or 2.11 percent of outstanding loans and leases, compared with $883 million, or 2.15 percent, at December 31, 1996. The reserve for credit losses was 218 percent of nonaccrual loans and leases at March 31, 1997, compared with 220 percent at December 31, 1996. The future level of the reserve for credit losses will continue to be a function of management's evaluation of the Corporation's credit exposures existing at the time. Therefore, no assurance can be given regarding the future level of the reserve. Net credit losses were $79 million in the first quarter of 1997, compared with $51 million in the first quarter of 1996 and $75 million in the fourth quarter of 1996. The increase of $28 million compared to the quarter ended March 31, 1996 was principally driven by increases in net credit losses in the consumer loan portfolio, mainly the Fidelity Acceptance Corporation (FAC) and credit card portfolios, the latter of which had significant growth in outstandings from the first quarter of 1996, and increases in commercial, industrial and financial net credit losses, principally due to a loss on one large credit. These increases were partially offset by lower net credit losses in the commercial real estate portfolio. The March 31, 1997 and December 31, 1996 comparison included a $16 million decrease in commercial real estate net credit losses, reflecting the absence of a $15 million credit loss associated with the transfer of loans into a held for sale category in the fourth quarter of 1996, and an increase in commercial, industrial and financial net credit losses due to the large credit loss mentioned above. The industry-wide trend toward higher consumer debt levels and stagnant real wage growth, combined with higher current levels of personal bankruptcy filings, have led to higher chargeoffs in the consumer portfolios, especially in the credit card portfolio. The Corporation expects continued pressure on consumer chargeoffs in the future. As previously mentioned, the Corporation is performing a strategic review of its national consumer lending businesses (Fidelity Acceptance Corporation and the national credit card portfolio). Depending on the results of this review, outstandings in these portfolios could increase from prior periods. 20 Net credit losses are as follows:
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 1997 1996 1996 1996 1996 QUARTERS ENDED -------- ------- -------- ------- -------- (IN MILLIONS) United States Operations Commercial, industrial and financial........................ $18 $ 3 $ 2 $ 3 Commercial real estate............ 16 $ 1 3 11 Consumer-related loans Residential mortgages........... 1 2 2 3 4 Home equity loans............... 2 3 2 2 Credit card..................... 19 13 7 4 3 Other........................... 35 26 35 25 23 --- --- --- --- --- 75 63 45 39 46 International Operations............ 4 12 10 10 5 --- --- --- --- --- Total........................... $79 $75 $55 $49 $51 === === === === ===
CROSS-BORDER OUTSTANDINGS In accordance with bank regulatory rules, cross-border outstandings are amounts payable to the Corporation by residents of foreign countries regardless of the currency in which the claim is denominated, excluding the following. . Local country claims that are funded by local country obligations payable only in the country where issued. In the first quarter of 1997, the Corporation adopted the new country exposure reporting rules issued by the Federal Financial Institutions Examination Council. One of the changes resulting from the new rules is the exclusion from cross-border outstandings of local country claims funded by obligations of the local country, regardless of the currency in which the claim or obligation is denominated. The most significant impact of this change on the Corporation's cross-border outstandings was the exclusion of Argendollars. Argendollars are outstandings payable to the Corporation in U.S. dollars in Argentina which are funded entirely by dollars borrowed within Argentina. . Local country 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, 1997, such outstandings related to emerging markets countries totaled $2.4 billion, compared with $2.3 billion at December 31, 1996. . Claims reallocated as a result of external guarantees or cash collateral. . Claims reallocated as a result of insurance contracts, issued primarily by U.S. government agencies. Cross-border outstandings include 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. 21 The following summarizes cross-border outstandings in countries which individually amounted to 1.0 percent or more of consolidated total assets at March 31, 1997 and December 31, 1996. Certain amounts at December 31, 1996 have been restated and reflect the above-mentioned changes in the country exposure reporting rules.
PERCENTAGE OF PUBLIC BANKS OTHER TOTAL TOTAL ASSETS COMMITMENTS(1) ------ ----- ----- ------ ------------- -------------- (DOLLARS IN MILLIONS) March 31, 1997(2) Argentina............. $585 $ 95 $685 $1,365 2.1% $15 Brazil................ 420 35 580 1,035 1.6 80 Chile................. 75 270 330 675 1.0 30 December 31, 1996(2) Argentina(3).......... $605 $ 15 $945 $1,565 2.5% $55 Brazil................ 305 30 585 920 1.5 40 Chile................. 60 265 385 710 1.1 30
- -------- (1) Included within commitments are letters of credit, guarantees and the undisbursed portions of loan commitments. (2) There were no cross-border outstandings in countries which totaled between .75% and 1% of consolidated total assets at March 31, 1997 and December 31, 1996. (3) Amounts have been restated for comparative purposes to exclude Argendollar outstandings of approximately $1.3 billion. 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 repayment 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. A discussion of the Corporation's credit risk management policies is included on page 29 of its 1996 Annual Report to Stockholders, which is incorporated by reference into its 1996 Annual Report on Form 10-K. EMERGING MARKETS COUNTRIES At March 31, 1997 and December 31, 1996, approximately $4.3 billion and $4.5 billion, respectively, of the Corporation's cross-border outstandings were to emerging markets countries. These cross-border outstandings, of which approximately 80 percent were loans at March 31, 1997, were mainly composed of short-term trade credits, non-trade-related loans and leases not subject to country debt rescheduling agreements, government securities, capital investments in branches and subsidiaries, and trading positions managed by the Corporation's Emerging Markets Sales, Trading & Research business. Most cross- border outstandings to emerging markets countries were to countries in which the Corporation maintains branch networks and/or subsidiaries. ARGENTINA AND BRAZIL The Corporation's Argentine assets amounted to approximately $4.8 billion at March 31, 1997 and at December 31, 1996. Included in these assets are cross- border outstandings of $1.4 billion at March 31, 1997 and $1.6 billion at December 31, 1996. Loans were relatively unchanged at $3.4 billion at March 31, 1997. The Corporation's Argentine securities portfolio, which amounted to $607 million at March 31, 1997 and $621 million at December 31, 1996, is utilized for both asset and liability management and trading purposes. The Corporation's nonaccrual Argentine loans were $94 million and $85 million at March 31, 1997 and December 31, 1996, respectively. Net credit losses were $4 million during the first quarter of 1997 and $5 million during the fourth quarter of 1996. 22 The Corporation's Brazilian assets amounted to approximately $5.6 billion at March 31, 1997, compared with approximately $5.0 billion at December 31, 1996. The increase in total assets was primarily due to an increase in resale agreements of approximately $400 million. Included in total assets are cross- border outstandings of $1 billion at March 31, 1997 and $900 million at December 31, 1996. Loans were $2.8 billion at March 31, 1997, compared to $2.7 billion at December 31, 1996. The securities portfolio, consisting of trading assets and available for sale securities, was $602 million at March 31, 1997 and $565 million at December 31, 1996. The Corporation's nonaccrual Brazilian loans were $17 million at March 31, 1997, compared with $14 million at December 31, 1996. Net credit losses were $1 million in the first quarter of 1997 and $3 million in the fourth quarter of 1996. The Corporation's Argentine and Brazilian operations maintained currency positions both at March 31, 1997 and December 31, 1996. For further discussion of currency positions, see the "Market Risk Management" section. It is expected that the economic situation in Latin America, including the effect of world financial markets on these economies, will continue to evolve. 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 the actions implemented by Latin American governments do not remain effective over time, the Corporation's operations could experience adverse effects, including stress on local liquidity, deterioration of credit quality, a decline in the value of its securities portfolio and declines in loan and deposit levels. 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. LIQUIDITY RISK 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 $7.7 billion at March 31, 1997, compared with $7.3 billion at December 31, 1996. Also, the Corporation has access to additional funding through the public markets. Management considers overall liquidity at March 31, 1997 to be adequate to meet current obligations, to support expectations for future changes in asset and liability levels and to carry on normal operations. For additional information related to the Corporation's liquidity management, see pages 37 and 38 of the Corporation's 1996 Annual Report to Stockholders, which is incorporated by reference into its 1996 Annual Report on Form 10-K. MARKET RISK MANAGEMENT Market risk is defined as the risk of loss related to adverse changes in market prices, such as interest rates and foreign currency exchange rates, of financial instruments. Market risk is managed within policies and limits established by the Asset, Liability and Capital Committee (ALCCO) and the Board of Directors (the Board). Risk limits are allocated by ALCCO to the Corporation's market risk-taking activities, considering the results of the risk modeling process as well as other internal and external factors. The Corporation's trading activities primarily involve providing risk management services to its customers, including interest rate derivatives and foreign exchange contracts. In addition, the Corporation takes proprietary positions in domestic and emerging markets fixed income securities and local currency debt and equity securities. The risk positions taken by the Corporation in these financial instruments are subject to ALCCO approved limits. The Corporation manages the market risk related to its trading portfolios using a Value-at-Risk (VAR) methodology. VAR is defined as the statistical estimate of the potential loss amount that the Corporation could incur from an adverse movement in market prices, given a specified confidence level, and a defined holding 23 period. The VAR calculations include the effects of both interest rate and foreign exchange rate risks. The calculations do not take into account the potential diversification benefits of the different positions in each of the trading portfolios. The aggregate VAR limit for the Corporation's trading portfolios was approximately $50 million at March 31, 1997 and December 31, 1996, and the aggregate VAR exposure was approximately $10 million and $15 million, respectively. The majority of the Corporation's assets and liabilities are exposed to interest rate risk. The interest rate risk for U.S. dollar denominated assets and liabilities, which represent a significant portion of the Corporation's consolidated balance sheet at March 31, 1997, is evaluated and managed centrally through the Global Treasury group, utilizing 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 ALCCO and at least quarterly with the Board. Market value sensitivity is defined as the potential change in market value, or the economic value, of the institution resulting from changes in interest rates. Net interest revenue at risk is defined as the exposure of the Corporation's net interest revenue over the next twelve months to an adverse movement in interest rates. Both of 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 the asset and liability mix and other management actions. Therefore, they 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 ALCCO directives, market value sensitivity cannot exceed 3 percent of total risk- based capital and net interest revenue at risk cannot exceed 2 percent of net interest revenue over the next twelve-month period. The following table shows the Corporation's market value sensitivity and net interest revenue at risk positions at March 31, 1997 and December 31, 1996. MARKET VALUE SENSITIVITY AND NET INTEREST REVENUE AT RISK POSITIONS
MARCH 31, 1997 DECEMBER 31, 1996 --------------------- --------------------- QUARTERLY QUARTERLY QUARTER-END AVERAGE QUARTER-END AVERAGE ----------- --------- ----------- --------- (DOLLARS IN MILLIONS) Market value sensitivity(1)(2)..... $188 $181 $162 $162 % of risk-based capital........... 2.6% 2.5% 2.4% 2.4% Net interest revenue at risk(3).... $ 25 $ 28 $ 30 $ 29 % of net interest revenue......... 1.1% 1.2% 1.3% 1.2%
- -------- (1) Based on a 100 basis point adverse interest rate shock. (2) December 31, 1996 amounts have been restated for comparability. (3) 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, 1997 the adverse position was based on a 100 basis point upward interest rate shock and at December 31, 1996 the adverse position was based on a 200 basis point decline in interest rates over the next twelve-month period. At March 31, 1997 and December 31, 1996, the Corporation's adverse market value sensitivity was to rising interest rates. The increase in the adverse position since December 31, 1996 was primarily due to a net increase in fixed rate assets, mainly available for sale securities. 24 The Corporation's net interest revenue at risk over the next twelve months was to rising interest rates at March 31, 1997 and to declining interest rates at December 31, 1996. The change in position primarily reflected growth in short-term funding. The Corporation considers the level of its net interest revenue at risk to be a relatively neutral position. Non-U.S. dollar denominated interest rate risk is managed by the Corporation's overseas units, with oversight by the Global Treasury group. ALCCO establishes overall limits for its non-U.S. dollar denominated interest rate risk using a combination of market value risk analysis and cumulative gap limits for each country in which the Corporation has local market interest rate risk. Limits are updated at least annually for current market conditions, considering business and economic conditions in the country at a particular point in time. At March 31, 1997, approximately 85 percent of the total overseas limit was allocated to Argentina and Brazil, and represented approximately one-third of total domestic limits. During the first quarter of 1997, the Corporation continued to structure its balance sheet to take positions in the currencies of emerging markets and other countries where it operates. These 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, which represent local currency assets funded by U.S. dollars, for Argentina, Brazil, Chile and South Korea during the first quarter of 1997 were $123 million, $120 million, $11 million and $49 million, respectively. This compares with average currency positions for these same countries during the fourth quarter of 1996 of $107 million, $100 million, $52 million and $49 million, respectively. Whenever these positions are taken, they are subject to limits established by ALCCO and are subject to regular review. To date, these positions have been liquid in nature and management has been able to close and re-open these positions as necessary. The level of U.S. dollar and non-U.S. dollar exposure maintained by the Corporation is a function of the market environment and may change from period to period based on interest rate and other economic expectations. Additional information with respect to the Corporation's management of market risk is included on pages 39 and 40 of the Corporation's 1996 Annual Report to Stockholders which is incorporated by reference in its 1996 Annual Report on Form 10-K. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives provide the Corporation with significant flexibility in managing its interest rate risk and foreign exchange exposures, enabling it to manage risk efficiently and respond quickly to changing market conditions while 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 practices. Derivatives not used for asset and liability management are included in the derivatives trading portfolio and relate to providing risk management products to the Corporation's customers. All derivative activities are managed on a comprehensive basis, are included in the overall market risk measures and limits described above, and are subject to credit standards similar to those for balance sheet exposures. 25 The following table summarizes the notional amounts and fair values of interest rate derivatives and foreign exchange contracts included in the Corporation's trading and asset and liability management (ALM) portfolios.
MARCH 31, 1997 ------------------------------------------------------------------------------- TRADING PORTFOLIO(1) ALM PORTFOLIO(1) ------------------------------- ---------------------------------------------- FAIR VALUE(2)(3)(4) FAIR VALUE(2)(3) NOTIONAL ---------------------- NOTIONAL -------------------- UNRECOGNIZED(5) AMOUNT ASSET LIABILITY AMOUNT ASSET LIABILITY GAIN (LOSS) -------- --------- ----------- -------- -------- ---------- --------------- (IN MILLIONS) Interest rate contracts Futures and forwards.. $50,695 $ 56 $ 55 $ 5,441 $ (37) Interest rate swaps... 9,778 70 68 9,369 $ 17 $ 96 (80) Interest rate options Purchased........... 10,976 22 Written or sold..... 6,668 18 ------- --------- --------- ------- -------- -------- ----- Total interest rate contracts.............. $78,117 $ 148 $ 141 $14,810 $ 17 $ 96 $(117) ======= ========= ========= ======= ======== ======== ===== Foreign exchange contracts Spot and forward contracts............ $23,327 $ 272 $ 277 $ 1,599 $ 15 $ 8 $ 8 Options purchased..... 3,414 53 Options written or sold................. 3,756 52 ------- --------- --------- ------- -------- -------- ----- Total foreign exchange contracts.............. $30,497 $ 325 $ 329 $ 1,599 $ 15 $ 8 $ 8 ======= ========= ========= ======= ======== ======== ===== DECEMBER 31, 1996 ------------------------------------------------------------------------------- TRADING PORTFOLIO(1) ALM PORTFOLIO(1) ------------------------------- ---------------------------------------------- FAIR VALUE(2)(3)(4) FAIR VALUE(2)(3) NOTIONAL ---------------------- NOTIONAL -------------------- UNRECOGNIZED(5) AMOUNT ASSET LIABILITY AMOUNT ASSET LIABILITY GAIN (LOSS) -------- --------- ----------- -------- -------- ---------- --------------- (IN MILLIONS) Interest rate contracts Futures and forwards.. $47,927 $ 65 $ 64 $ 3,382 $ (45) Interest rate swaps... 9,332 58 54 6,975 $ 25 $ 40 (11) Interest rate options Purchased........... 6,471 14 Written or sold..... 4,593 13 ------- --------- --------- ------- -------- -------- ----- Total interest rate contracts.............. $68,323 $ 137 $ 131 $10,357 $ 25 $ 40 $ (56) ======= ========= ========= ======= ======== ======== ===== Foreign exchange contracts Spot and forward contracts............ $20,224 $ 313 $ 348 $ 1,755 $ 11 $ 9 $ 2 Options purchased..... 2,529 42 Options written or sold................. 2,434 37 ------- --------- --------- ------- -------- -------- ----- Total foreign exchange contracts.............. $25,187 $ 355 $ 385 $ 1,755 $ 11 $ 9 $ 2 ======= ========= ========= ======= ======== ======== =====
- -------- (1) Contracts under master netting agreements are shown on a net basis for both the trading and ALM portfolios. (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. 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 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, 1997 and December 31, 1996 were approximately $143 million and $136 million, respectively, and $137 million and $129 million, respectively. The average asset and liability fair 26 value amounts for foreign exchange contracts included in the trading portfolio were approximately $340 million and $357 million, respectively, for the quarter ended March 31, 1997, and $283 million and $295 million, respectively, for the quarter ended December 31, 1996. (5) 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 that have been terminated. Such amounts are recognized as an adjustment of yield over the period being managed. At March 31, 1997, there were $13 million of unrecognized gains and $25 million of unrecognized losses related to terminated contracts that are being amortized to net interest revenue over weighted average periods of 23 months and 10 months, respectively. At December 31, 1996, there were $16 million of unrecognized gains and $33 million of unrecognized losses related to terminated contracts that were being amortized to net interest revenue over weighted average periods of 26 months and 13 months, respectively. Net trading gains or losses from interest rate derivatives are recorded in trading account profits and commissions. The Corporation's interest rate derivative trading activities primarily include providing risk management products to its customers. Derivatives are also used to manage risk in other trading portfolios, such as emerging markets securities. The results of these derivative activities are combined with the results of the respective trading portfolio to determine the overall performance of the trading business and, as such, are not included in the results of derivative trading activities. Net trading gains from interest rate derivative trading were $5 million for the quarter ended March 31, 1997 and $2 million for the quarter ended March 31, 1996. Net trading gains from foreign exchange contracts are recorded in other income. Net trading gains from foreign exchange activities, which include foreign exchange spot, forward and options contracts, for the quarters ended March 31, 1997 and 1996 were $19 million and $13 million, respectively. The fair value of interest rate derivative contracts included in the ALM portfolio decreased by $64 million, to a loss of $79 million at March 31, 1997. The decrease in fair value was due to an increase in long-term interest rates during the first quarter of 1997, which primarily impacted the receive fixed interest rate swap portfolio, and resulted in a decline in its fair value. 27 The following table summarizes the remaining maturity of interest rate derivative financial instruments entered into for asset and liability management purposes as of March 31, 1997.
REMAINING MATURITY ------------------------------------------------------------------ MARCH 31 DECEMBER 31 1997 1996 1997 1998 1999 2000 2001 2002+ TOTAL TOTAL ------- ----- ----- ----- ----- ------ -------- ----------- (DOLLARS IN MILLIONS) INTEREST RATE SWAPS Domestic Receive fixed rate swaps(1) Notional amount........ $ 401 $ 140 $ 105 $ 440 $ 300 $1,800 $ 3,186 $ 2,826 Weighted average re- ceive rate............ 7.04% 5.89% 6.39% 5.71% 6.10% 6.47% 6.37% 6.38% Weighted average pay rate.................. 5.56% 5.63% 5.74% 5.62% 5.55% 5.65% 5.63% 5.67% Pay fixed rate swaps Notional amount........ $ 4 $ 23 $ 27 $ 83 Weighted average re- ceive rate............ 6.33% 5.93% 5.97% 5.88% Weighted average pay rate.................. 7.36% 9.12% 8.90% 7.61% Basis swaps(2) Notional amount........ $ 75 $ 50 $ 50 $ 175 $ 468 Weighted average re- ceive rate............ 5.59% 5.56% 6.03% 5.71% 5.90% Weighted average pay rate.................. 7.24% 5.98% 5.77% 6.46% 5.64% Total Domestic Interest Rate Swaps Notional amount........ $ 480 $ 213 $ 105 $ 490 $ 300 $1,800 $ 3,388 $ 3,377 Weighted average re- ceive rate(3)......... 6.81% 5.81% 6.39% 5.74% 6.10% 6.47% 6.34% 6.31% Weighted average pay rate(3)............... 5.84% 6.09% 5.74% 5.64% 5.55% 5.65% 5.70% 5.71% Total International In- terest Rate Swaps Notional Amount(4)(6).. $ 5,964 $ 17 $ 5,981 $ 3,598 OTHER DERIVATIVE PROD- UCTS Futures and for- wards(5)(6)............ $ 5,441 $ 5,441 $ 3,382 ------- ----- ----- ----- ----- ------ ------- ------- Total Consolidated Notional Amount........ $11,885 $ 213 $ 105 $ 507 $ 300 $1,800 $14,810 $10,357 ======= ===== ===== ===== ===== ====== ======= =======
- -------- (1) Approximately $1.6 billion of the receive fixed rate swaps are 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 2002 and thereafter. (2) Basis swaps represent swaps where both the pay rate and receive rate are floating rates. Most of the basis swaps are linked to bank notes. (3) The majority of the Corporation's interest rate swaps accrue at LIBOR. In arriving at the variable weighted average receive and pay rates, LIBOR rates in effect as of March 31, 1997 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 operations with a weighted average maturity of less than 1 year. These swaps typically include the exchange of floating rate indices that are limited to the Brazilian market. (5) Represent contracts entered into by the Corporation's Brazilian operations in the local market which are linked to short-term interest bearing assets and liabilities. (6) The increase from December 31, 1996 was due to the increased use of swap and futures and forward contracts to hedge balance sheet positions. The Corporation routinely reviews its asset and liability derivative positions to determine whether such instruments continue to function as effective risk management tools. The 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. Additional information on the Corporation's derivative products, including accounting policies, is included on pages 41 and 42 of, and in Notes 1 and 22 to the Financial Statements in, the Corporation's 1996 Annual Report to Stockholders, which is incorporated by reference in its 1996 Annual Report on Form 10-K. 28 CAPITAL MANAGEMENT In the first quarter of 1997 the Board approved a 12 million share common stock repurchase program. The Corporation purchased 2.5 million shares in the first quarter of 1997 and has continued this repurchase program in the second quarter of 1997. The Corporation's Tier 1 and total capital ratios were 9.0 percent and 13.0 percent, respectively, at March 31, 1997, compared with 9.2 percent and 13.6 percent, respectively, at December 31, 1996. The Corporation's leverage ratio at March 31, 1997 was 7.8 percent compared with 8.2 percent at December 31, 1996. The decrease in the Tier 1, total capital and leverage ratios was primarily due to the above mentioned repurchase of 2.5 million shares of common stock in the first quarter of 1997. The Corporation has a capital planning process to ensure that appropriate regulatory capital levels and ratios are maintained. As of March 31, 1997, the Corporation and its bank subsidiaries met all capital adequacy requirements to which they are subject. In April of 1997, the Board voted to increase the quarterly common stock dividend from $.44 per share to $.51 per share, payable on May 30, 1997, to stockholders of record on May 5, 1997. The level of dividends paid on the Corporation's common stock will continue to be determined by the Board based on the Corporation's liquidity, asset quality profile, capital adequacy and recent earnings history, as well as economic conditions and other factors deemed relevant. 29 CONSOLIDATED BALANCE SHEET AVERAGES BY QUARTER LAST NINE QUARTERS
1995 1996 1997 ----------------------------------- ----------------------------------- -------- 1 2 3 4 1 2 3 4 1 -------- -------- -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS) ASSETS Interest bearing deposits in other banks.................. $ 1,262 $ 1,310 $ 1,332 $ 1,454 $ 1,338 $ 1,313 $ 1,256 $ 1,405 $ 1,961 Federal funds sold and securities purchased under agreements to resell................. 1,482 1,294 1,004 972 1,416 1,532 1,708 2,047 2,189 Trading securities...... 721 815 922 929 1,136 1,624 1,467 1,459 1,498 Loans held for sale..... 258 262 506 760 960 69 21 44 Securities.............. 7,218 7,335 7,468 7,823 8,143 8,065 8,249 8,029 9,261 Loans and lease financing.............. 36,894 37,811 39,033 39,357 39,179 40,114 41,223 41,835 41,732 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total earning assets... 47,835 48,827 50,265 51,295 52,172 52,717 53,924 54,819 56,641 Other assets............ 5,722 6,034 6,447 6,506 6,415 5,664 6,125 6,237 6,583 -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL ASSETS........... $ 53,557 $ 54,861 $ 56,712 $ 57,801 $ 58,587 $ 58,381 $ 60,049 $ 61,056 $ 63,224 ======== ======== ======== ======== ======== ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Domestic offices: Noninterest bearing.... $ 6,079 $ 6,091 $ 6,285 $ 6,509 $ 6,586 $ 6,420 $ 6,694 $ 6,837 $ 6,951 Interest bearing....... 22,530 23,108 24,190 24,700 24,849 24,931 26,003 25,121 24,622 Overseas offices: Noninterest bearing.... 415 416 501 492 499 465 491 455 599 Interest bearing....... 8,318 7,967 7,790 8,202 8,698 9,302 9,429 9,618 9,727 -------- -------- -------- -------- -------- -------- -------- -------- -------- Total deposits......... 37,342 37,582 38,766 39,903 40,632 41,118 42,617 42,031 41,899 Federal funds purchased and repurchase agreements............. 4,723 4,696 3,959 4,672 3,959 4,561 4,739 5,167 5,923 Other funds borrowed.... 3,684 4,432 5,661 4,683 5,102 3,721 3,562 4,190 4,943 Notes payable........... 2,183 2,112 2,115 2,159 2,421 2,584 2,674 2,983 3,316 Other liabilities....... 1,618 1,818 1,790 1,806 1,767 1,709 1,698 1,860 2,191 Stockholders' equity.... 4,007 4,221 4,421 4,578 4,706 4,688 4,759 4,825 4,952 -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $ 53,557 $ 54,861 $ 56,712 $ 57,801 $ 58,587 $ 58,381 $ 60,049 $ 61,056 $ 63,224 ======== ======== ======== ======== ======== ======== ======== ======== ========
30 CONSOLIDATED STATEMENT OF INCOME BY QUARTER--TAXABLE EQUIVALENT BASIS LAST NINE QUARTERS
1995 1996 1997 --------------------------- --------------------------- ------ 1 2 3 4 1 2 3 4 1 ------ ------ ------ ------ ------ ------ ------ ------ ------ (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) NET INTEREST REVENUE: $549.0 $557.3 $569.6 $572.9 $565.5 $571.5 $591.4 $611.2 $620.0 Taxable equivalent adjustment............. 4.2 4.9 4.4 8.4 5.5 4.7 5.0 5.2 5.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total net interest revenue................ 553.2 562.2 574.0 581.3 571.0 576.2 596.4 616.4 625.0 Provision for credit losses................. 96.5 46.5 51.0 81.0 56.9 57.1 57.0 60.0 60.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net interest revenue after provision for credit losses.......... 456.7 515.7 523.0 500.3 514.1 519.1 539.4 556.4 565.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ NONINTEREST INCOME: Financial service fees.. 146.7 155.9 162.2 230.6 51.6 135.3 140.4 146.6 137.5 Trust and agency fees... 58.3 63.0 64.4 54.8 57.4 61.9 61.6 65.0 66.0 Trading profits and commissions............ 1.8 6.8 7.2 9.1 12.9 25.0 20.7 17.2 19.3 Net securities gains.... 6.1 .2 .8 1.9 13.4 3.4 7.1 (.8) 8.8 Other income............ 131.6 65.8 71.2 71.3 149.9 157.3 106.7 111.5 98.1 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total noninterest income................ 344.5 291.7 305.8 367.7 285.2 382.9 336.5 339.5 329.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ NONINTEREST EXPENSE: Salaries................ 227.0 230.7 245.9 243.2 240.8 239.9 244.2 254.5 257.7 Employee benefits....... 50.0 51.0 52.2 45.8 52.2 49.0 49.1 44.4 52.7 Occupancy expense....... 47.3 46.8 48.3 48.6 51.1 49.7 51.1 50.6 50.8 Equipment expense....... 32.2 33.6 33.5 33.8 34.3 33.9 34.2 36.2 35.6 Acquisition, divestiture and restructuring expense................ 28.2 180.0 Other expense........... 144.2 149.7 138.0 146.1 148.5 159.7 153.8 162.2 147.4 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total noninterest expense............... 500.7 511.8 517.9 545.7 526.9 532.2 712.4 547.9 544.2 ------ ------ ------ ------ ------ ------ ------ ------ ------ Income before income taxes.................. 300.5 295.6 310.9 322.3 272.4 369.8 163.5 348.0 350.5 Provision for income taxes.................. 140.5 123.0 132.0 133.6 112.0 151.3 78.5 141.3 138.7 Taxable equivalent adjustment............. 4.2 4.9 4.4 8.4 5.5 4.7 5.0 5.2 5.0 ------ ------ ------ ------ ------ ------ ------ ------ ------ 144.7 127.9 136.4 142.0 117.5 156.0 83.5 146.5 143.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ NET INCOME.............. $155.8 $167.7 $174.5 $180.3 $154.9 $213.8 $ 80.0 $201.5 $206.8 ====== ====== ====== ====== ====== ====== ====== ====== ====== PER COMMON SHARE: Net Income: Primary................ $ .98 $ 1.03 $ 1.06 $ 1.09 $ .94 $ 1.33 $ .46 $ 1.26 $ 1.29 Fully diluted.......... .95 1.02 1.05 1.08 .93 1.32 .45 1.24 1.27 Cash dividends declared............... .27 .27 .37 .37 .37 .44 .44 .44 .44
31 AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
QUARTER ENDED MARCH 31, 1997 --------------------------- AVERAGE AVERAGE VOLUME INTEREST(1) RATE ------- ----------- ------- (DOLLARS IN MILLIONS) ASSETS Interest Bearing Deposits with Other Banks U.S.............................................. $ 661 $ 9 5.67% International.................................... 1,300 25 7.82 ------- ----- Total........................................ 1,961 34 7.09 ------- ----- ----- Federal Funds Sold and Resale Agreements U.S.............................................. 680 9 5.05 International.................................... 1,509 59 15.91 ------- ----- Total........................................ 2,189 68 12.53 ------- ----- ----- Trading Securities U.S.............................................. 860 12 5.74 International.................................... 638 16 10.18 ------- ----- Total........................................ 1,498 28 7.63 ------- ----- ----- Securities U.S. Available for sale(2).......................... 7,323 116 6.47 Held to maturity............................... 694 10 6.00 International Available for sale(2).......................... 1,244 48 16.19 ------- ----- Total........................................ 9,261 174 7.63 ------- ----- ----- Loans and Leases (Net of Unearned Income) U.S.............................................. 31,732 690 8.81 International.................................... 10,000 286 11.60 ------- ----- Total loans and lease financing(3)........... 41,732 976 9.48 ------- ----- ----- Earning assets.................................... 56,641 1,280 9.16 ----- ----- Nonearning assets................................. 6,583 ------- Total Assets................................. $63,224 ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits U.S. Savings deposits............................... $14,767 $ 98 2.69% Time deposits.................................. 9,855 134 5.52 International.................................... 9,727 168 7.01 ------- ----- Total........................................ 34,349 400 4.73 ------- ----- ----- Federal Funds Purchased and Repurchase Agreements U.S.............................................. 5,833 82 5.74 International.................................... 90 3 13.16 ------- ----- Total........................................ 5,923 85 5.85 ------- ----- ----- Other Funds Borrowed U.S.............................................. 3,603 53 5.95 International.................................... 1,340 55 16.49 ------- ----- Total........................................ 4,943 108 8.81 ------- ----- ----- Notes Payable U.S.(4).......................................... 2,669 46 6.92 International.................................... 647 16 10.32 ------- ----- Total........................................ 3,316 62 7.58 ------- ----- ----- Total interest bearing liabilities................ 48,531 655 5.47 ----- ----- Demand deposits U.S............................... 6,951 Demand deposits International..................... 599 Other noninterest bearing liabilities............. 2,191 Total stockholders' equity........................ 4,952 ------- Total Liabilities and Stockholders' Equity... $63,224 ======= NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S.............................................. $41,950 $ 469 4.54% International.................................... 14,691 156 4.30% ------- ----- Total........................................ $56,641 $ 625 4.47% ======= =====
- -------- (1) Income is shown on a fully taxable equivalent basis. (2) Average rates for securities available for sale are based on the securities' amortized cost. (3) Loans and lease financing includes nonaccrual and renegotiated balances. (4) Amounts include guaranteed beneficial interest in Corporation's junior subordinated debt. 32 AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
QUARTER ENDED MARCH 31, 1996 --------------------------- AVERAGE AVERAGE VOLUME INTEREST(1) RATE ------- ----------- ------- (DOLLARS IN MILLIONS) ASSETS Interest Bearing Deposits with Other Banks U.S. ........................................... $ 227 $ 3 5.76% International................................... 1,111 21 7.59 ------- ------ Total....................................... 1,338 24 7.28 ------- ------ ----- Federal Funds Sold and Resale Agreements U.S. ........................................... 356 5 5.31 International................................... 1,060 38 14.64 ------- ------ Total....................................... 1,416 43 12.29 ------- ------ ----- Trading Securities U.S. ........................................... 372 6 5.63 International................................... 764 35 18.81 ------- ------ Total....................................... 1,136 41 14.49 ------- ------ ----- Loans Held for Sale U.S. ........................................... 921 16 7.07 International................................... 39 1 6.14 ------- ------ Total....................................... 960 17 7.03 ------- ------ ----- Securities U.S. Available for sale(2)......................... 6,729 107 6.40 Held to maturity.............................. 674 10 6.06 International Available for sale(2)......................... 646 20 13.15 Held to maturity.............................. 94 4 15.23 ------- ------ Total....................................... 8,143 141 6.98 ------- ------ ----- Loans and Leases (Net of Unearned Income) U.S. ........................................... 30,432 658 8.71 International................................... 8,747 321 14.73 ------- ------ Total loans and lease financing(3).......... 39,179 979 10.05 ------- ------ ----- Earning assets.................................... 52,172 1,245 9.60 ------ ----- Nonearning assets................................. 6,415 ------- Total Assets................................ $58,587 ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits U.S. Savings deposits.............................. $15,106 $100 2.68% Time deposits................................. 9,743 139 5.73 International................................... 8,698 181 8.36 ------- ------ Total....................................... 33,547 420 5.04 ------- ------ ----- Federal Funds Purchased and Repurchase Agreements U.S. ........................................... 3,861 56 5.76 International................................... 98 2 10.18 ------- ------ Total....................................... 3,959 58 5.87 ------- ------ ----- Other Funds Borrowed U.S. ........................................... 4,032 63 6.25 International................................... 1,070 90 33.96 ------- ------ Total....................................... 5,102 153 12.06 ------- ------ ----- Notes Payable U.S. ........................................... 1,955 32 6.62 International................................... 466 11 9.90 ------- ------ Total....................................... 2,421 43 7.25 ------- ------ ----- Total interest bearing liabilities................ 45,029 674 6.03 ------ ----- Demand deposits U.S. ............................. 6,586 Demand deposits International..................... 499 Other noninterest bearing liabilities............. 1,767 Total stockholders' equity........................ 4,706 ------- Total Liabilities and Stockholders' Equity.. $58,587 ======= NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S. ........................................... $39,711 $ 447 4.53% International................................... 12,461 124 3.99% ------- ------ Total....................................... $52,172 $ 571 4.40% ======= ======
- -------- (1) Income is shown on a fully taxable equivalent basis. (2) Average rates for securities available for sale are based on the securities' amortized cost. (3) Loans and lease financing includes nonaccrual and renegotiated balances. 33 CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996 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 ---------------------- VOLUME RATE NET CHANGE ---------- ---------- ---------- (IN MILLIONS) Interest income: Loans and lease financing U.S. ....................................... $28 $ 4 $ 32 International .............................. 36 (71) (35) ---- (3) ---- Other earning assets U.S. ....................................... 14 (5) 9 International .............................. 31 (2) 29 ---- 38 ---- Total interest income......................... 101 (66) 35 Total interest expense........................ 52 (71) (19) ---- Net interest revenue.......................... $ 54 ====
34 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. As previously reported, in 1990 a class action complaint was filed in U.S. District Court for the District of Connecticut against Society for Savings Bancorp, Inc. ("Society"), two of its then senior officers and one former officer. The complaint, as subsequently amended, alleges that Society's financial reports for fiscal years 1988, 1989, and the first half of 1990 contained material misstatements or omissions concerning its real estate loan portfolio and other matters, in violation of Connecticut common law and of Sections 10(b) and 20 of the Exchange Act. The action was brought by a Society shareholder, individually and as a class action on behalf of purchasers of Society's stock from January 19, 1989 through November 30, 1990 and seeks damages in an unspecified amount. Society and the defendant officers have denied the allegations of the amended complaint and on July 14, 1995 filed a motion for summary judgment. That motion was denied in January 1997 and discovery has therefore resumed. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The Annual Meeting of Stockholders of the Corporation was held on April 24, 1997. (b) The following matters were submitted to a vote of the Stockholders of the Corporation: (1) Election of Directors
NOMINEE TOTAL VOTES FOR TOTAL VOTES WITHHELD ------- --------------- -------------------- Gary L. Countryman................. 128,076,276 1,577,734 Henrique de Campos Meirelles....... 128,143,961 1,510,049 Thomas R. Piper.................... 128,199,747 1,454,263 Francene S. Rodgers................ 127,992,304 1,661,706 John W. Rowe....................... 128,106,139 1,547,871 William C. Van Fassen.............. 128,043,009 1,611,001
(2) Selection of Independent Auditors Total Votes For.......................................... 128,977,573 Total Votes Against...................................... 275,187 Total Abstentions........................................ 401,250
(3) Amendments to Restated Articles of Organization Changing Name of the Corporation to "BankBoston Corporation" Total Votes For.......................................... 128,311,085 Total Votes Against...................................... 704,857 Total Abstentions........................................ 638,068
(4) Approval of the Corporation's 1997 Employee Stock Purchase Plan Total Votes For.......................................... 125,947,609 Total Votes Against...................................... 2,774,865 Total Abstentions........................................ 931,536
(5) Stockholder Proposal A regarding Political Activities Total Votes For........................................... 8,910,681 Total Votes Against....................................... 98,610,928 Total Abstentions......................................... 6,466,263 Total Broker Nonvotes..................................... 15,666,138
35 (6) Stockholder Proposal B regarding Director Compensation Total Votes For.......................................... 10,661,314 Total Votes Against...................................... 100,770,352 Total Abstentions........................................ 2,258,729 Total Broker Nonvotes.................................... 15,963,615
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 3(a) --Restated Articles of Organization of the Corporation, as amended through April 26, 1996, incorporated herein by reference to the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 (File No. 1-6522). 3(b) --Amendment, dated April 25, 1997, to the Corporation's Restated Articles of Organization. 3(c) --By-Laws of the Corporation, as amended through April 25, 1997. 11 --Computation of Earnings Per Common 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). 12(c) --Computation of the Corporation's Consolidated Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements (excluding interest on deposits). 12(d) --Computation of the Corporation's Consolidated Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements (including interest on deposits). 27.1 --Financial Data Schedule. 27.2 --Restated Financial Data Schedule.
(b) Current Reports on Form 8-K. During the first quarter of 1997, the Corporation filed one Current Report on Form 8-K, dated January 16, 1997, which 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 17, 1997, which contained information pursuant to Items 5 and 7 of Form 8-K. 36 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. BANKBOSTON CORPORATION /s/ Charles K. Gifford _____________________________________ Charles K. Gifford Chief Executive Officer /s/ William J. Shea _____________________________________ William J. Shea Vice Chairman, Chief Financial Officer and Treasurer Date: May 14, 1997 37 EX-3.(B) 2 ARTICLES OF AMENDMENT Exhibit 3(b) THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION General Laws, Chapter 156B, Section 72 NO. 04-2471221 We Henrique de Campos Meirelles 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: 1 ------------ - -------------------------------------------------------------------------------- (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 ----- 24, 1997 by vote of: -------- Common Stock 128,083,150 shares of Par Value $1.50 per share out of 153,246,385 shares - --------------- ------------------------- ----------- outstanding, type, class & series, (if any) __________ shares of _______________ out of _____________ shares outstanding, type, class & series, (if any) __________ shares of _______________ out of _____________ shares outstanding, type, class & series, (if any) being at least a majority of each type, class or series outstanding and entitled to vote thereon: VOTED: That, effective April 25, 1997 at 5 p.m., Article 1 of the Corporation's restated Articles of Organization be amended to read in its entirety as follows: "The name by which the Corporation shall be known is: BankBoston Corporation." 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: - -------------------------------- WITH PAR VALUE STOCKS - -------------------------------------------- TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------- COMMON: - -------------------------------------------- PREFERRED: - -------------------------------------------- CHANGE the total authorized to: WITHOUT PAR VALUE STOCKS - ----------------------------------- TYPE NUMBER OF SHARES - ----------------------------------- COMMON: - ----------------------------------- PREFERRED: - ----------------------------------- WITH PAR VALUE STOCKS - -------------------------------------- TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------- COMMON: - -------------------------------------- PREFERRED: - -------------------------------------- The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 56B, Section 6 of 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: April ----- 25, 1997 at 5 p.m. - ---------------------- IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this 24th day of April in the year 1997. /s/ HENRIQUE DE CAMPOS MEIRELLES President - ------------------------------------------------------- Henrique de Campos Meirelles /s/ GARY S. SPIESS Clerk - ------------------------------------------------------- Gary A. Spiess EX-3.(C) 3 BY-LAWS OF THE CORPORATION Exhibit 3(c) [LETTERHEAD OF BankBoston appears here] BANKBOSTON CORPORATION ____________________ BY-LAWS ____________________ REVISED TO APRIL 24, 1997 BY-LAWS OF BANKBOSTON CORPORATION ___________________ TABLE OF CONTENTS ARTICLE I MEETINGS OF THE STOCKHOLDERS
PAGE ---- SECTION 1. Place of Meeting; Adjournment............................... 1 SECTION 2. Annual Meeting.............................................. 1 SECTION 3. Special Meetings............................................ 1 SECTION 4. Notices of Meetings......................................... 2 SECTION 5. Quorum...................................................... 3 SECTION 6. Organization................................................ 4 SECTION 7. Voting by Stockholders; Proxies............................. 4 SECTION 8. Inspectors.................................................. 5 SECTION 9. Action without Meeting...................................... 5 ARTICLE II BOARD OF DIRECTORS SECTION 1. General Powers; Issue of Stock.............................. 5 SECTION 2. Number, Qualification, Election and Term of Office.......... 5 SECTION 3. Nominations for Director.................................... 6 SECTION 4. Quorum and Manner of Acting................................. 7 SECTION 5. First Meeting............................................... 8 SECTION 6. Regular Meetings............................................ 8 SECTION 7. Special Meetings............................................ 8 SECTION 8. Notices of Meetings......................................... 8 SECTION 9. Organization of Meetings.................................... 9 SECTION 10. Order of Business........................................... 9 SECTION 11. Action by Directors without a Meeting....................... 9 SECTION 12. Resignation................................................. 9 SECTION 13. Removal..................................................... 9
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PAGE ---- SECTION 14. Vacancies................................................... 10 SECTION 15. Fees and Expenses of Directors.............................. 10 SECTION 16. Validity of Acts of Directors............................... 10 SECTION 17. Transactions with the Corporation........................... 10 ARTICLE III COMMITTEES SECTION 1. Executive Committee......................................... 11 SECTION 2. Audit Committee............................................. 12 SECTION 3. Compensation Committee...................................... 13 SECTION 4. Board Governance and Nominating Committee................... 14 SECTION 5. Community Investment Committee.............................. 14 SECTION 6. Other Committees............................................ 15 SECTION 7. Changes in Committee Membership; Filling of Vacancies....... 15 SECTION 8. Records of Committee Action and Board of Directors' Approval..................................... 15 SECTION 9. Committee Proceedings....................................... 15 SECTION 10. Action of Committees without a Meeting...................... 16 SECTION 11. General Authority of Committees............................. 16 ARTICLE IV OFFICERS SECTION 1. Titles and Qualifications................................... 16 SECTION 2. Appointment and Terms of Office............................. 17 SECTION 3. Duties; Fidelity Bond....................................... 17 SECTION 4. The Chief Executive Officer................................. SECTION 5. The Chairman of the Board................................... 17 SECTION 6 The President and Chief Operating Officer................... 18 SECTION 7. The Vice Chairmen........................................... 18 SECTION 8. The Executive Officers...................................... 18 SECTION 9. The Treasurer............................................... 18 SECTION 10. The Comptroller............................................. 18 SECTION 11 The Clerk and the Secretary of the Board of Directors......................................... 18 SECTION 12. The General Auditor......................................... 19 SECTION 13. The Vice Presidents......................................... 19 SECTION 14. The Assistant Treasurers and Assistant Clerks............... 19 SECTION 15. Resignation................................................. 19 SECTION 16. Vacancies................................................... 19
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PAGE ---- SECTION 17. Compensation of Officers, Employees and Other Agents........ 20 SECTION 18. Designated Officer.......................................... 20 ARTICLE V STOCK SECTION 1. Stock Certificates........................................... 20 SECTION 2. Transfer of Stock............................................ 21 SECTION 3. Transfer Agent and Registrar; Regulations.................... 21 SECTION 4. Lost, Mutilated or Destroyed Certificates.................... 21 SECTION 5. Record Date for Determination of Stockholders' Rights; Close of Transfer Books............................. 21 SECTION 6. Dividends.................................................... 22 SECTION 7. Control Share Acquisitions................................... 22 ARTICLE VI GENERAL PROVISIONS SECTION 1. Offices..................................................... 22 SECTION 2. Seal........................................................ 23 SECTION 3. Fiscal Year................................................. 23 SECTION 4. Execution of Instruments.................................... 23 SECTION 5. Voting of Securities........................................ 23 SECTION 6. Powers of Attorney.......................................... 24 SECTION 7. Issue of Debt Securities and Other Obligations.............. 24 SECTION 8. Corporate Records........................................... 24 SECTION 9. Indemnification of Directors, Officers and Others........... 25 ARTICLE VII AMENDMENTS SECTION 1. General..................................................... 27
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PAGE ---- ARTICLE VIII EMERGENCY BY-LAWS SECTION 1. Effective Period............................................ 28 SECTION 2. Meetings of the Board of Directors.......................... 28 SECTION 3. Emergency Location of Head Office........................... 28 SECTION 4. Preservation of Continuity of Management.................... 28 SECTION 5. Immunity.................................................... 28 SECTION 6. Amendment of Emergency By-Laws.............................. 28
BANKBOSTON CORPORATION ________________ BY-LAWS ________________ ARTICLE I MEETINGS OF THE STOCKHOLDERS SECTION 1. Place of Meeting; Adjournment. Meetings of the stockholders may be held at the main office of the corporation in the City of Boston, County of Suffolk, Commonwealth of Massachusetts, or at such places within or without the Commonwealth of Massachusetts as may be specified in the notices of such meetings; provided, that, when any meeting is convened, the presiding officer, if directed by the Board of Directors, may adjourn the meeting for a period of time not to exceed 30 days if (a) no quorum is present for the transaction of business or (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders (i) to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders or (ii) otherwise to exercise effectively their voting rights. The presiding officer in such event shall announce the adjournment and date, time and place of reconvening and shall cause notice thereof to be posted at the place of meeting designated in the notice which was sent to the stockholders, and if such date is more than 10 days after the original date of the meeting the Clerk shall give notice thereof in the manner provided in Section 4 of this Article I. SECTION 2. Annual Meeting. The annual meeting of stockholders of the corporation for the election of directors and the transaction of such other business as may properly come before the meeting shall be held on such date and at such time as shall be determined by the Board of Directors each year, which date and time may subsequently be changed at any time, including the year any such determination occurs. SECTION 3. Special Meetings. Except as provided in the Articles of Organization with respect to the ability of holders of preferred stock to call a special meeting in certain circumstances, special meetings of the stockholders may be called by the Chief Executive Officer or the Chairman of the Board or by a majority of the directors, and shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer upon the written application of stockholders who hold one hundred percent in interest of the capital stock of the corporation entitled to be voted at the proposed meeting. Such request shall state the purpose or purposes of the proposed meeting and may designate the place, date and hour of such meeting; provided, however, that no such request shall designate a date not a full business day or an hour not within normal business hours as the date or hour of such meeting. -2- As used in these By-Laws, the expression business day means a day other than a day which, at a particular place, is a public holiday or a day other than a day on which banking institutions at such place are allowed or required, by law or otherwise, to remain closed. SECTION 4. Notices of Meetings. A printed notice of the place, date and hour and stating the purposes of each meeting of the stockholders shall be given by the Clerk (or other person authorized by law or these By-Laws) at least l0 days before the date fixed for the meeting to each stockholder entitled to vote at such meeting, and to each other stockholder who, under the Articles of Organization or these By-Laws, is entitled to such notice, by leaving such notice with him or her at his or her residence or usual place of business, or by mailing such notice by mail, postage prepaid and addressed to such stockholder at his or her address as it appears in the records of the corporation. Such further notice shall be given by publication or otherwise, as may be required by law or as may be ordered by the Board of Directors. No notice need be given to any stockholder if such stockholder, or his or her authorized attorney, waives such notice by a writing executed before or after the meeting and filed with the records of the meeting or by his or her presence, in person or by proxy, at the meeting. It shall be the duty of every stockholder to furnish to the Clerk of the corporation or to the transfer agent, if any, of the class of stock owned by such stockholder, his or her post office address and to notify the Clerk or the transfer agent of any change therein. No business may be transacted at a meeting of the stockholders except that (a) specified in the notice thereof given by or at the direction of the Board of Directors or in a supplemental notice given by or at the direction of the Board of Directors and otherwise in compliance with the provisions hereof, (b) brought before the meeting by or at the direction of the Board of Directors or the presiding officer or (c) properly brought before the meeting by or on behalf of any stockholder who shall have been a stockholder of record at the time of giving of notice by such stockholder provided for in this paragraph and who shall continue to be entitled at the time of such meeting to vote thereat and who complies with the notice procedures set forth in this paragraph with respect to any business sought to be brought before the meeting by or on behalf of such stockholder other than the election of directors and with the notice provisions set forth in Section 3 of Article II with respect to the election of directors. In addition to any other applicable requirements, for business to be properly brought before a meeting by or on behalf of a stockholder (other than a stockholder proposal included in the corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), the stockholder must have given timely notice thereof in writing to the Clerk of the corporation. In order to be timely given, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation (a) not less than 75 nor more than 125 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the corporation or (b) in the case of a special meeting or in the event that the annual meeting is called for a date (including any change in a date determined by the Board pursuant to Section 2 of this Article I) more than 75 days prior to such anniversary date, notice by the stockholder to be timely given must be so -3- received not later than the close of business on the 20th day following the day on which notice of the date of such meeting was mailed or public disclosure of the date of such meeting was made, whichever first occurs. Such stockholder's notice to the Clerk shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of capital stock of the corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice by the stockholder and (d) all other information which would be required to be included in a proxy statement or other filings required to be filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Regulation 14A under the Exchange Act (the "Proxy Rules"). In the event the proposed business to be brought before the meeting by or on behalf of a stockholder relates or refers to a proposal or transaction involving the stockholder or a third party which, if it were to have been consummated at the time of the meeting, would have required of such stockholder or third party or any of the affiliates of either of them any prior notification to, filing with, or any orders or other action by, any governmental authority, then any such notice to the Clerk shall be accompanied by appropriate evidence of the making of all such notifications or filings and the issuance of all such orders and the taking of all such actions by all such governmental authorities. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at any meeting except in accordance with the procedures set forth in this Section 4; provided, however, that nothing in this Section 4 shall be deemed to preclude discussion by any stockholder of any business properly brought before such meeting. The presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedures, and if he or she should so determine, he or she shall so declare to the meeting and that business shall be disregarded. SECTION 5. Quorum. At all meetings of the stockholders, the holders of record of a majority in interest of all stock issued, outstanding and entitled to vote thereat, or, if two or more classes of stock are issued, outstanding and entitled to vote as separate classes, a majority in interest of each class, present in person or represented by proxy, shall constitute a quorum requisite for the transaction of business, except as otherwise provided by law, by the Articles of Organization or by these By-Laws. Stock of the corporation owned directly or indirectly by the corporation, if any, other than shares of stock held in a fiduciary capacity shall not be deemed outstanding for this purpose. If a quorum is not present or represented at any meeting of the stockholders, the stockholders present or represented and entitled to vote thereat, present in person or represented by proxy, by a majority vote, shall have the power to adjourn the meeting from time to time without notice other than announcement at the meeting until the requisite amount of voting stock shall be present or represented. At any adjourned meeting at which a quorum is present or represented, any business may be transacted -4- which might have been transacted at the meeting as first convened had there been a quorum. The stockholders present at a duly organized meeting may continue to transact business until adjournment notwithstanding the withdrawal of one or more stockholders or their proxy or proxies so as to leave less than a quorum present or represented. SECTION 6. Organization. At every meeting of the stockholders, the Chief Executive Officer or the Chairman of the Board or, in their absence, the President, or in the absence of all such officers, a person chosen by majority vote of the stockholders entitled to vote thereat, present in person or represented by proxy, shall act as chairman; and the Clerk, or in his or her absence, any Assistant Clerk, or in the absence of all such officers, any person present appointed by the chairman shall act as secretary of the meeting. The secretary of the meeting need not be sworn. SECTION 7. Voting by Stockholders; Proxies. Except as otherwise provided by law or the Articles of Organization, at all meetings of stockholders each stockholder shall have one vote for each share of stock entitled to vote and registered in his or her name. Any stockholder may vote in person or by proxy dated not more than six months prior to the meeting and filed with the secretary of the meeting. Every proxy shall be in writing, executed by a stockholder or his or her authorized attorney-in-fact, and dated. A proxy need not be sealed, witnessed or acknowledged. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. No proxy shall be valid after the final adjournment of the meeting. The attendance at any meeting of a stockholder who has therefore given a proxy shall not have the effect of revoking the same unless the stockholder so attending shall, in writing, so notify the secretary of the meeting at any time prior to the voting of the proxy. The corporation shall not, directly, or indirectly, vote any of its own stock other than shares of stock held in a fiduciary capacity. Any shares disqualified from being voted shall not be counted in determining the proportion of or the number of shares or votes required to pass or to vote upon or to consent or assent to any matter. Prior to each meeting of stockholders, the Clerk shall make or cause to be made a full, true and complete list, in alphabetical order, of stockholders entitled to notice of and to vote at the meeting showing the number of shares of each class having voting rights held of record by each. When a determination of stockholders entitled to vote at any meeting has been made as provided by law, such determination shall apply to any adjournment of such meeting, except when the determination has been made by the closing of the transfer books and the stated period has expired. At all meetings of stockholders, all questions, except as otherwise expressly provided by law or the Articles of Organization or these By-Laws, shall be determined by a majority vote of the stockholders entitled to vote thereon who are present in person or represented by proxy, or, if two or more classes of stock are entitled to vote -5- as separate classes, a majority vote of the stockholders of each class, present in person or represented by proxy. Except as otherwise expressly provided by law, the Articles of Organization or these By-Laws, at all meetings of stockholders the voting shall be by show of hands or voice vote, but any qualified voter may demand a stock vote, by shares of stock, upon any question, whereupon such stock vote shall be taken by ballot, each of which shall state the name of the stockholder voting and the number of shares voted by him or her, and, if such ballot be cast by a proxy, it shall also state the name of the proxy. All elections shall be decided by plurality vote. SECTION 8. Inspectors. At each meeting of the stockholders, the polls shall be opened and closed by the proxies and ballots shall be received and taken in charge by and all questions touching on the qualifications of voters and the validity of proxies and the acceptance and rejection of votes shall be decided by two inspectors. Such inspectors shall be appointed by the Board of Directors before or at the meeting, or, if no such appointment shall have been made, then by the presiding officer at the meeting. If for any reason any inspector previously appointed shall fail to attend or refuse or be unable to serve, an inspector in place of the one so failing to attend or refusing or unable to serve shall be appointed, either by the Board of Directors or by the presiding officer at the meeting. No director or candidate for the office of director shall be appointed an inspector. The inspectors shall file with the Clerk or other secretary of the meeting a certificate setting forth the results of each vote taken by ballot at the meeting. SECTION 9. Action without Meeting. Any action which may be taken by stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action by a writing filed with the records of the meetings of stockholders. Any such consent shall be treated for all purposes as a vote at a meeting and may be described as such in any certificate or other document filed with or furnished to any public official, governmental agency or other person having dealings with the corporation. ARTICLE II BOARD OF DIRECTORS SECTION 1. General Powers; Issue of Stock. The property and business of the corporation shall be managed by the Board of Directors which may exercise all powers of the corporation except such powers as are by law or by the Articles of Organization or by these By-Laws conferred upon or reserved to the stockholders. The Board of Directors and the Executive Committee shall have power to issue and sell or otherwise dispose of such shares of the corporation's authorized but unissued capital stock to such persons and at such times and for such consideration and upon such terms as it shall determine from time to time. SECTION 2. Number, Qualification, Election and Term of Office. The Board of Directors shall be composed of not less than three nor more than thirty-five directors. Within the limits specified, the number of directors shall be determined from time to time by vote of a majority of the entire Board; provided, however, that no decrease in the -6- number of directors constituting the entire Board of Directors made pursuant to this Section 2 shall shorten the term of any incumbent director. The Board of Directors shall be divided into three classes, as nearly equal in number as possible. The Directors need not be stockholders. To be nominated to serve or to serve as a director, an individual must be eligible to serve as a director both at the time the Board of Directors votes to nominate such individual or receives notice in accordance with Section 3 of this Article of a stockholder's intent to nominate such individual and at the time of such election, and the stockholder making such nomination (and any party on whose behalf or in concert with whom such stockholder is acting) must be qualified at the time of making such nomination to have such individual serve as the nominee of such stockholder (and any party on whose behalf or in concert with whom such stockholder is acting) if such individual is elected. At each annual meeting of stockholders, the successors to the class of directors whose term expires at that meeting shall be elected to hold office for a term continuing until the annual meeting held in the third year following the year of their election and until their successors are duly elected and qualified or until their earlier resignation, death or removal; provided, that in the event of failure to hold such an annual meeting or to hold such election at such meeting, the election of directors may be held at any special meeting of the stockholders called for that purpose. Directors, except those appointed by the Board of Directors to fill vacancies, shall be elected by a plurality vote of the stockholders, voting by ballot either in person or by proxy. As used in these By-Laws, the expression "entire Board" means the number of directors in office at a particular time. SECTION 3. Nominations for Director. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors, except as provided in the Articles of Organization with respect to nominations by holders of preferred stock in certain circumstances. Nominations of persons for election to the Board of Directors at the annual meeting may be made at the annual meeting of stockholders (a) by the Board of Directors or at the direction of the Board of Directors by any nominating committee or person appointed by the Board or (b) by any stockholder of record at the time of giving of notice provided for in this Section 3 and who shall continue to be entitled at the time of the meeting to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 3 rather than the notice procedures with respect to other business set forth in Section 4 of Article I. Nominations by stockholders shall be made only after timely notice by such stockholder in writing to the Clerk of the corporation. In order to be timely given, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 75 nor more than 125 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of the corporation; provided, however, that in the event that the meeting is called for a date, including any change in a date determined by the Board pursuant to Section 2 of Article I, more than 75 days prior to such anniversary date, notice by the stockholder to be timely given must be so received not later than the close of business on the 20th day following the day on which notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever first occurs. Such stockholder's notice to the Clerk shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal -7- occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation, if any, which are beneficially owned by the person, (iv) any other information regarding the nominee as would be required to be included in a proxy statement or other filings required to be filed pursuant to the Proxy Rules, and (v) the consent of each nominee to serve as a director of the corporation if so elected; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iv) a representation that the stockholder (and any party on whose behalf or in concert with whom such stockholder is acting) is qualified at the time of giving such notice to have such individual serve as the nominee of such stockholder (and any party on whose behalf or in concert with whom such stockholder is acting) if such individual is elected, accompanied by copies of any notification or filings with, or orders or other actions by, any governmental authority which are required in order for such stockholder (and any party on whose behalf such stockholder is acting) to be so qualified, (v) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder and (vi) such other information regarding such stockholder as would be required to be included in a proxy statement or other filings required to be filed pursuant to the Proxy Rules. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as director. No person shall be eligible for election as a director unless nominated in accordance with the procedures set forth herein. The presiding officer of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 4. Quorum and Manner of Acting. One-third of the directors in office (but in no event fewer than two) shall constitute a quorum for the transaction of business at any meeting and, except as otherwise provided by law or these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Directors shall be deemed present at a meeting when present in person or by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. In the absence of a quorum, a majority of the directors present, or if only two directors are present, either director, or the sole director present, may adjourn any meeting to a day certain or from time to time until a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted if the meeting had been held when originally called. A director may not vote or otherwise act by proxy. -8- SECTION 5. First Meeting. The Board of Directors elected at any annual meeting of stockholders shall meet at the Head Office of BankBoston, N.A. in the City of Boston and Commonwealth of Massachusetts, or at such other location as the Board may determine, promptly after the final adjournment of such meeting or as soon as practicable (but not more than 30 days) thereafter for purposes of organization, the election of officers for the succeeding year and the transaction of other business. No notice of such meeting need be given. SECTION 6. Regular Meetings. Except for the first meeting of the Board of Directors to be held immediately following the annual election of directors, regular meetings of the Board of Directors shall be held on the fourth Thursday in each month, except the month in which the annual election of directors is held, at one o'clock in the afternoon in the directors' room at the Head Office BankBoston, N.A. in the City of Boston, or at such other time or at such other place, or both, as shall be designated in the notice of meeting given to the directors as provided in these By-Laws. If the day designated for a regular meeting of the Board of Directors would not be a business day (as defined in Section 3 of Article I of these By-Laws) at the place where the meeting is to be held, then the meeting shall be held on such other business day as the Board of Directors may have previously designated, or if no such day shall have been designated, the meeting shall be held on the first business day at such place preceding the date originally designated for such meeting. Any regular meeting of the Board of Directors may be dispensed with by an appropriate vote passed by the Board of Directors at any prior meeting. SECTION 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chief Executive Officer and shall be called by the Clerk at the written request of three or more directors. Special meetings of the Board of Directors may be held at such place and time as may be designated in the call of the meeting. SECTION 8. Notices of Meetings. Notice of the time and place of each regular or special meeting of the Board of Directors shall be given to each director at least 48 hours before such meeting if delivered personally or sent by mail or at least 24 hours before such meeting if given by telephone, telex, telegraph or other electronic means. Notice by mail shall be deemed to be given when deposited in the post office or a letter box in postage-paid sealed wrappers or when transmitted by telegraph or telex, and addressed separately to each director at his or her address appearing on the records of the corporation. Notices of meetings of the Board of Directors need not include a statement of the business to be transacted thereat unless required by law or these By-Laws. No notice of any adjourned meeting of the Board of Directors need be given other than by announcement at the session of the meeting which is being adjourned. Failure to give any such notice of any meeting, or any irregularity in the notice thereof, shall not invalidate any proceedings taken thereat if a quorum is present and if all absent directors, either before or after the meeting, shall sign a waiver of notice or a consent to the holding of such meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the minutes of the meetings to which they relate. -9- SECTION 9. Organization of Meetings. At each meeting of the Board of Directors, the Chairman of the Board or, in his or her absence, the Chief Executive Officer or, in their absence, an officer designated by the Chief Executive Officer, or in the absence of all such officers, a director chosen by a majority of the directors present shall act as chairman. The Clerk, or, in his or her absence, any person appointed by the chairman, shall act as secretary of the meeting and keep minutes of the proceedings. The secretary of the meeting need not be sworn. SECTION 10. Order of Business. At all meetings of the Board of Directors, business shall be transacted in the order determined by the chairman of the meeting, subject to approval of the directors present thereat. SECTION 11. Action by Directors without a Meeting. Unless otherwise restricted by the Articles of Organization or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or of such committee. Any such consent shall be treated for all purposes as a vote duly adopted by the Board of Directors or such committee at a meeting and may be described as such in any certificate or other document filed with or furnished to any public official, governmental agency or other person having dealings with the corporation. SECTION 12. Resignation. Any director may resign at any time by giving written notice of his or her resignation to the Chairman of the Board or the Chief Executive Officer or the Clerk. Such resignation shall take effect upon its receipt or at any later date specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 13. Removal. A director may be removed by the affirmative vote of a majority of the shares outstanding and entitled to vote in the election of directors only for cause. A director may be removed for cause only after reasonable notice and opportunity to be heard before the stockholders. For such time as the corporation is subject to paragraph (a) of Section 50A of Chapter 156B of the Massachusetts General Laws, "cause" with respect to the removal of any director by the stockholders shall mean only (a) conviction of a felony, (b) declaration of unsound mind by order of court, (c) gross dereliction of duty, (d) commission of an action involving moral turpitude, or (e) commission of an action which constitutes intentional misconduct or a knowing violation of law if such action in either event results both in an improper substantial personal benefit and a material injury to the corporation. If at any time the corporation shall no longer be subject to paragraph (a) of Section 50A of Chapter 156B of the Massachusetts General Laws, (a) a director may be removed from office with or without cause by the vote of the holders of a majority of the shares entitled to vote in the election of directors and may be removed from office with cause by vote of a majority of the directors then in office, and (b) a director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him or her. -10- SECTION 14. Vacancies. The Board of Directors may act notwithstanding a vacancy or vacancies in its membership; but if the office of any director shall become vacant by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a director or otherwise, such vacancy or vacancies shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum. Any director elected in accordance with this Section 14 shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or the new directorship was created and until his or her successor shall have been elected and qualified or until his or her earlier resignation, death or removal. SECTION 15. Fees and Expenses of Directors. Each director who is not an officer or employee of the corporation or any of its affiliates may be paid such fees for his or her services and for attendance at meetings of the Board of Directors or of any committee thereof as the Board of Directors may determine from time to time to be appropriate. Such fees may be payable currently or on a deferred basis. In addition, each such director shall be entitled to reimbursement for reasonable expenses incurred by him or her in order to attend meetings of the Board of Directors and committees thereof or otherwise in connection with the performance of his or her duties as a director. SECTION 16. Validity of Acts of Directors. All action taken by any meeting of the Board of Directors or of a committee of the directors or by any person acting as a director shall, notwithstanding that it shall afterwards be discovered that there was some defect in the election or appointment or continuance in office of any such director or person acting as a director, or that they or any of them were disqualified, or had vacated office, or were not entitled to vote in relation to the matter acted upon, be as valid as if such person had been duly elected or appointed, had continued in office and was qualified to be a director and entitled to vote on such matter. SECTION 17. Transactions with the Corporation. No contract or other transaction between the corporation and one or more of its directors or between the corporation or any other corporation, partnership, voluntary association, trust or other organization of which any of its directors is a director or officer or in which he or she has any financial interest shall be void or voidable for this reason or because any such director is present at or participates in the meeting of the Board of Directors or of the committee thereof which authorizes the contract or transactions or because his or her vote is counted for such purpose (a) if the material facts as to the contract or transaction and as to his or her relationship or interest are disclosed to the Board of Directors or such committee and the Board of Directors or such committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of disinterested directors even though the disinterested directors be less than a quorum or (b) if the material facts as to the contract or transaction and as to his or her relationship or interest are disclosed or are known to the shareholders entitled to vote thereon and the contract or transaction is specifically approved in good faith by vote of the shareholders or (c) if the contract or transaction is fair and reasonable as to the corporation as of the time it is authorized, approved or ratified by the Board of Directors, such committee or the shareholders. Common or interested directors may -11- be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee thereof which authorizes the contract or transaction. ARTICLE III COMMITTEES SECTION 1. Executive Committee. There shall be an Executive Committee composed of the Chairman of the Board, the Chief Executive Officer and such number of other directors as the Board of Directors may appoint from time to time by resolution passed by the vote of a majority of the entire Board. The Board of Directors may also, from time to time, by similar resolution, appoint one or more alternate members of the Executive Committee who may attend and act in the place of any absent or disqualified member or members of the Executive Committee at any meeting thereof. Subject to the provisions of Section 6 of this Article III, the term of office of any appointed member or alternate member of the Executive Committee shall expire on the date specified in the resolution of appointment or any earlier date on which he or she ceases to be a director. Any director who has served as a member or alternate member of the Executive Committee shall be eligible for reappointment to a new term of office. At all meetings of the Executive Committee, the Chief Executive Officer or, in his or her absence, an officer designated by the Chief Executive Officer, or in the absence of such a designation, a director chosen by a majority of the directors present shall preside. During the intervals between meetings of the Board of Directors, the Executive Committee, unless expressly provided otherwise by law or these By- Laws, shall have and may exercise all the authority of the Board of Directors, except that it shall not be entitled to (i) change the principal office of the corporation; (ii) amend or repeal these By-Laws or to adopt new by-laws; (iii) elect officers required by law to be elected by the stockholders or directors or to fill vacancies in any such offices; (iv) change the number of the Board of Directors or to fill vacancies in the Board of Directors; (v) remove officers or directors from office; (vi) fix the remuneration of any director for serving on the Board of Directors or any Committee thereof or for services to the corporation in any other capacity; (vii) authorize the payment of any dividend or distribution to stockholders; (viii) authorize the reacquisition for value of stock of the corporation; or -12- (ix) authorize a merger of a subsidiary entity into the corporation. In addition to its other duties, the Executive Committee shall establish the quarterly provision and reserve for credit losses, make recommendations concerning dividends and shall be available to the Chief Executive Officer, at his discretion, to discuss strategic opportunities. The action taken by the Executive Committee at each meeting shall be reported to the Board of Directors and shall be subject to alteration or repeal by the latter, provided that no alteration or repeal by the Board of Directors of action taken by the Executive Committee shall prejudice the rights or acts of any third person. The Executive Committee shall hold meetings at such times and places and upon such notice as it may from time to time determine. Other meetings of the Executive Committee may be called at any time by the Chief Executive Officer or by any two members of the Executive Committee or by the Secretary of the Board of Directors at the written request of the person or persons entitled to call such a meeting. SECTION 2. Audit Committee. There shall be an Audit Committee composed of such number of directors (not less than three) as the Board of Directors, by resolution passed by the vote of a majority of the entire Board may appoint, none of whom shall be an employee of the corporation. The duties of the Audit Committee shall be (a) to recommend to the Board of Directors for approval by the stockholders the appointment of a firm of independent public accountants ("the Auditors") to audit the accounts of the corporation and such of its subsidiaries as the Committee may recommend for the financial year in respect of which such appointment is made; (b) to make, or cause to be made by the Auditors, such examinations or audits of the affairs and operations of the corporation or of any one or more of its subsidiaries, of such scope, with such objects, and at such times or intervals as the Committee may determine in its discretion or as may be ordered by the Board of Directors or the Executive Committee; (c) to submit to the Board of Directors as soon as may be convenient following the conclusion of each examination or audit made by or at the direction of the Committee, a written report relative thereto; (d) to oversee the activities of the General Auditor and his or her staff. The Committee shall also be responsible for conducting periodic performance evaluations and establishing the compensation of the General Auditor; and -13- (e) to review matters associated with internal control and the management of risk. A notation with respect to each report made to the Board of Directors by the Audit Committee and of the action taken thereon by the Board of Directors shall be made in the minutes of the latter. SECTION 3. Compensation Committee. There shall be a Compensation Committee composed of such number of directors as the Board of Directors, by resolution passed by vote of a majority of the entire Board, may appoint, none of whom shall be an employee of the corporation or any subsidiary. The duties of the Compensation Committee shall be (a) to review the corporation's overall executive compensation strategy; (b) to review the design and administration of executive compensation and incentive plans and employee benefit plans, including ensuring that all plans are consistent with the corporation's strategy and budget; (c) to review all new equity-related plans for executive officers and Directors prior to submission to stockholders; (d) to make recommendations to the Board of Directors on new corporate-wide benefit plans or any material changes to existing plans; (e) to execute as it sees fit from time to time the powers and to discharge the duties vested in it from time to time by the terms of any pension or other benefit plan or arrangement affecting directors or employees of the corporation; (f) to review the compensation of the Chief Executive Officer, the President and the Chairman of the Board and that of other employee Directors and to make recommendations to the Board of Directors; (g) to review and approve the recommendations of the Chief Executive Officer on compensation for key executive officers; (h) to review diversity representation at the senior and mid- management level; (i) to conduct an annual evaluation of the Chief Executive Officer; (j) to review succession and development plans for Executive Management and the Chief Executive Officer; (k) to review candidate assessment and selection for key executive officer positions; -14- (l) to review major organizational changes proposed by the Chief Executive Officer, as appropriate; and (m) to perform such functions as may be assigned to it from time to time by the Board of Directors. SECTION 4. Board Governance and Nominating Committee. There shall be a Board Governance and Nominating Committee composed of such number of directors (no more than two of which may be members of Executive Management) as the Board of Directors, by resolution passed by vote of a majority of the entire Board, may appoint. The Chief Executive Officer shall serve as a member of the Committee. The duties of this Committee shall be (a) to review the size and composition of the Board of Directors and the tenure of directors; (b) to recommend criteria for qualifications for Board membership, such as experience, affiliations, and personal characteristics; (c) to review the qualifications of individual nominees for director as recommended by the Chief Executive Officer or by a stockholder and to make recommendations to the Board of Directors; (d) to review the composition of the committees as recommended by the Chief Executive Officer; (e) to review the compensation and benefits of non-employee Directors and to make recommendations to the Board of Directors; and (f) to evaluate the effectiveness of the Board of Directors; (g) to evaluate the responsibilities and effectiveness of Board Committees and to make recommendations to the Board with respect thereto; (h) to perform such other functions as may be assigned to it from time to time by the Board of Directors. SECTION 5. Community Investment Committee. The Board of Directors may from time to time appoint a Community Investment Committee composed of not less than three nor more than five directors. The duties of the Committee shall be from time to time to review and evaluate the policies established by the corporation's subsidiary banks relating to the discharge by the subsidiary banks of their responsibilities under the Community Reinvestment Act of 1977, as amended (Section 2901 et seq. of Title 12 of the United States Code) and -15- regulations thereunder, or any other applicable Federal or state law or regulations thereunder relating to substantially the same subject as the Community Reinvestment Act of 1977, as amended, and oversee the implementation of such policies by the corporation's subsidiary banks and make reports to the Board of Directors from time to time of its findings and recommendations. SECTION 6. Other Committees. The Board of Directors may, from time to time, by resolution passed by the vote of a majority of the entire Board, constitute such other standing or special committees as it deems desirable and may dissolve any such committee by like resolution at its pleasure. Each such committee shall have such authority and perform such duties not inconsistent with law and these By-Laws as may be assigned to it by the Board of Directors. Vacancies in any such committee shall be filled by resolution passed by the vote of a majority of the entire Board. No such committee shall be granted or shall exercise any authority which shall have been delegated to another committee by these By-Laws or by resolution of the Board of Directors or which, in the absence of such delegation, could not be exercised by the Executive Committee. SECTION 7. Changes in Committee Membership; Filling of Vacancies. The Board of Directors by resolution passed by a vote of the majority of the entire Board may at any time or from time to time (a) increase or reduce the number of members of any committee, within any applicable limits imposed by these By-Laws, (b) remove any member from any committee, (c) appoint a director to fill a vacancy in, or to be an additional member of, any committee, and (d) discharge any committee except a standing committee established pursuant to this Article III. SECTION 8. Records of Committee Action and Board of Directors' Approval. Each committee appointed by the Board of Directors shall keep a record of its acts and proceedings which shall be open for inspection at any time by any director. Such record shall be submitted to the Board of Directors at such time or times as may be required by these By-Laws or as may be requested by the Board of Directors. Failure to submit such record, or failure of the Board of Directors to approve any action indicated therein shall not invalidate any action otherwise lawful, to the extent that it has been carried out by the corporation prior to the time the record of such action was, or should have been, submitted to the Board of Directors as herein provided. The action of the Board of Directors at any meeting with respect to action taken by any standing committee shall be recorded in the minutes of the meeting. SECTION 9. Committee Proceedings. In the absence of specific provisions in these By-Laws or regulations imposed by the Board of Directors, a committee may meet and adjourn and otherwise regulate its meetings as it thinks fit. A committee may appoint -16- a chairman of its meetings if none has been appointed by the Board of Directors or is designated elsewhere in this Article III. If no such chairman has been appointed, or if at any meeting the chairman is not present within five minutes after the time appointed for the holding of the meeting, the members present may choose one of their number to be chairman of the meeting. A quorum for the transaction of business at any meeting of a committee shall be a majority of the fixed number of members thereof for the time being (whether or not any seat is vacant) unless a different rule shall have been adopted by a resolution passed by the vote of a majority of the Board of Directors. A resolution passed by the vote of a majority of the members present at the time of voting if a quorum is present shall be the act of the committee. In the case of an equality of votes the Chairman shall have a second or casting vote. A committee cannot sub- delegate any of its powers or duties within its membership or to any other person or persons unless authorized to do so by the Board of Directors or these By-Laws. Committee members cannot vote by proxy. SECTION 10. Action of Committees without a Meeting. Any action required or permitted to be taken by a committee of the Board of Directors may be taken without a meeting if all members of the committee consent thereto in writing either before or after the action is taken and the writing or writings evidencing such consent are filed with the minutes of proceedings of such committee. For all purposes of these By-Laws, any such consent shall constitute a resolution duly passed by such committee. SECTION 11. General Authority of Committees. Any committee appointed by the Board of Directors pursuant to this Article III shall be at liberty (a) to meet and confer with employees of the corporation and its subsidiaries on all matters relating to the work of the committee which fall within the purview of such employees and to be informed by any of them as to the policies, practices, and controls of the division or department of the corporation or of the subsidiary of the corporation to which he or she is assigned; and (b) to examine all reports which are relevant to the work of the committee (i) made by the corporation or any of its subsidiaries to regulatory authorities and (ii) of examinations of the corporation or any of its subsidiaries made by regulatory authorities. ARTICLE IV OFFICERS SECTION 1. Titles and Qualifications. The officers of the corporation shall be a Chief Executive Officer, a Chairman of the Board, a President, a Treasurer, a Comptroller, a Clerk, a General Auditor, one or more Vice Presidents of any rank and such other officers including one or more Vice Chairmen as may be appointed from time to time in accordance with these By- Laws. Except as otherwise provided by law, the duties of any two officers may be discharged by the same person, but the President -17- shall not serve at the same time as Treasurer, Comptroller, or Clerk. The Chief Executive Officer, the Chairman of the Board and the President must be directors. SECTION 2. Appointment and Terms of Office. The Chief Executive Officer, the Chairman of the Board, the President, any Vice Chairman, any Executive Vice President, the Treasurer, the Comptroller, the Clerk and the General Auditor shall be chosen by a majority vote of the entire Board at the first meeting of the Board of Directors following each annual meeting of stockholders (or special meeting of stockholders in lieu of such annual meeting) or by the Board of Directors from time to time and each shall serve at the pleasure of the Board unless he or she sooner resigns, retires, dies, is removed or becomes disqualified. Other officers may be appointed from time to time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, any Vice Chairman, any Executive Vice President or any other Executive Officer. Each other officer shall have such title, exercise such power and perform such duties and hold office for such term as shall be determined by the Board or the appointing officer as the case may be. SECTION 3. Duties; Fidelity Bond. The duties and authority of each officer of the corporation, other than as set forth in these By-Laws, shall be prescribed and may be varied from time to time by the Board of Directors, or the Chief Executive Officer, or the President, as the case may be. The Board of Directors shall provide for such bond and fidelity insurance covering the officers of the corporation and for the faithful and honest discharge of their duties as the Board may determine. Such bonds or insurance may be in individual, schedule or blanket form and the premiums therefor shall be paid by the corporation. SECTION 4. The Chief Executive Officer. The Chief Executive Officer of the corporation shall have the general control and management of, and shall be responsible to the Board for the conduct of, its business, affairs and operations. The Chief Executive Officer shall report to the Board of Directors on the business, affairs and financial condition of the corporation. The Chief Executive Officer shall have such powers and shall perform such duties as are usually incident to the Office of Chief Executive Officer and such additional duties may be prescribed by law, the Articles of Organization and these By-Laws or as may be conferred upon or assigned to him or her by the Board of Directors. In the absence of the Chairman of the Board, the Chief Executive Officer shall preside at meetings of the Board of Directors. The Chief Executive Officer shall be a member of the Executive Committee and shall preside at meetings of that Committee. SECTION 5. The Chairman of the Board. The Chairman of the Board shall preside at meetings of the Board of Directors. The Chairman of the Board shall have such powers and shall perform such duties as may be prescribed by law, the Articles of Organization and these By-Laws or as may be conferred upon or assigned to him or her by the Board of Directors. The Chairman of the Board shall have such additional responsibilities and shall discharge such further duties as from time to time may be requested of him or her by the Chief Executive Officer. The Chairman of the Board shall be a member of the Executive Committee. -18- SECTION 6. The President and Chief Operating Officer. The President shall be the Chief Operating Officer of the corporation and shall have the day to day responsibility for the control and management of its operations of the corporation. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall preside at all meetings of the Board of Directors. The President shall be subject to the direction of the Chief Executive Officer under whose direct supervision he or she shall be. The President shall perform such duties as may be imposed on him or her by law, the Articles of Organization and these By-Laws or as may be assigned to him or her by the Chief Executive Officer. He or she shall have such powers and duties as are usually incident to the Office of President and Chief Operating Officer. SECTION 7. The Vice Chairmen. Each Vice Chairman shall perform the duties imposed upon him or her by these By-Laws or assigned to him or her by the Chief Executive Officer or the President. The Vice Chairmen shall be senior in rank to the Vice Presidents of any rank. Section 8. The Executive Officers. The Chief Executive Officer, the Chairman of the Board, the President, any Vice Chairman, any Executive Vice President, the Clerk, and such other Executive Officers as may be so designated from time to time by the Board of Directors shall be the Executive Officers of the corporation. SECTION 9. The Treasurer. The Treasurer shall have custody and control over all funds and securities of the corporation, maintain full and adequate accounts of all moneys received and paid by him or her on account of the corporation and, subject to the control of the Board of Directors shall discharge all duties incident to the office of Treasurer. The Treasurer shall have authority, in connection with the normal business of the corporation, to sign or endorse negotiable instruments, contracts, leases and other documents. The Treasurer shall render an account of his or her transactions to the Board of Directors whenever and as often as may be requested. SECTION 10. The Comptroller. The Comptroller shall be the chief accounting officer of the corporation. He or she shall establish accounting policy for the corporation, maintain complete and accurate books and records concerning its financial transactions, prepare its financial statements and, subject to the control of the Board of Directors, discharge all duties incident to the office of the Comptroller. The Comptroller shall have authority, in connection with the normal business of the corporation, to sign or endorse negotiable instruments, contracts, leases and other documents. SECTION 11. The Clerk and the Secretary of the Board of Directors. The Clerk shall be the principal recording officer of the corporation. He or she shall be the Secretary of the Board of Directors and of the Executive Committee and of the Audit Committee. He or she shall attend and keep minutes of all proceedings at meetings of the stockholders, the Board of Directors, the Executive Committee and of each committee appointed by the Board of Directors which shall not have appointed any other person to serve as its secretary. The Clerk shall have charge of the corporate seal, minute books of the corporation and of such other corporate records, books and papers as the -19- Board of Directors or the Executive Committee may order to be kept in his or her custody or under his or her control. The Clerk shall have authority to affix the seal of the corporation to all instruments executed under seal and to attest thereto. As required by law, these By-Laws or the Board of Directors, the Clerk shall give or cause to be given notice to the stockholders of each annual and special meeting and to the directors of each regular and special meeting of the Board of Directors except the first meeting after their election in each year; and the Clerk shall perform such other duties as may be imposed upon him or her by law, these By-Laws, the Board of Directors, the Audit Committee or the Chief Executive Officer, under whose direct supervision he or she shall be. The Clerk shall be a resident of the Commonwealth of Massachusetts unless a resident agent has been appointed by the corporation pursuant to law to accept service of process. SECTION 12. The General Auditor. The General Auditor shall direct the internal audit activities of the corporation and shall provide the Audit Committee with objective and timely information to aid in measuring and evaluating the operations of the corporation. In the conduct of this responsibility, the General Auditor shall perform such duties as may be imposed upon him or her by these By-Laws, the Board of Directors and the Audit Committee. To assure the professional independence of the General Auditor, he or she shall report directly and solely to the Audit Committee. For purposes of internal administration, the General Auditor shall report to a senior officer of the corporation other than the Chairman of the Board, the Chief Executive Officer, or the President. SECTION 13. The Vice Presidents. Each Vice President of whatever rank shall perform the duties imposed upon him or her by these By-Laws or assigned to him or her by the Board of Directors, the Chief Executive Officer or the President. The Executive Vice President shall be senior in rank to all other Vice Presidents including Senior Vice Presidents. SECTION 14. The Assistant Treasurers and Assistant Clerks. Each Assistant Treasurer shall perform such duties as may be assigned to him or her by the Board of Directors, the Chief Executive Officer, the President or the Treasurer. Each Assistant Clerk shall perform such duties as may be assigned to him or her by the Board of Directors, the Chief Executive Officer or the Clerk, and shall have the authority to affix the seal of the corporation to all instruments executed under seal and to attest thereto. SECTION 15. Resignation. Any officer may resign at any time by giving written notice to the Chairman of the Board, the Chief Executive Officer, the President or the Clerk. The resignation of any officer shall take effect upon its receipt or on any later date specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be required to make it effective. SECTION 16. Vacancies. Any vacancy occurring in the offices of the Chairman of the Board, the Chief Executive Officer, the President, the Treasurer, the Comptroller, the Clerk and the General Auditor shall be promptly filled by the Board of Directors. Any vacancy occurring in the offices of Vice Chairmen, Executive Vice Presidents, or -20- other Executive Officers not specifically referred to in the preceding sentence may be filled by the Board of Directors. Except for those offices to be filled by the Board of Directors, the Chief Executive Officer may fill any vacancy occurring in any office by reason of death, resignation, retirement or other cause and may, in his or her discretion, leave offices unfilled for such period as he or she may determine. SECTION 17. Compensation of Officers, Employees and Other Agents. The Board of Directors shall have power to fix, and to vary from time to time, the compensation of all officers, employees and other agents of the corporation for their services as such. SECTION 18. Designated Officer. The term designated officer of the corporation, whenever it appears in a resolution or vote of the Board of Directors of the corporation shall refer to any one of the Chief Executive Officer, Chairman of the Board, the President, any Vice Chairman, the Treasurer, an Assistant Treasurer, the Comptroller, any Vice President of whatever rank, the Clerk, an Assistant Clerk, the Secretary of the Board of Directors, the General Counsel and the General Auditor unless the resolution or vote of the Board of Directors otherwise provides. ARTICLE V STOCK SECTION 1. Stock Certificates. Each stockholder shall be entitled to a certificate or certificates of stock of the corporation in such form as the Board of Directors may from time to time prescribe. Each certificate shall be numbered and entered in the books of the corporation as it is issued, shall state the holder's name and the number and the class and the designation of the series, if any, of his or her shares, shall be signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President of any rank and by the Treasurer or an Assistant Treasurer and may, but need not, be sealed with the seal of the corporation. If any stock certificate is signed by a transfer agent, or by a registrar, other than a director, officer or employee of the corporation, the signatures of the officers of the corporation may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on any certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the corporation and delivered with the same effect as if he or she were such officer at the time of issue. Every certificate of stock which is subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws or any agreement to which the corporation is a party, or which is issued while the corporation is authorized to issue more than one class or series of stock, shall have the restriction noted conspicuously on the certificate and shall also set forth on the face or back the full text of the restriction or the preferences, voting powers, qualifications and special or relative rights of each class or series or, alternatively, a statement of the existence of such restriction and such preferences, powers, qualifications and rights and a statement that the corporation will furnish a copy of the restriction and such preferences, powers, qualifications and rights to the holder of such certificate upon written request and without charge. -21- SECTION 2. Transfer of Stock. Subject to any applicable transfer restrictions at the time in force, shares of stock of the corporation shall be transferable upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives. Such transfer shall be effected by delivery of the old certificate, together with a duly executed assignment and power to transfer endorsed thereon or attached thereto and with such proof of the authenticity of the signature and such proof of authority to make the transfer as the corporation or its agents may reasonably require, to the person in charge of the stock and transfer books and ledgers or to such other person as the Board of Directors may designate, who shall thereupon cancel the old certificate and issue a new certificate. The corporation may treat the holder of record of any share or shares of stock as the owner of such stock, and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, or otherwise, save as expressly provided by law. SECTION 3. Transfer Agent and Registrar; Regulations. The corporation shall, if and whenever the Board of Directors shall so determine, maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors at which the shares of the capital stock of the corporation shall be transferable, and also one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered, and no certificate for shares of the capital stock of the corporation in respect of which a registrar and transfer agent shall have been designated, shall be valid unless countersigned by such transfer agent and registered by such registrar. The Board of Directors may also make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. SECTION 4. Lost, Mutilated or Destroyed Certificates. No certificate for shares of stock of the corporation shall be issued in place of any certificate alleged to have been lost, mutilated or destroyed, except upon production of such evidence of the loss, mutilation or destruction and upon indemnification of the corporation and its agents to such extent and in such manner as the Board of Directors may prescribe and as permitted by law. SECTION 5. Record Date for Determination of Stockholders' Rights; Close of Transfer Books. The Board of Directors may fix in advance a date, not exceeding 60 days preceding the date of any meeting of stockholders, or the date fixed for the payment of any dividend, or the making of any other distribution to stockholders, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or receive any such allotment of rights, or as the last day on which stockholders may effectively exercise rights in respect of any such change or conversion or exchange of capital stock, or as the last day on which they may effectively express such consent or dissent, and in such case only stockholders of -22- record on the date so fixed shall be so entitled, notwithstanding any transfer of stock on the books of the corporation after the date fixed as aforesaid. In lieu of fixing such a record date or last day, the Board of Directors may close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed: (i) The record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the date next preceding the day on which notice is given. (ii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto. SECTION 6. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Organization, may be declared by the Board of Directors at any regular or special meeting, payable in cash, in property, or in shares of the capital stock, subject to the limitations, if any, imposed by law or the Articles of Organization. Before payment of any dividends, there may be set aside out of any funds of the corporation available for dividends, such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve. SECTION 7. Control Share Acquisitions. Until such time as this Section 7 shall be repealed or these By-Laws shall be amended to provide otherwise, in each case in accordance with Article VII of these By-Laws, the provisions of Chapter 110D of the Massachusetts General Laws shall not apply to "control share acquisitions" of the corporation within the meaning of said Chapter 110D. ARTICLE VI GENERAL PROVISIONS SECTION 1. Offices. The principal office of the corporation shall be in the City of Boston, County of Suffolk, Commonwealth of Massachusetts. The corporation may also have offices at such other place or places within or without the Commonwealth of Massachusetts as the Board of Directors may from time to time determine. -23- SECTION 2. Seal. The seal of the corporation shall be in the following form: When authorized by the Board of Directors and to the extent permitted by law and these By-Laws, a facsimile of the corporate seal may be affixed or reproduced. SECTION 3. Fiscal Year. The fiscal year of the corporation shall be coincident with the calendar year unless another fiscal year shall have been fixed by the Board of Directors. SECTION 4. Execution of Instruments. All contracts, conveyances, promises or orders for the payment of money or other obligations authorized by the Board of Directors to be executed or endorsed by an officer of the corporation in its behalf shall be executed or endorsed by any one of the Chief Executive Officer, the Chairman of the Board, the President, any Vice Chairman, any Vice President of whatever rank, the Treasurer and the Clerk, except as the Board of Directors may generally or in particular cases otherwise determine and except that checks drawn on any dividend and special accounts may bear the facsimile signature, affixed thereto by a mechanical device, of such officer or agent as the Board of Directors shall authorize, and except also that bonds, notes, debentures or other evidences of indebtedness authenticated by a manual signature on behalf of a trustee or an authenticating agent appointed by the Board of Directors may bear such facsimile signature or signatures of such officer or officers of the corporation as the Board of Directors shall authorize. SECTION 5. Voting of Securities. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer, the Chairman of the Board, the President, each Vice Chairman, the Treasurer, each Executive Officer, each Vice President of any rank, and the Clerk, each acting alone, shall have authority on behalf of the corporation (a) to attend and act and vote in person for the corporation and as its duly appointed agent and attorney-in-fact at any meeting of the holders of securities or creditors of any person (as hereinafter defined) any securities of whom are owned or held with power to vote by the corporation or any indebtedness of whom is owed to the corporation, (b) to appoint, by an instrument in writing, a proxy or several proxies to attend and act and vote for the corporation at any such meeting and (c) to execute and deliver in the name and on behalf of the corporation any consent or waiver by the corporation as a security holder or creditor of any such person. As used in this Section, the word "person" includes a natural person, a corporation, a company, a partnership, a voluntary association, a proprietorship, a trust, an estate, a government (national, state, regional or local) or a department or agency thereof, and any other form of legal entity however designated and wherever formed or existing. Each officer named in this Section and each person designated by any such officer as a -24- proxy for this corporation shall have and may exercise at any such meeting any and all rights and powers incident to the ownership of such securities or indebtedness which an owner would have if personally present. SECTION 6. Powers of Attorney. The Chief Executive Officer, the Chairman of the Board, the President, each Vice Chairman, any Executive Vice President, any Executive Officer, or the Clerk may from time to time and at any time by power of attorney appoint any person (as defined in Section 6 of this Article VI) or persons to be the attorney or attorneys of the corporation for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board of Directors) and for such period and subject to such conditions as the officer making such appointment may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with such attorney or attorneys as the officer making such appointment may think it and may also authorize any such attorney to appoint a substitute or substitutes and to delegate all or any of the powers, authorities and discretions vested in any such attorney or attorneys, except such power of substitution (without prejudice to the power of such attorney or attorneys to exercise concurrently any of the powers delegated and to revoke or vary any such appointment). The Chief Executive Officer, the Chairman of the Board, the President, each Vice Chairman, any Executive Vice President, any Executive Officer, or the Clerk may at any time revoke any power of attorney executed by any of those officers currently or formerly in office, provided that no such revocation shall invalidate any act performed by the attorney or attorneys (or any substitute or substitutes appointed thereunder) in the exercise of the powers conferred thereby between the revocation thereof and the time such revocation becomes known to the attorney or attorneys, or to any such substitute or substitutes, and any such power of attorney shall at all times be conclusively binding on the corporation and its successors in favor of third parties who have not received notice of the revocation thereof. SECTION 7. Issue of Debt Securities and Other Obligations. The Board of Directors shall have the power to authorize and cause to be executed and issued bonds, notes, debentures, warrants, guaranties or other obligations of the corporation, secured or not secured, upon such terms, in such manner and upon such conditions as may be fixed or approved by vote of the Board of Directors or of the Executive Committee prior to the issue thereof. SECTION 8. Corporate Records. The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of incorporators and stockholders, and stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in the Commonwealth of Massachusetts at the principal office of the corporation, or at an office of its Clerk, its resident agent or its transfer agent. Such copies and records need not all be kept in the same office. They shall be available at all reasonable times for inspection by any stockholder for any proper purpose. They shall not be available for inspection to secure a list of stockholders or other information for the purpose of selling such list or information or copies thereof or of using the same for a purpose -25- other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. SECTION 9. Indemnification of Directors, Officers and Others. (a) The corporation shall, to the extent legally permissible, indemnify each of the directors and officers of the corporation against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by such director or officer in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which such director or officer may be involved or with which such director or officer may be threatened, while in office or thereafter, by reason of such director or officer being or having been such a director or officer of the corporation or by reason of such director or officer serving or having served at the request of the corporation as a director, officer or trustee of a wholly-owned subsidiary of the corporation or having served in any capacity with respect to any employee benefit plan maintained by the corporation or any wholly-owned subsidiary of the corporation, except with respect to any matter as to which such director or officer shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interest of the corporation or of such subsidiary or, to the extent that such matter relates to service with respect to any such employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan; provided, however, that as to any matter disposed of by a compromise payment by such director or officer, pursuant to a consent decree or otherwise, no indemnification either for said payment or for any other expenses shall be provided unless such indemnification shall be ordered by a court or unless such compromise shall be approved as in the best interest of the corporation, after notice that it involves such indemnification: (i) by a disinterested majority of the directors of the corporation then in office; or (ii) by a majority of the disinterested directors of the corporation then in office, provided that there has been obtained an opinion in writing of independent legal counsel to the effect that such director or officer appears to have acted in good faith in the reasonable belief that his or her action was in the best interest of the corporation; or (iii) by the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested director or officer. Expenses, including counsel fees, reasonably incurred by any director or officer of the corporation in connection with the defense or disposition of any such action, suit or other proceeding shall be paid from time to time by the corporation in advance of the final disposition thereof upon receipt of an undertaking by such director or officer to repay the amounts so paid to the corporation if it is ultimately determined that indemnification for such expenses is not authorized under this paragraph (a). If in an action, suit or proceeding brought by or in the right of the corporation, a director of the corporation is held not liable for monetary damages, whether because that director is relieved of personal liability under the provisions of Article 6 of the Articles of Organization of the corporation or otherwise, that director shall be deemed to have met the standard of conduct set forth above and to be entitled to indemnification for expenses reasonably incurred in the defense of such action, suit or proceeding. -26- (b) The corporation shall, to the extent legally permissible, indemnify each person who serves at the request of the corporation as a director of any wholly-owned subsidiary of the corporation or in any capacity with respect to any employee benefit plan maintained by the corporation or any such subsidiary, and the Board of Directors of the corporation may, to the extent legally permissible, indemnify any person who serves as a trustee, employee or agent of the corporation or who serves at the request of the corporation as an officer, trustee, employee or agent of any wholly-owned subsidiary of the corporation, against all liabilities and expenses, including amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees, reasonably incurred by such person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, in which such person may be involved or with which such person may be threatened, while in office or thereafter, by reason of such person being or having been a trustee, employee or agent of the corporation or a director, officer, trustee, employee or agent of such subsidiary or having acted in any such capacity with respect to any such employee benefit plan, except with respect to any matter as to which such person shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interest of the corporation or of such subsidiary or, to the extent that such matter relates to service with respect to any such employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan. Expenses, including counsel fees, reasonably incurred by any person who serves at the request of the corporation as a director of a wholly-owned subsidiary of the corporation or in any capacity with respect to any employee benefit plan maintained by the corporation or any such subsidiary in connection with the defense or disposition of any such action, suit or other proceeding shall, and if incurred by a person who serves as a trustee, employee or agent of the corporation or who serves at the request of the corporation as an officer, trustee, employee or agent of a wholly-owned subsidiary of the corporation may, in each case to the extent legally permissible, be paid from time to time by the corporation in advance of the final disposition thereof upon receipt of an undertaking by such person to repay the amounts so paid to the corporation if it is ultimately determined that indemnification for such expenses is not authorized under this Section. Except as hereinafter provided in this paragraph (b), indemnification of persons who serve as a trustee, employee or agent of the corporation or who serve at the request of the corporation as an officer, trustee, employee or agent of a wholly-owned subsidiary of the corporation under this paragraph (b) shall be made by the corporation only as authorized by the Board of Directors of the corporation in each specific case. To the extent that any person who serves at the request of the corporation as an officer or trustee of any wholly-owned subsidiary of the corporation has been wholly successful in the defense of any action, suit or proceeding referred to above in this paragraph (b) or of any claim or issue therein, such person shall, without further authorization of the Board of Directors of the corporation, be indemnified by the corporation as herein above provided upon presentation to the Board of Directors of the corporation of a claim for indemnification and evidence reasonably satisfactory to the Board of Directors of the corporation of such wholly successful defense. As used in this paragraph (b) the term "wholly successful" means that the action, suit or proceeding or the claim or issue has been finally terminated without a finding of -27- liability or guilt against the person seeking indemnification and the time for taking an appeal or other court or administrative action therein has expired or, in the case of a threatened proceeding, a reasonable period of time, determined by independent legal counsel selected by the Board of Directors of the corporation, has elapsed since the threat was made without the proceeding having been instituted and, in either case, without any payment or promise having been made to induce a settlement or compromise. (c) As used in this Section, the terms "director", "officer", "trustee", "employee" and "agent" include the relevant individual's heirs, executors and administrators, an "interested" director or officer is one against whom in such capacity the proceedings in question or another proceeding on the same or similar grounds is then pending, and a "wholly-owned subsidiary" means any corporation, business trust, partnership or other business entity of which the corporation owns directly or through one or more wholly-owned subsidiaries all of the outstanding capital stock or other shares of beneficial interest (other than directors' qualifying shares) entitled to vote generally. All directors, officers, trustees, employees and agents of wholly-owned subsidiaries of the corporation and persons who serve in any capacity with respect to any employee benefit plan maintained by the corporation or any such subsidiary shall be deemed to serve or to have served in such capacity at the request of the corporation. The indemnification by the corporation provided for in this Section 9 shall not be exclusive of or affect any other rights to which any director, officer, trustee, employee, agent or pension plan fiduciary or other person may be entitled. Nothing contained in this Section shall either limit the power of the corporation to indemnify corporate personnel other than directors and officers or affect any rights to indemnification by the corporation to which corporate personnel other than directors, officers, trustees, employees and agents of the corporation and persons who serve at the request of the corporation as directors, officers, trustees, employees or agents of wholly- owned subsidiaries of the corporation or in any capacity with respect to any employee benefit plan maintained by the corporation or any such subsidiary may be entitled by contract or otherwise under law. ARTICLE VII AMENDMENTS SECTION 1. General. These By-Laws may be amended, added to or repealed in whole or in part (a) by vote of the stockholders at a meeting where the substance of the proposed amendment is stated in the notice of the meeting, or (b) by vote of a majority of the entire Board, except that no amendment may be made by the Board of Directors on matters reserved to the stockholders by law or the Articles of Organization or which changes the provisions of these By-Laws relating to the removal of directors or to the requirements for amendment of these By-Laws. Notice of any amendment, addition or repeal of any By-Law by the directors stating the substance of such action shall be given to all stockholders entitled to vote on amending the By-Laws not later than the time when notice is given of the meeting of -28- stockholders next following such action by the Board of Directors. Any By-Law adopted by the directors may be amended or repealed by the stockholders. ARTICLE VIII EMERGENCY BY-LAWS SECTION 1. Effective Period. The emergency By-Laws set forth in this Article VIII shall be effective only during the continuance of a national emergency proclaimed by the President of the United States of America or by other governmental authority following an attack on the United States of America or another catastrophic event as a result of which a regular quorum of the Board of Directors or of the Executive Committee cannot readily be convened. During any such emergency, the provisions of this Article VIII shall supersede any different provisions contained in the preceding Articles of these By-Laws. SECTION 2. Meetings of the Board of Directors. During any such emergency, a meeting of the Board of Directors may be called by any director or officer who deems it necessary. The meeting shall be held at such time or place as the person calling the meeting may specify in giving notice thereof. Such notice may be given in writing or orally and by such means of communication (including announcement by radio) as in the judgment of the person giving the same are then feasible to reach as many of the directors as it is reasonably possible to reach under the prevailing circumstances. Two directors shall constitute a quorum for the transaction of business at any such meeting. SECTION 3. Emergency Location of Head Office. With effect during any such emergency, the Board of Directors may change the location of the Head Office of the corporation or designate one or more alternative locations or authorize one or more officers to do so. SECTION 4. Preservation of Continuity of Management. In order to preserve continuity of management of the corporation during any such emergency, the Board of Directors may provide and from time to time change lines of succession in management in the event that during such emergency any or all of the officers shall die or be missing or for any reason be rendered incapable of discharging his or her or their respective duties. SECTION 5. Immunity. No director, officer or employee of the corporation acting in accordance with these emergency By-Laws shall be liable for any act or omission except willful misconduct. SECTION 6. Amendment of Emergency By-Laws. The provisions of this Article VIII can be amended or repealed during any emergency by resolution of the directors or the shareholders but no such amendment or repeal shall prejudice any rights or immunities acquired by any director, officer or employee under Section 5 of this Article VIII in respect of action taken or omitted by him or her prior to such amendment or repeal. Any such amendment may make such further or different -29- provisions as may be deemed to be practical and necessary to deal with the circumstances of the emergency. EX-11 4 COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11 ---------- BANKBOSTON CORPORATION Computation of Earnings Per Common Share
Quarters Ended March 31 EARNINGS (in millions) 1997 1996 -------- ------- ------- 1. Net income $ 207 $ 155 2. Less: preferred dividends 9 9 ------- ------- 3. Net income applicable to primary and fully diluted earnings per common share $ 198 $ 146 ======= ======= SHARES (in thousands) ------ 4. Weighted average number of common shares outstanding 153,421 154,988 5. Incremental shares from assumed exercise of dilutive stock options as of the beginning of the period using the treasury stock method 2,171 1,856 ------- ------- 7. Adjusted number of common shares 155,592 156,844 ======= ======= PER SHARE CALCULATION --------------------- 8. Primary net income per common share $ 1.29 $ .94 (Item 3 divided by Item 4) 9. Fully diluted net income per common share $ 1.27 $ .93 (Item 3 divided by Item 7)
EX-12.(A) 5 COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS EXHIBIT 12(A) BANKBOSTON CORPORATION 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, 1997 and 1996 and for the five years ended December 31, 1996 were as follows:
Three Months Ended March 31, Years Ended December 31, ------------------ --------------------------------------------- (Dollars in millions) 1997 1996 1996 1995 1994 1993 1992 ---- ---- ----- ----- ----- ----- ---- Net income $ 207 $ 155 $ 650 $ 678 $ 542 $ 367 $ 338 Extraordinary items, net of tax 7 (73) Cumulative effect of changes in accounting principles, net of tax (24) Income tax expense 139 112 483 529 422 262 190 ---- ---- ----- ----- ----- ----- ---- Pretax earnings 346 267 1,133 1,207 971 605 455 ---- ---- ----- ----- ----- ----- ---- Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 10 10 40 38 35 36 37 Interest on borrowed funds 255 254 873 1,079 1,038 384 352 ---- ---- ----- ----- ----- ----- ---- Total fixed charges 265 264 913 1,117 1,073 420 389 ---- ---- ----- ----- ----- ----- ---- Earnings (for ratio calculation) $ 611 $ 531 $ 2,046 $ 2,324 $ 2,044 $ 1,025 $ 844 ==== ==== ===== ===== ===== ===== ==== Total fixed charges $ 265 $ 264 $ 913 $ 1,117 $ 1,073 $ 420 $ 389 ==== ==== ===== ===== ===== ===== ==== Ratio of earnings to fixed charges 2.31 2.01 2.24 2.08 1.90 2.44 2.17 ==== ==== ===== ===== ===== ===== ====
For purposes of computing the consolidated ratio of earnings to fixed charges "earnings" represent income 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. EX-12.(B) 6 COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS EXHIBIT 12(B) BANKBOSTON CORPORATION 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, 1997 and 1996 and for the five years ended December 31, 1996 were as follows:
Three Months Ended March 31, Years Ended December 31, ------------------ ---------------------------------------------- (Dollars in millions) 1997 1996 1996 1995 1994 1993 1992 ----- ---- ----- ----- ----- ----- ----- Net income $ 207 $ 155 $ 650 $ 678 $ 542 $ 367 $ 338 Extraordinary items, net of tax 7 (73) Cumulative effect of changes in accounting principles, net of tax (24) Income tax expense 139 112 483 529 422 262 190 ----- ---- ----- ----- ----- ----- ----- Pretax earnings 346 267 1,133 1,207 971 605 455 ----- ---- ----- ----- ----- ----- ----- Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 10 10 40 38 35 36 37 Interest on borrowed funds 255 254 873 1,079 1,038 384 352 ----- ---- ----- ----- ----- ----- ----- Interest on deposits 400 420 1,680 1,791 1,301 1,177 1,640 ----- ---- ----- ----- ----- ----- ----- Total fixed charges 665 684 2,593 2,908 2,374 1,597 2,029 ----- ---- ----- ----- ----- ----- ----- Earnings (for ratio calculation) $ 1,011 $ 951 $ 3,726 $ 4,115 $ 3,345 $ 2,202 $ 2,484 ===== ==== ===== ===== ===== ===== ===== Total fixed charges $ 665 $ 684 $ 2,593 $ 2,908 $ 2,374 $ 1,597 $ 2,029 ===== ==== ===== ===== ===== ===== ===== Ratio of earnings to fixed charges 1.52 1.39 1.44 1.42 1.41 1.38 1.22 ===== ==== ===== ===== ===== ===== =====
For purposes of computing the consolidated ratio of earnings to fixed charges "earnings" represent income 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. EX-12.(C) 7 COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS EXHIBIT 12(C) BANKBOSTON CORPORATION COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (Excluding Interest on Deposits) The Corporation's ratios of earnings to combined fixed charges and preferred stock dividend requirements (excluding interest on deposits) for the three months ended March 31, 1997 and 1996 and for the five years ended December 31, 1996 were as follows:
Three Months Ended March 31, Years Ended December 31, --------------------- ------------------------------------------------------------- (Dollars in millions) 1997 1996 1996 1995 1994 1993 1992 ------- -------- ------- -------- -------- -------- -------- Net income $ 207 $ 155 $ 650 $ 678 $ 542 $ 367 $ 338 Extraordinary items, net of tax 7 (73) Cumulative effect of changes in accounting principles, net of tax (24) Income tax expense 139 112 483 529 422 262 190 ---- ---- ----- ----- ----- ----- ---- Pretax earnings $ 346 $ 267 $ 1,133 $ 1,207 $ 971 $ 605 $ 455 ---- ---- ----- ----- ----- ----- ---- Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor $ 10 $ 10 $ 40 $ 38 $ 35 $ 36 $ 37 Interest on borrowed funds 255 254 873 1,079 1,038 384 352 ---- ---- ----- ----- ----- ----- ---- Total fixed charges 265 264 913 1,117 1,073 420 389 Preferred stock dividend requirements 16 16 65 68 67 61 33 ---- ---- ----- ----- ----- ----- ---- Total combined fixed charges and preferred stock dividend requirements $ 281 $ 280 $ 978 $ 1,185 $ 1,140 $ 481 $ 422 ==== ==== ===== ===== ===== ===== ==== Earnings (for ratio calculation) (Pretax earnings plus total fixed charges) $ 611 $ 531 $ 2,046 $ 2,324 $ 2,044 $ 1,025 $ 844 ==== ==== ===== ===== ===== ===== ==== Ratio of earnings to combined fixed charges and preferred stock dividend requirements 2.17 1.90 2.09 1.96 1.79 2.13 2.00 ==== ==== ===== ===== ===== ===== =====
For purposes of computing the consolidated ratio of earnings to combined fixed charges and preferred stock dividend requirements "earnings" represent income 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. Pretax earnings required for preferred stock dividends were computed using tax rates for the applicable year. EX-12.(D) 8 COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS EXHIBIT 12(D) BANKBOSTON CORPORATION COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDEND REQUIREMENTS (Including Interest on Deposits) The Corporation's ratios of earnings to combined fixed charges and preferred stock dividend requirements (including interest on deposits) for the three months ended March 31, 1997 and 1996 and for the five years ended December 31, 1996 were as follows:
Three Months Ended March 31, Years Ended December 31, ---------------- ---------------------------------------------- (Dollars in millions) 1997 1996 1996 1995 1994 1993 1992 ----- ---- ----- ----- ----- ----- ----- Net income $ 207 $ 155 $ 650 $ 678 $ 542 $ 367 $ 338 Extraordinary items, net of tax 7 (73) Cumulative effect of changes in accounting principles, net of tax (24) Income tax expense 139 112 483 529 422 262 190 ----- ---- ----- ----- ----- ----- ----- Pretax earnings $ 346 $ 267 $ 1,133 $ 1,207 $ 971 $ 605 $ 455 ----- ---- ----- ----- ----- ----- ----- Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor $ 10 $ 10 $ 40 $ 38 $ 35 $ 36 $ 37 Interest on borrowed funds 255 254 873 1,079 1,038 384 352 Interest on deposits 400 420 1,680 1,791 1,301 1,177 1,640 ----- ---- ----- ----- ----- ----- ----- Total fixed charges 665 684 2,593 2,908 2,374 1,597 2,029 Preferred stock dividend requirements 16 16 65 68 67 61 33 ----- ---- ----- ----- ----- ----- ----- Total combined fixed charges and preferred stock dividend requirements $ 681 $ 700 $ 2,658 $ 2,976 $ 2,441 $ 1,658 $ 2,062 ===== ==== ===== ===== ===== ===== ===== Earnings (for ratio calculation) (Pretax earnings plus total fixed charges) $ 1,011 $ 951 $ 3,726 $ 4,115 $ 3,345 $ 2,202 $ 2,484 ===== ==== ===== ===== ===== ===== ===== Ratio of earnings to combined fixed charges and preferred stock dividend requirements 1.48 1.36 1.40 1.38 1.37 1.33 1.20 ===== ==== ===== ===== ===== ===== =====
For purposes of computing the consolidated ratio of earnings to combined fixed charges and preferred stock dividend requirements "earnings" represent income 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. Pretax earnings required for preferred stock dividends were computed using tax rates for the applicable year. EX-27.1 9 FINANCIAL DATA SCHEDULE
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 MAR-31-1997 3,841 1,968 2,304 1,482 9,082 692 680 41,019 (864) 64,780 42,307 10,969 2,021 3,208 0 508 231 4,122 64,780 975 170 130 1,275 400 655 620 60 9 146 346 207 0 0 207 1.29 1.27 4.47 396 46 0 0 883 (97) 18 864 537 205 122 Includes guaranteed preferred beneficial interest in the Corporation's junior subordinated debt.
EX-27.2 10 RESTATED FINANCIAL DATA SCHEDULE
9 THE SCHEDULE CONTAINS SUMMARY RESTATED FINANCIAL INFORMATION FOR THE PERIOD ENDED MARCH 31, 1996 EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT. 3-MOS DEC-31-1996 MAR-31-1996 3,066 1,426 1,584 1,338 7,280 699 691 39,268 (884) 58,015 41,349 5,487 1,466 2,499 0 508 351 3,827 58,015 978 137 125 1,240 420 674 566 57 13 149 267 155 0 0 155 .94 .93 4.40 384 47 28 0 890 (72) 21 884 542 198 144
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