-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MT12ckAY9xKBrlGhLWb3IUtpE0IGcqQ29T+BD4Wj6U4DyL2Kn24IXPGRalRuDV97 z6Obt3Nk+ZxqzmtiLnvanw== 0000950109-94-001543.txt : 19940816 0000950109-94-001543.hdr.sgml : 19940816 ACCESSION NUMBER: 0000950109-94-001543 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANK OF BOSTON CORP CENTRAL INDEX KEY: 0000036672 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94544320 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 June 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 1-6522 BANK OF BOSTON CORPORATION (Exact name of Registrant as specified in its charter) Massachusetts 04-2471221 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Federal Street, Boston, Massachusetts 02110 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (617) 434-2200 Former name, former address and former fiscal year, if changed since last report: Not applicable Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of July 31, 1994: Common Stock, $2.25 par value 106,864,163 1 BANK OF BOSTON CORPORATION -------------------------- TABLE OF CONTENTS ----------------- Page CONSOLIDATED SELECTED FINANCIAL DATA 3 Part I - FINANCIAL INFORMATION Item 1. Financial Statements: ------- Bank of Boston Corporation and Subsidiaries: Consolidated Balance Sheet 4 Consolidated Statement of Income 6 Consolidated Statement of Changes in Stockholders' Equity 7 Consolidated Statement of Cash Flows 8 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition ------- and Results of Operations 17 Part II - OTHER INFORMATION Item 1. Legal Proceedings 43 ------- Item 5. Other Information 43 ------- Item 6. Exhibits and Reports on Form 8-K 44 ------- Signatures 45 LIST OF TABLES Consolidated Average Balance Sheet - Nine Quarters 36 Consolidated Statement of Income - Nine Quarters 37 Average Balances and Interest Rates - Quarter 38 Average Balances and Interest Rates - First Half 40 Change in Net Interest Revenue - Volume and Rate Analysis 42 2 BANK OF BOSTON CORPORATION Consolidated Selected Financial Data (dollars in millions, except per share amounts)
Quarters Ended June 30 1994 1993 ------ ------ Income Statement Data: Net interest revenue $ 374.5 $ 330.5 Provision for credit losses 25.0 27.6 Noninterest income 192.3 191.0 Noninterest expense 372.4 368.3 Net income 94.5 71.4 Per common share: Net income: Primary .80 .60 Fully diluted .77 .59 Market value per common share: High 28 1/2 28 3/8 Low 23 1/8 20 1/2 Six Months Ended June 30 Income Statement Data: Net interest revenue $ 715.2 $ 654.7 Provision for credit losses 70.0 50.1 Noninterest income 427.4 365.4 Noninterest expense 719.1 744.0 Income before extraordinary item and cumulative effect of changes in accounting principles 197.2 130.9 Net income 190.6 155.1 Per common share: Income before extraordinary item and cumulative effect of changes in accounting principles: Primary 1.68 1.09 Fully diluted 1.62 1.07 Net income: Primary 1.62 1.32 Fully diluted 1.56 1.29 Market value per common share: High 28 1/2 28 7/8 Low 22 5/8 20 1/2 At June 30 Balance Sheet Data: Loans and lease financing $ 29,966 $ 26,378 Total assets 43,437 37,509 Deposits 29,395 28,275 Total stockholders' equity 3,005 2,756 Book value per common share 23.36 21.34 Regulatory capital ratios: Risk-based capital ratios: Tier 1 7.1% 7.5% Total 12.3 12.1 Leverage ratio 6.6 7.1
3 BANK OF BOSTON CORPORATION Consolidated Balance Sheet (in thousands, except share and per share amounts)
ASSETS June 30 December 31 1994 1993 ------------ ------------ Cash and due from banks $ 3,082,930 $ 2,539,286 Interest bearing deposits in other banks 1,006,124 991,389 Federal funds sold and securities purchased under agreements to resell 1,716,457 1,454,478 Trading securities 466,114 305,775 Mortgages held for sale 499,784 1,321,607 Securities (Note 4): Available for sale 1,935,554 1,437,887 Held to maturity (fair value of $1,626,483 in 1994 and $1,568,617 in 1993) 1,666,555 1,568,823 Loans and lease financing (Note 5): United States Operations 23,017,240 22,560,194 International Operations 6,948,837 6,221,780 ---------- ---------- Total loans and lease financing (net of unearned income of $264,746 in 1994 and $311,955 in 1993) 29,966,077 28,781,974 Reserve for credit losses (Note 7) (675,775) (770,279) ---------- ---------- Net loans and lease financing 29,290,302 28,011,695 Accelerated disposition portfolio (Note 6) 218,065 Premises and equipment, net 536,099 522,271 Due from customers on acceptances 389,013 391,204 Accrued interest receivable 261,265 287,368 Other real estate owned 70,952 107,845 Other assets (Note 8) 2,297,414 1,648,274 ---------- ---------- TOTAL ASSETS $ 43,436,628 $ 40,587,902 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 BANK OF BOSTON CORPORATION Consolidated Balance Sheet (in thousands, except share and per share amounts) (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY June 30 December 31 1994 1993 ----------- ----------- Deposits: Domestic offices: Noninterest bearing $ 4,659,308 $ 5,040,028 Interest bearing 16,899,645 17,495,648 Overseas offices: Noninterest bearing 471,282 525,620 Interest bearing 7,364,993 6,552,849 ---------- ---------- Total deposits 29,395,228 29,614,145 Funds borrowed: Federal funds purchased 377,134 417,107 Term federal funds purchased 2,260,725 2,150,000 Securities sold under agreements to repurchase 884,253 798,842 Other funds borrowed 3,652,937 1,608,631 Acceptances outstanding 389,177 391,484 Accrued expenses and other liabilities (Note 8) 1,422,364 723,266 Notes payable (Note 9) 2,049,858 1,972,758 ---------- ---------- TOTAL LIABILITIES 40,431,676 37,676,233 ---------- ---------- Commitments and contingencies (Notes 2 and 10) Stockholders' equity: Preferred stock without par value: Authorized shares - 10,000,000 Issued and outstanding shares - 4,593,941 508,436 508,436 Common stock, par value $2.25: Authorized shares - 200,000,000 Issued and outstanding shares - 106,850,666 in 1994 and 105,801,268 in 1993 240,414 238,053 Surplus 793,309 768,372 Retained earnings 1,478,248 1,361,960 Net unrealized gain (loss) on securities available for sale (8,369) 42,980 Cumulative translation adjustments (7,086) (8,132) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 3,004,952 2,911,669 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,436,628 $ 40,587,902 ========== ==========
The accompanying notes are an integral part of these financial statements. 5 BANK OF BOSTON CORPORATION Consolidated Statement of Income (in thousands, except per share amounts)
Quarters Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 1994 1993 1994 1993 -------- -------- ---------- ---------- Interest Income (Note 11): Loans and lease financing, including $ 587,306 $ 516,512 $ 1,130,162 $ 1,033,782 fees Securities 59,595 64,438 104,243 133,918 Trading securities 9,061 1,924 27,559 3,880 Mortgages held for sale 12,801 16,943 28,454 30,306 Federal funds sold and securities purchased under agreements to resell 152,833 21,222 232,515 43,475 Deposits in other banks 18,474 36,119 40,812 72,117 ------- ------- --------- --------- Total interest income 840,070 657,158 1,563,745 1,317,478 ------- ------- --------- --------- Interest Expense (Note 11): Deposits of domestic offices 121,677 161,886 248,467 340,779 Deposits of overseas offices 120,414 83,863 233,230 169,651 Funds borrowed 194,802 53,688 304,906 96,401 Notes payable 28,721 27,222 61,916 55,958 ------- ------- --------- --------- Total interest expense 465,614 326,659 848,519 662,789 ------- ------- --------- --------- Net interest revenue (Note 11) 374,456 330,499 715,226 654,689 Provision for credit losses (Notes 6 and 7) 25,000 27,630 70,000 50,126 ------- ------- --------- --------- Net interest revenue after provision for credit losses 349,456 302,869 645,226 604,563 ------- ------- --------- --------- Noninterest Income: Financial service fees 93,911 92,575 186,323 163,828 Trust and agency fees 50,251 45,200 97,948 89,079 Trading profits and commissions 1,215 5,846 5,070 12,789 Securities gains 5,884 5,988 9,817 12,412 Other income (Notes 2 and 11) 41,005 41,377 128,194 87,299 ------- ------- --------- --------- Total noninterest income 192,266 190,986 427,352 365,407 ------- ------- --------- --------- Noninterest Expense: Salaries 161,569 161,716 319,412 320,858 Employee benefits 36,973 33,735 73,880 71,219 Occupancy expense 33,063 32,158 64,956 64,349 Equipment expense 23,369 23,975 46,954 49,540 Restructuring charge 16,390 16,390 Other real estate owned expense 6,822 11,924 12,090 31,311 Other expense 94,179 104,809 185,407 206,789 ------- ------- --------- --------- Total noninterest expense 372,365 368,317 719,089 744,066 ------- ------- --------- --------- Income before income taxes, extraordinary item and cumulative effect of changes in accounting principles 169,357 125,538 353,489 225,904 Provision for income taxes 74,857 54,151 156,314 95,045 ------- ------- --------- --------- Income before extraordinary item and cumulative effect of changes in accounting principles 94,500 71,387 197,175 130,859 Extraordinary loss from early extinguishment of debt, net of tax (Note 9) (6,535) Cumulative effect of changes in accounting principles, net (Notes 12 and 13) 24,203 ------- ------- --------- --------- NET INCOME $ 94,500 $ 71,387 $ 190,640 $ 155,062 ======= ======= ========= ========= NET INCOME APPLICABLE TO COMMON STOCK $ 85,143 $ 63,408 $ 171,966 $ 139,144 ======= ======= ========= ========= Per Common Share: Income before extraordinary item and cumulative effect of changes in accounting principles: Primary $ .80 $ .60 $ 1.68 $ 1.09 Fully diluted $ .77 $ .59 $ 1.62 $ 1.07 Net Income: Primary $ .80 $ .60 $ 1.62 $ 1.32 Fully diluted $ .77 $ .59 $ 1.56 $ 1.29 Dividends declared $ .22 $ .10 $ .44 $ .20 Average Number of Common Shares: Primary 106,619 105,285 106,410 105,124 Fully diluted 111,286 110,077 111,055 109,953
The accompanying notes are an integral part of these financial statements. 6 BANK OF BOSTON CORPORATION Consolidated Statement of Changes in Stockholders' Equity (in thousands)
Quarters Ended June 30 1994 1993 ---------- ---------- Balance, beginning of period $ 2,947,269 $ 2,632,193 Net income 94,500 71,387 Common stock issued in connection with: Dividend reinvestment and common stock purchase plan 7,392 1,417 Exercise of stock options 1,739 651 Restricted stock grants, net of forfeitures (210) (1,176) Change in unearned compensation related to restricted stock grants 213 636 Other, principally employee benefit plans 617 241 Preferred stock issued in public offering 67,595 Cash dividends declared: Preferred stock (9,391) (8,013) Common stock (23,432) (8,529) Change in net unrealized appreciation on marketable equity securities of nonbanking subsidiary 610 Change in net unrealized gain on securities available for sale, net of tax (11,527) Translation adjustments, net of tax (2,218) (697) --------- --------- Balance, end of period $ 3,004,952 $ 2,756,315 ========= ========= Six Months Ended June 30 Balance, beginning of period $ 2,911,669 $ 2,553,530 Net income 190,640 155,062 Common stock issued in connection with: Dividend reinvestment and common stock purchase plan 11,492 2,941 Exercise of stock options 4,049 6,564 Restricted stock grants, net of forfeitures 9,499 2,758 Change in unearned compensation related to restricted stock grants (8,916) (1,806) Other, principally employee benefit plans 2,260 3,571 Preferred stock issued in public offering 67,595 Cash dividends declared: Preferred stock (18,706) (15,950) Common stock (46,732) (17,019) Change in net unrealized appreciation on marketable equity securities of nonbanking subsidiary 983 Change in net unrealized gain on securities available for sale, net of tax (51,349) Translation adjustments, net of tax 1,046 (1,914) --------- --------- Balance, end of period $ 3,004,952 $ 2,756,315 ========= =========
The accompanying notes are an integral part of these financial statements. 7 BANK OF BOSTON CORPORATION Consolidated Statement of Cash Flows (in thousands)
Six Months Ended June 30 1994 1993 ----------- ----------- Cash Flows From Operating Activities: Net income $ 190,640 $ 155,062 Reconciliation of net income to net cash provided from operating activities: Extraordinary loss from early extinguishment of debt, net of tax 6,535 Cumulative effect of change in accounting for purchased mortgage servicing rights, net of tax 52,960 Cumulative effect of change in method of accounting for income taxes (77,163) Provision for credit losses 70,000 50,126 Depreciation and amortization 72,645 89,374 Provision for deferred taxes (92,090) 48,252 Net gains on sales of securities and other assets (55,923) (30,970) Change in trading securities (160,339) 20,552 Change in mortgages held for sale 821,823 (358,289) Change in securities available for sale 709,214 Net change in interest receivables and payables (78,357) (35,671) Other, net 179,898 28,993 ---------- ---------- Net cash provided from operating activities 954,832 652,440 ---------- ---------- Cash Flows From Investing Activities: Net cash provided from (used for) interest bearing deposits in other banks (14,735) 173,019 Net cash provided from (used for) federal funds sold and securities purchased under agreements to resell (261,979) 805,664 Purchases of securities held to maturity (856,740) (1,117,224) Purchases of securities available for sale (Note 3) (1,658,347) Sales of securities held to maturity 11,651 Sales of securities available for sale (Note 3) 1,319,892 Maturities of securities held to maturity 519,273 779,242 Maturities of securities available for sale (Note 3) 88,184 Dispositions of venture capital investments 7,746 38,445 Loans and lease financing originated by nonbank entities (1,305,088) (1,581,977) Loans and lease financing collected by nonbank entities 1,420,734 1,603,495 Net cash used for lending activities of bank subsidiaries (1,521,341) (1,157,100) Lease financing originated by bank entities (16,160) (3,442) Lease financing collected by bank entities 9,706 6,891 Proceeds from sales of other real estate owned 28,575 99,947 Expenditures for premises and equipment (82,465) (47,184) Proceeds from sales of business units, premises and equipment 132,352 5,260 Other, net (208,997) (50,481) ---------- ---------- Net cash used for investing activities (2,399,390) (433,794) ---------- ---------- Cash Flows From Financing Activities: Net cash used for deposits (218,917) (827,126) Net cash provided from funds borrowed 2,200,469 735,349 Net repayments of notes payable (420,700) (32,815) Net proceeds from issuance of notes payable 497,800 104,381 Net proceeds from issuance of preferred stock 67,595 Net proceeds from issuance of common stock 16,794 9,928 Dividends paid (65,438) (32,968) ---------- ---------- Net cash provided from financing activities 2,010,008 24,344 Effect of foreign currency translation on cash (21,806) (29,566) ---------- ---------- NET CHANGE IN CASH AND DUE FROM BANKS 543,644 213,424 Cash and Due from Banks at January 1 2,539,286 1,936,396 ---------- ---------- Cash and Due from Banks at June 30 $ 3,082,930 $ 2,149,820 ========== ========== Interest payments made $ 952,979 $ 728,503 Income tax payments made $ 67,841 $ 24,383
The accompanying notes are an integral part of these financial statements. 8 BANK OF BOSTON CORPORATION Notes to Financial Statements 1. The accompanying interim consolidated financial statements of Bank of Boston Corporation (the Corporation) are unaudited. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information contained herein have been made. Prior period financial statements have been restated to give retroactive effect to the mergers with Society for Savings Bancorp, Inc. and Multibank Financial Corp., completed in July 1993, which were accounted for as poolings of interests. In addition, certain amounts reported in prior periods have been reclassified for comparative purposes. This information should be read in conjunction with the Corporation's 1993 Annual Report on Form 10-K. 2. Acquisitions and Divestitures: On May 27, 1994, the Corporation completed its acquisition of BankWorcester Corporation (BankWorcester), a $1.5 billion bank holding company headquartered in Worcester, Massachusetts, by exchanging $34 for each share of BankWorcester common stock outstanding. The total purchase price amounted to $243 million. BankWorcester, through its wholly owned subsidiary, Worcester County Institution for Savings (WCIS), was engaged in retail and commercial banking. On the date of acquisition, WCIS was merged into The First National Bank of Boston. The acquisition was accounted for as a purchase and, accordingly, the assets and liabilities of BankWorcester were recorded at their estimated fair values as of the acquisition date. The excess of the cost of the acquisition over the estimated fair values of the net assets acquired, excluding the excess allocated to core deposit intangibles, is being amortized over a twenty-five year period. The core deposit intangible is being amortized over a seven year period. In connection with the acquisition, the Corporation recorded a restructuring charge of $16 million, comprised principally of severance costs and estimated costs to consolidate facilities and operations. The acquisition has been included in the Corporation's financial statements since the acquisition date. Pro forma results of operations including BankWorcester for the six months ended June 30, 1994 and 1993 are not presented since the results would not have been significantly different in relation to the Corporation's results of operations. In January 1994, the Corporation completed the sale of its United States factoring business, and recorded a pre-tax gain of $27 million on the transaction. The previously announced sale of the Corporation's Canadian factoring business, which remains subject to the purchaser's receipt of required regulatory approval, is expected to close in the second half of 1994 with an additional pre-tax gain of approximately $5 million. The factoring businesses' contribution to the Corporation's net income in prior periods was not material. In March 1994, the Corporation reached a definitive agreement to acquire Pioneer Financial, A Co-operative Bank (Pioneer) for $118 million in cash. Pioneer is a privately held financial institution based in Middlesex County, Massachusetts. The acquisition has been approved by the boards of directors of both companies, federal banking regulators and Pioneer stockholders, and remains subject to required state regulatory approvals and a review by the United States Department of Justice (the Justice Department), which is authorized to review the transaction on antitrust grounds. Consummation of the transaction is expected in the third quarter of 1994. The acquisition will be accounted for as a purchase. In June 1994, the Corporation announced a definitive agreement to sell two of its affiliate banks, Bank of Vermont and Maine-based Casco Northern Bank, N.A. (Casco). Bank of Vermont, based in Burlington, Vermont, had $700 million in assets and $500 million in deposits as of June 30, 1994. It has 233 employees and operates 12 branches. Casco, headquartered in Portland, Maine, had $1.1 billion in assets and $900 million in deposits as of June 30, 1994. It has 615 employees and 34 branches. The sale is subject to the purchaser's receipt of required regulatory approvals. 3. Significant Noncash Transactions - Statement of Cash Flows: During the first half of 1994 and 1993, the Corporation transferred approximately $25 million and $44 million, respectively, to Other Real Estate Owned (OREO) from loans. Loans made to facilitate sales of OREO properties totaled approximately $2 million in the first half of 1994 and 1993, respectively. Other significant noncash transactions included the transfer of certain assets to an accelerated disposition portfolio, which is more fully discussed in Note 6. On December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with the new standard, cash flows from purchases, sales and maturities of securities available for sale are classified as cash flows from investing activities. In previous periods, this activity with regard to securities available for sale was classified as cash flows from operating activities and presented on a net basis. 9 Notes to Financial Statements, continued
4. Securities: A summary comparison of securities available for sale by type is as follows: June 30, 1994 December 31, 1993 ---------------------------- ---------------------------- (in thousands) Cost Carrying value Cost Carrying value --------- -------------- --------- -------------- U.S. Treasury $ 416,861 $ 416,486 $ 108,017 $ 109,601 U.S. government agencies and corporations: Mortgage-backed securities 836,166 820,034 493,142 498,172 States and political subdivisions 144 136 478 474 Foreign debt securities 392,468 376,104 441,038 490,066 Other debt securities 140,618 140,618 149,585 149,585 Marketable equity securities 48,450 64,671 57,959 74,330 Other equity securities 117,505 117,505 115,659 115,659 --------- --------- --------- --------- $ 1,952,212 $ 1,935,554 $ 1,365,878 $ 1,437,887 ========= ========= ========= =========
In accordance with SFAS No. 115, securities available for sale are carried at fair value, except for equity securities not traded on established exchanges, which are carried at cost. The cost of such equity securities was $118 million and $116 million at June 30, 1994 and December 31, 1993, respectively. A summary comparison of securities held to maturity, which are carried at amortized cost, by type is as follows:
June 30, 1994 December 31, 1993 ----------------------------- ----------------------------- (in thousands) Cost Fair value Cost Fair value ---------- ----------- ---------- ---------- U.S. Treasury $ 314,217 $ 313,754 $ 317,396 $ 317,599 U.S. government agencies and corporations: Mortgage-backed securities 1,132,748 1,093,193 1,045,574 1,044,026 States and political subdivisions 32,420 32,979 29,480 30,512 Foreign debt securities 102,996 102,383 108,503 108,610 Other debt securities 65 65 Other equity securities 84,174 84,174 67,805 67,805 --------- --------- --------- --------- $ 1,666,555 $ 1,626,483 $ 1,568,823 $ 1,568,617 ========= ========= ========= =========
10 Notes to Financial Statements, continued 5. Loans and Lease Financing: The following are the details of loan and lease financing balances:
(in thousands) 1994 1993 ----------- ----------- United States Operations: Commercial, industrial and financial $ 11,871,233 $ 11,991,440 Real Estate: Secured by 1-4 family residential properties 4,215,113 4,159,069 Construction 499,139 617,426 Other commercial 3,083,976 3,123,024 Loans to individuals 2,283,257 1,609,566 Lease financing 1,262,767 1,263,267 Unearned income (198,245) (203,598) ---------- ---------- 23,017,240 22,560,194 ---------- ---------- International Operations: Loans and lease financing 7,015,338 6,330,137 Unearned income (66,501) (108,357) ---------- ---------- 6,948,837 6,221,780 ---------- ---------- $ 29,966,077 $ 28,781,974 ========== ==========
6. Accelerated Disposition Portfolio: During the first quarter of 1994, the Corporation created an accelerated disposition portfolio by transferring $378 million of lower quality real estate exposure to this category. In connection with this transfer, a first quarter chargeoff of $119 million was recorded to reduce this exposure to its estimated disposition value of $259 million. During the second quarter, this portfolio was reduced by $54 million as a result of dispositions which had no effect on earnings. In addition, in connection with the BankWorcester acquisition, the Corporation acquired certain loans which it classified as available for sale. These loans were added to the accelerated disposition portfolio at their estimated disposition value of $31 million, leaving the portfolio with a balance of $236 million at June 30, 1994, including $18 million of off-balance-sheet exposure. Until liquidated, this portfolio will be carried at the lower of the established carrying value or estimated disposition value. The accelerated disposition portfolio consisted of the following:
June 30 March 31 1994 1994 ------- -------- (in millions) Loans: Nonaccrual real estate, including 1-4 family residential $ 132 $ 129 Performing renegotiated loans 46 51 Other performing real estate 26 30 OREO 14 31 ----- ----- Total balance sheet assets 218 241 Off-balance-sheet exposure (letters of credit) 18 18 ----- ----- Total exposure $ 236 $ 259 ===== =====
11 Notes to Financial Statements, continued 7. Reserve for Credit Losses: An analysis of the reserve for credit losses is as follows: (in thousands)
Quarters Ended Six Months Ended June 30 June 30 --------------------- ----------------------- 1994 1993 1994 1993 -------- -------- --------- --------- Balance, beginning of period $ 664,167 $ 869,773 $ 770,279 $ 923,120 Provision 25,000 27,630 70,000 50,126 Reserve of BankWorcester 16,630 16,630 Domestic credit losses: Commercial, industrial and financial (9,194) (15,514) (11,764) (32,514) Real estate: Construction (1,773) (3,480) (2,033) (10,993) 1-4 family residential properties (2,900) (5,090) (6,267) (8,764) Other (12,765) (15,580) (21,794) (41,662) Loans to individuals (14,577) (9,445) (28,612) (18,003) Lease financing (41) (43) International credit losses (5,126) (25,982) (21,562) (50,304) ------- ------- -------- -------- Total credit losses (46,335) (75,132) (92,032) (162,283) ------- ------- -------- -------- Domestic recoveries: Commercial, industrial and financial 3,783 3,557 7,761 6,669 Real estate: Construction 31 72 368 1,108 1-4 family residential properties 387 1,254 914 2,144 Other 4,437 2,941 6,435 3,443 Loans to individuals 4,829 3,827 8,250 8,060 Lease financing 53 3 96 25 International recoveries 2,793 1,305 6,074 2,818 ------- ------- -------- -------- Total recoveries 16,313 12,959 29,898 24,267 ------- ------- -------- -------- Net credit losses before losses related to accelerated disposition portfolio (30,022) (62,173) (62,134) (138,016) Credit losses related to exposures transferred to accelerated disposition portfolio (119,000) ------- ------- -------- -------- Net credit losses (30,022) (62,173) (181,134) (138,016) ------- ------- -------- -------- Balance, end of period $ 675,775 $ 835,230 $ 675,775 $ 835,230 ======= ======= ======== ========
8. Offsetting of Carrying Amounts Related to Certain Contracts: Effective January 1, 1994, the Corporation adopted Financial Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts." The interpretation requires the reporting of gross unrealized gains and gross unrealized losses on foreign exchange and interest rate contracts separately as assets and liabilities, respectively, unless a right of setoff exists, including a right of setoff resulting from contracts executed with the same counterparty under a master netting arrangement. Previously, the Corporation reported unrealized gains and losses related to forward foreign exchange rate contracts, interest rate swap agreements and similar contracts on a net basis. At June 30, 1994, both assets and liabilities were increased by $589 million as a result of adoption of the interpretation. 12 Notes to Financial Statements, continued 9. Notes Payable: In January 1994, the Corporation issued $300 million of 6 5/8% Subordinated Notes, due 2004. When the notes were issued, the Corporation entered into an interest rate swap agreement that effectively converted the fixed rate obligation to a floating rate obligation. Such interest rate was 4.01% at June 30, 1994. The subordinated notes are not subject to redemption prior to maturity. In March 1994, the Corporation redeemed its floating rate notes due September 2000 at their principal amount plus accrued interest. The carrying value of the notes at the time of redemption was $179 million. In addition, during the first quarter of 1994, a nonbanking subsidiary of the Corporation called for prepayment $186 million of its senior notes, with fixed interest rates ranging from 6.67% to 9.50%, at their principal amount plus accrued interest and a prepayment penalty. The loss on the early extinguishment of the debt amounted to $6.5 million, net of taxes, or $.06 per common share on both a primary and fully diluted basis, and is presented as an extraordinary item in the consolidated statement of income. In June 1994, the Corporation issued $100 million of floating rate senior notes, due 1996. The interest rate on such notes was 4.83% at June 30, 1994. 10. Contingencies: The Corporation and its subsidiaries are defendants in a number of legal proceedings arising in the normal course of business, including claims that borrowers or others have been damaged as a result of the Corporation's lending practices. One of these actions, commonly referred to as lender liability claims, has resulted in a judgment against a Corporation subsidiary, which is being appealed. 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 will not be material. 11. Brazilian Translation Gains and Losses: During the first quarter of 1994, the Corporation reclassified translation gains and losses associated with Brazilian local currency earning assets and interest bearing liabilities from noninterest income to interest income and interest expense, respectively. As a result of hyperinflation in Brazil, interest income and interest expense from these local currency assets and liabilities have had a significant impact on consolidated interest income and interest expense, while contributing only modestly to consolidated net interest revenue. The reclassification of these translation gains and losses, while having no effect on the Corporation's total revenue (net interest revenue plus noninterest income), provides a better presentation of consolidated interest income, interest expense and related yields; net interest revenue and related margin; and noninterest income. Translation gains and losses related to Brazilian local currency nonearning assets and noninterest bearing liabilities continue to be classified as noninterest income. The net translation gain/loss from these local currency noninterest earning assets and noninterest bearing liabilities was immaterial in both the first half of 1994 and the first half of 1993. The Corporation has followed a strategy of maintaining a currency position in Brazil that is designed to capitalize on the spread between Brazilian interest rates and devaluation. This strategy has generally involved investing dollar denominated/indexed interest bearing liabilities in local currency earning assets. The previous presentation resulted in high levels of net interest revenue that were mostly offset by translation losses recorded in noninterest income. This currency position at June 30, 1994 was $199 million, compared with $103 million at December 31, 1993, and averaged $168 million in the first half of 1994, compared with an average of $78 million in the first half of 1993. For the second quarter of 1994, the reclassification resulted in the inclusion of $2,070 million of translation losses related to local currency earning assets in interest income and $1,897 million of translation gains related to local currency interest bearing liabilities in interest expense, resulting in a reclassification from noninterest income of $173 million of net translation losses. For the second quarter of 1993, $777 million of translation losses were reclassified to interest income and $740 million of translation gains were reclassified to interest expense, resulting in a reclassification from noninterest income of $37 million of net translation losses. For the first half of 1994, $4,295 million of translation losses were included in interest income and $3,993 million of translation gains were included in interest expense, resulting in a reclassification from noninterest income of $302 million of net translation losses. For the first half of 1993, $1,423 million of translation losses were reclassified to interest income and $1,363 million of translation gains were reclassified to interest expense, resulting in a reclassification from noninterest income of $60 million of net translation losses. 13 Notes to Financial Statements, continued 12. Change in Accounting for Purchased Mortgage Servicing Rights: Effective January 1, 1993, the Corporation elected to change its method of accounting for purchased mortgage servicing rights (PMSR) to conform its financial reporting to the regulatory accounting rules adopted in the first quarter of 1993 by the banking regulators. Under these new rules, the carrying value of PMSR is recorded at the lesser of amortized cost or the estimated aggregate recoverable amount determined by applying the discount rate in effect at the time the servicing portfolios were purchased to the estimated future net cash flows from servicing the underlying mortgages. Prior to 1993, this valuation was performed on an undiscounted basis. The cumulative effect to January 1, 1993 of adopting this change in accounting principle was a decrease in income of $53 million, net of income taxes of $32 million, or $.50 per common share on a primary basis and $.48 per common share on a fully diluted basis. 13. Accounting for Income Taxes: Effective January 1, 1993, the Corporation adopted prospectively SFAS No. 109, "Accounting for Income Taxes," which principally affects accounting for deferred income taxes. The cumulative effect to January 1, 1993 of adopting this new standard, which is shown as a cumulative effect of a change in accounting principle, was an increase to first quarter income of $77 million or $.74 per common share on a primary basis and $.70 per common share on a fully diluted basis. The cumulative effect principally reflected the recognition of previously unrecorded tax benefit carryforwards. During the second quarter of 1994, the Corporation recognized $10 million of additional tax liability in connection with the merger of certain banking subsidiaries and the loss of preferential tax treatment. The additional liability was offset by the utilization of available foreign tax credit carryforwards. As a result of the increased utilization of tax credit carryforwards, the Corporation was able to reduce its valuation reserve for potential expiration of tax credit carryforwards by $10 million. 14. Parent Company Condensed Financial Statements: The following is a condensed balance sheet of the Corporation (Parent Company only) at June 30, 1994 and December 31, 1993:
June 30 December 31 1994 1993 (in thousands) --------- --------- ASSETS Cash and short term investments in bank subsidiary $ 236,930 $ 206,920 Advances to subsidiaries: Bank subsidiaries 35,864 63,709 Nonbank subsidiaries 228,226 226,203 Subordinated notes receivable from bank subsidiary 580,000 400,000 Investments in subsidiaries: Bank subsidiaries 3,303,968 3,175,274 Nonbank subsidiaries 144,610 134,751 Other assets 28,555 22,846 --------- --------- TOTAL ASSETS $ 4,558,153 $ 4,229,703 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Commercial paper $ 100 Commercial paper due to nonbank subsidiary 9,200 $ 10,200 Notes payable 1,513,348 1,293,247 Other liabilities 30,553 14,587 --------- --------- TOTAL LIABILITIES 1,553,201 1,318,034 --------- --------- TOTAL STOCKHOLDERS' EQUITY 3,004,952 2,911,669 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,558,153 $ 4,229,703 ========= =========
14 Notes to Financial Statements, continued 14. Parent Company Condensed Financial Statements, Continued: The following is a condensed income statement of the Corporation (Parent Company only) for the quarters and six months ended June 30, 1994 and 1993:
Quarters Ended Six Months Ended June 30 June 30 ---------------------- ---------------------- 1994 1993 1994 1993 (in thousands) ------- ------- -------- -------- OPERATING INCOME Dividend from bank subsidiary $ 18,018 $ 21,218 Dividend from nonbank subsidiary 9,960 9,960 Interest from subsidiaries: Bank subsidiaries 10,976 $ 8,177 21,178 $ 16,977 Nonbank subsidiaries 2,327 1,296 3,932 2,542 ------ ------ ------- ------- Total operating income 41,281 9,473 56,288 19,519 ------ ------ ------- ------- EXPENSE Interest expense 16,601 11,606 34,143 23,465 Other expense, net 1,233 875 3,162 2,140 ------ ------ ------- ------- Total operating expense 17,834 12,481 37,305 25,605 ------ ------ ------- ------- Income (Loss) before income taxes, equity in undistributed net income of subsidiaries, extraordinary item and cumulative effect of change in accounting principle 23,447 (3,008) 18,983 (6,086) Benefit from income taxes (1,745) (1,006) (4,535) (2,037) ------ ------ ------- ------- Income (Loss) before equity in undistributed net income of subsidiaries, extraordinary item, and cumulative effect of change in accounting principle 25,192 (2,002) 23,518 (4,049) Equity in undistributed net income of subsidiaries 69,308 73,389 167,482 160,824 ------ ------ ------- ------- Income before extraordinary item and cumulative effect of change in accounting principle 94,500 71,387 191,000 156,775 Extraordinary loss from early extinguishment of debt, net of tax (360) Cumulative effect of change in accounting for income taxes (1,713) ------ ------ ------- ------- NET INCOME $ 94,500 $ 71,387 $ 190,640 $ 155,062 ====== ====== ======= =======
15 Notes to Financial Statements, continued 14. Parent Company Condensed Financial Statements, Continued: The following is a condensed statement of cash flows of the Corporation (Parent Company only) for the six months ended June 30, 1994 and 1993:
(in thousands) 1994 1993 --------- --------- Cash Flows From Operating Activities: Net income $ 190,640 $ 155,062 Reconciliation of net income to net cash provided from (used for) operating activities: Extraordinary item, net of tax 360 Cumulative effect of change in method of accounting for income taxes 1,713 Equity in undistributed net income of subsidiaries (167,482) (160,824) Net change in interest receivables and payables 9,632 (225) Other, net 946 (4,131) -------- -------- Net cash provided from (used for) operating activities 34,096 (8,405) -------- -------- Cash Flows From Investing Activities: Net cash provided from (used for) short-term investments (30,330) 17,710 Net cash provided from advances to subsidiaries 25,822 18,031 Investments in subsidiaries (20,465) (104,000) Purchase of subordinated note receivable from bank subsidiary (180,000) -------- -------- Net cash used for investing activities (204,973) (68,259) -------- -------- Cash Flows From Financing Activities: Net cash provided from (used for) commercial paper (900) 200 Net proceeds from issuance of notes payable 398,601 99,866 Net proceeds from issuance of common stock 16,794 9,928 Repayments of notes payable (178,500) Net proceeds from issuance of preferred stock 67,595 Dividends paid (65,438) (32,968) -------- -------- Net cash provided from financing activities 170,557 144,621 -------- -------- NET CHANGE IN CASH AND DUE FROM BANKS (320) 67,957 Cash and Due from Banks at January 1 550 236 -------- -------- Cash and Due from Banks at June 30 $ 230 $ 68,193 ======== ======== Interest payments made $ 19,805 $ 23,923 Income tax refunds received $ (7,870) $ (1,500)
16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- GENERAL The Corporation's net income for the quarter ended June 30, 1994 was $95 million, compared with net income of $71 million for the same period in 1993. Net income per common share was $.80 on a primary basis and $.77 on a fully diluted basis, compared with net income per common share of $.60 on a primary basis and $.59 on a fully diluted basis for the second quarter of 1993. Net income for the first half of 1994 was $191 million compared with net income of $155 million for the first half of 1993. Net income per common share was $1.62 on a primary basis and $1.56 on a fully diluted basis for the first half of 1994, compared with net income per common share of $1.32 on a primary basis and $1.29 on a fully diluted basis for the first half of 1993. The 1994 results included a $16 million restructuring charge ($9 million after tax) in the second quarter, comprised principally of severance costs and estimated costs to consolidate facilities and operations in connection with the Corporation's acquisition of BankWorcester Corporation (BankWorcester). The 1994 results also included an extraordinary loss, net of tax, of $7 million in the first quarter related to the prepayment of $186 million of senior debt by a non-banking subsidiary and the redemption of $179 million of the Corporation's floating rate notes. The 1993 results included $24 million of income, net of tax, from the cumulative effect of changes in accounting principles, reflecting a $77 million benefit as a result of adopting Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," and a $53 million after-tax charge as a result of a change in accounting with respect to the valuation of purchased mortgage servicing rights (PMSR). Excluding the effects of the BankWorcester restructuring charge, net income for the second quarter of 1994 was $104 million, compared with $71 million for the second quarter of 1993. On this basis, primary and fully diluted earnings per share were $.89 and $.86, respectively, in the second quarter of 1994 compared with $.60 and $.59, respectively, for the same period last year. Excluding the effects of the BankWorcester restructuring charge, the extraordinary loss and the cumulative effect of changes in accounting principles, net income for the first half of 1994 was $207 million compared with $131 million for the first half of 1993. On this basis, primary and fully diluted earnings per share were $1.77 and $1.71, respectively, in the first half of 1994 compared with $1.09 and $1.07, respectively, for the same period last year. NET INTEREST REVENUE - (Fully Taxable Equivalent Basis) The discussion of net interest revenue should be read in conjunction with Average Balances and Interest Rates and Change in Net Interest Revenue - Volume and Rate Analysis on pages 38 through 42 of this report. For this review, interest income that is either exempt from federal income taxes or taxed at a preferential rate has been adjusted to a fully taxable equivalent basis. This adjustment has been calculated using a federal income tax rate of 35% in 1994 and 34% in 1993, plus applicable state and local taxes, net of related federal tax benefits. The adjustments amounted to $1.5 million and $3.0 million for the quarter and six months ended June 30, 1994, respectively, compared with $1.7 million and $3.5 million for the same periods in 1993. Consolidated net interest revenue, on a fully taxable equivalent basis, was $376 million for the second quarter of 1994 compared with $332 million for the same period in 1993. For the first half of 1994, net interest revenue was $718 million compared with $658 million for the same period in 1993. Net interest margin in the second quarter of 1994 was 3.98% compared with 3.99% in the second quarter of 1993. For the first six months of 1994, net interest margin was 3.89% compared with 4.02% for the first half of 1993. 17 The following table presents a summary of net interest revenue, on a fully taxable equivalent basis, and related average earning asset balances and net interest margins for United States and International Operations:
Quarters Ended June 30 Change Change (dollars in millions) 1994 1993 Amount Percent ------- ------- ------ ------- United States Operations: Net interest revenue $ 299.4 $ 267.4 $ 32.0 12% Average loans and lease financing 22,411 20,448 1,963 10 Average earning assets 28,092 26,179 1,913 7 Net interest margin 4.27% 4.10% .17% 4 International Operations: Net interest revenue $ 76.6 $ 64.8 $ 11.8 18% Average loans and lease financing 6,694 5,406 1,288 24 Average earning assets 9,790 7,244 2,546 35 Net interest margin 3.14% 3.59% (.45)% (13) Consolidated: Net interest revenue $ 376.0 $ 332.2 $ 43.8 13% Average loans and lease financing 29,105 25,854 3,251 13 Average earning assets 37,882 33,423 4,459 13 Net interest margin 3.98% 3.99% (.01)%
Six Months Ended June 30 Change Change (dollars in millions) 1994 1993 Amount Percent ------- ------- ------ ------- United States Operations: Net interest revenue $ 573.6 $ 522.8 $ 50.8 10% Average loans and lease financing 22,359 20,320 2,039 10 Average earning assets 27,746 26,021 1,725 7 Net interest margin 4.17% 4.05% .12% 3 International Operations: Net interest revenue $ 144.6 $ 135.4 $ 9.2 7% Average loans and lease financing 6,501 5,222 1,279 24 Average earning assets 9,447 7,032 2,415 34 Net interest margin 3.09% 3.88% (.79)% (20) Consolidated: Net interest revenue $ 718.2 $ 658.2 $ 60.0 9% Average loans and lease financing 28,860 25,542 3,318 13 Average earning assets 37,193 33,053 4,140 13 Net interest margin 3.89% 4.02% (.13)% (3)
18 The improvement in net interest revenue from the second quarter and first six months of 1993 reflects increases of $32 million and $51 million, respectively, from domestic operations. These increases were primarily due to a $2 billion increase in average loan and lease volume; wider spreads as the increase in rates on earning assets outpaced rate increases on interest bearing liabilities; and interest recoveries on loans. The wider spreads and higher level of interest recoveries served to increase domestic margin from 4.10% in the second quarter of 1993 to 4.27% in the second quarter of 1994 and from 4.05% in the first six months of 1993 to 4.17% in the first six months of 1994. BankWorcester contributed approximately $5 million to net interest revenue in the second quarter and first six months of 1994. Internationally, the $12 million growth in net interest revenue from the second quarter of 1993 and the $9 million increase from the first six months of 1993 was mainly attributable to an increase in Latin American average earning assets of approximately $2.5 billion. The growth in earning assets from each period included a $1.3 billion increase in average loans. International net interest margin declined from 3.59% in the second quarter of 1993 to 3.14% in the second quarter of 1994 and from 3.88% in the first six months of 1993 to 3.09% in the first six months of 1994 due to narrower spreads. Spreads have narrowed over the past year in Argentina, mainly because of declining inflation, which has resulted from the continued stability of the economy. Spreads in Brazil have also declined during the past year. The Corporation's Brazilian currency position has enabled it to mitigate the negative effects of narrower spreads from operations in that country. While the international margin declined 45 basis points from the second quarter of 1993, margin for the second quarter of 1994 represented a slight improvement over the immediately preceding three quarters. BRAZIL During the first quarter of 1994, the Corporation reclassified translation gains and losses associated with Brazilian local currency earning assets and interest bearing liabilities from noninterest income to interest income and interest expense, respectively. This reclassification had no effect on the Corporation's total revenue (the sum of net interest revenue and noninterest income). As a result of hyperinflation in Brazil, interest income and interest expense from local currency assets and liabilities had a significant impact on consolidated interest income and interest expense, while contributing only modestly to consolidated net interest revenue. In addition, the Corporation has followed a strategy of maintaining a currency position in Brazil that is designed to capitalize on the spread between Brazilian interest rates and devaluation. This strategy has generally involved investing dollar denominated/indexed interest bearing liabilities in local currency earning assets. Such a strategy has enabled the Corporation to improve its total revenue compared with what would have been earned from exclusively funding local currency assets with local currency liabilities. The previous presentation resulted in high levels of net interest revenue that were mostly offset by translation losses recorded in noninterest income. In order to better present the results of the Corporation's interest operations, including the net revenue earned from this currency position, translation gains and losses related to local currency earning assets and interest bearing liabilities have been reclassified to the related components of interest income and interest expense. Prior periods were reclassified for comparative purposes. 19 The following table presents a summary of net interest revenue earned from the Corporation's Brazilian currency position during the past nine quarters and the effect on net interest margin of reclassifying net translation losses associated with this position from noninterest income to net interest revenue:
June March Dec. Sept. June March Dec. Sept. June (dollars in millions) 1994 1994 1993 1993 1993 1993 1992 1992 1992 ------- ------ ------ ------ ------ ------ ------ ------ ------ Consolidated net interest revenue, on a fully taxable equivalent basis, excluding Brazilian currency position $ 363 $ 331 $ 345 $ 339 $ 328 $ 322 $ 337 $ 326 $ 304 Effect of Brazilian currency position: Interest income from currency position 186 140 90 34 41 27 16 13 20 Translation losses previously classified as noninterest income (173) (129) (84) (30) (37) (23) (13) (9) (15) ------ ----- ----- ----- ----- ----- ----- ----- ----- Net revenue from currency position 13 11 6 4 4 4 3 4 5 Consolidated net interest revenue, on a fully taxable equivalent basis, after reclassification of ------ ----- ----- ----- ----- ----- ----- ----- ----- net translation losses $ 376 $ 342 $ 351 $ 343 $ 332 $ 326 $ 340 $ 330 $ 309 ====== ===== ===== ===== ===== ===== ===== ===== ===== Consolidated net interest margin: Before reclassification of net translation losses 5.81% 5.24% 4.77% 4.26% 4.43% 4.33% 4.21% 4.05% 3.99% After reclassification of net translation losses 3.98% 3.80% 3.86% 3.91% 3.99% 4.05% 4.06% 3.94% 3.81% International net interest margin: Before reclassification of net translation losses 10.23% 8.80% 6.98% 4.52% 5.63% 5.58% 4.57% 4.73% 4.79% After reclassification of net translation losses 3.14% 3.03% 2.99% 2.99% 3.59% 4.20% 3.74% 4.17% 3.73% Average principal amount of currency position $ 189 $ 147 $ 104 $ 53 $ 89 $ 66 $ 45 $ 40 $ 45
The Corporation's currency position exposes it to losses should devaluation exceed local currency interest rates; such losses could be significant if government intervention results in a major unanticipated devaluation. Management, however, has been able to quickly close its position in the past when market conditions warranted. Further, management will continue to closely monitor the position and will alter the present strategy if necessary. While the position could increase or decrease from the June 30, 1994 level of $199 million, the size of the position will continue to be a function of management's assessment of the frequently changing economic and political situation in Brazil, particularly in light of the government's new economic program and the upcoming presidential elections, both of which are discussed below. On July 1, 1994, the government of Brazil instituted a new economic program aimed at stabilizing the economy and reducing inflation, which had risen to 45% per month by June, 1994. Since July 1, inflation, while still at comparatively high levels, has been reduced and the new local currency, known as the "real", has been fairly stable with the dollar. The ability of the Brazilian government to continue this program and achieve economic stability, however, remains uncertain. In addition, a presidential election is scheduled for October and the outcome of this election could have a major impact on the new economic program. While the new economic program has not had a significant positive or negative effect on the Corporation's financial position or results of operations, the volatility of the situation is such that no assurance can be given as to what effect the program will ultimately have on the Corporation. 20 PROVISION FOR CREDIT LOSSES The provision for credit losses was $25 million for the quarter ended June 30, 1994, compared with $28 million for the same period in 1993. For the first six months of 1994, the provision for credit losses was $70 million compared with $50 million for the first six months of 1993. The provision for credit losses reflected management's assessment of the adequacy of the reserve for credit losses, including the current risk characteristics of the loan portfolio and economic conditions. The level of the provision for credit losses in the first quarter of 1994 also reflected, in part, the effect of transferring certain lower quality real estate assets to an accelerated disposition portfolio. The accelerated disposition portfolio is discussed below in Financial Condition. The amount of future provisions will be a function of the regular quarterly review of the reserve for credit losses which considers the risk characteristics of the loan portfolio and the economic conditions existing at that time. NONINTEREST INCOME The following tables set forth the components of noninterest income, as well as a further breakdown of financial service fees. Additional information on the change in noninterest income follows each table. Noninterest income for all periods has been restated to reflect the reclassification of certain Brazilian translation gains and losses. This reclassification is discussed in Net Interest Revenue and in Note 11 to the Financial Statements.
Noninterest Income - ------------------ (in millions) Second Quarter Six Months ----------------------- ----------------------- 1994 1993 Change 1994 1993 Change ---- ---- ------ ---- ---- ------ Financial service fees $ 94 $ 92 $ 2 $ 186 $ 164 $ 22 Trust and agency fees 50 45 5 98 89 9 Trading profits and commissions 1 6 (5) 5 13 (8) Securities portfolio gains, net 6 6 0 10 12 (2) Mezzanine/venture capital profits, net 5 4 1 19 24 (5) Foreign exchange trading profits 11 13 (2) 20 21 (1) Gain from sale of domestic factoring business 0 0 0 27 0 27 Other income 25 25 0 62 42 20 ----- ----- ----- ----- ----- ----- Total $ 192 $ 191 $ 1 $ 427 $ 365 $ 62 ===== ===== ===== ===== ===== =====
Trust and agency fees improved from the second quarter and first six months of 1993 primarily as a result of increased volumes and new business in the stock transfer and Latin American mutual fund businesses. The decline in trading account profits and commissions from the 1993 periods reflects the absence of 1993 profits from Argentine securities. The increase in other income from the first six months of 1993 is due, in part, to net gains from the sale of securities originally acquired in connection with loan restructurings. 21 On January 31, 1994, the Corporation completed the sale of its United States factoring business and recorded a gain of $27 million. The Corporation also has an agreement to sell its Canadian factoring business. This sale, which is subject to the purchaser receiving regulatory approval, is expected to close in the second half of 1994 with an additional pre-tax gain of approximately $5 million.
Financial Service Fees - ---------------------- (in millions) Second Quarter Six Months ------------------------ ------------------------- 1994 1993 Change 1994 1993 Change ---- ---- ------ ---- ---- ------ Deposit fees $ 31 $ 31 $ 0 $ 61 $ 61 $ 0 Letter of credit and acceptance fees 14 14 0 27 29 (2) Mortgage servicing fees: Fee income 30 26 4 57 52 5 Amortization of mortgage servicing assets (17) (20) 3 (34) (55) 21 ----- ----- ----- ----- ------ ----- Net mortgage servicing fees 13 6 7 23 ( 3) 26 Loan-related fees 15 11 4 29 20 9 Factoring fees 1 6 (5) 3 11 (8) Other 20 24 (4) 43 46 (3) ----- ----- ----- ----- ------ ----- Total $ 94 $ 92 $ 2 $ 186 $ 164 $ 22 ===== ===== ===== ===== ====== =====
Financial service fees increased $2 million from the second quarter of 1993 and $22 million from the first six months of 1993. These improvements were mainly due to an increase in net mortgage servicing fees, reflecting a higher volume of business and lower amortization of mortgage servicing assets, and an increase in loan-related fees principally due to a higher volume of syndication activity. These increases were partially offset by lower levels of fees from domestic factoring and freight management due to the sales of these businesses in 1994. The decline in amortization of mortgage servicing assets mainly resulted from a declining rate of current and estimated future mortgage prepayments, as mortgage interest rates have risen. Future levels of amortization of mortgage servicing assets will be dependent on a number of factors, including changes in the level of mortgage interest rates and their effect on mortgage prepayments. NONINTEREST EXPENSE The following table sets forth the components of noninterest expense:
Noninterest Expense - ------------------- (in millions) Second Quarter Six Months ----------------------- ----------------------- 1994 1993 Change 1994 1993 Change ----- ----- ------ ----- ----- ------ Employee costs $ 199 $ 195 $ 4 $ 394 $ 392 $ 2 Occupancy & equipment 56 56 0 111 114 (3) Professional fees 14 14 0 26 27 (1) Other 80 91 (11) 159 180 (21) ----- ----- ----- ----- ----- ------ Noninterest expense, before restructuring and OREO costs 349 356 (7) 690 713 (23) Restructuring charge 16 0 16 16 0 16 OREO costs 7 12 (5) 13 31 (18) ----- ----- ----- ----- ----- ------ Total $ 372 $ 368 $ 4 $ 719 $ 744 $ (25) ===== ===== ===== ===== ===== ======
22 Noninterest expense, before restructuring and OREO costs, declined $7 million from the second quarter of 1993 and $23 million from the first six months of 1993 mainly due to lower non-employee costs. The declines in non-employee costs in both comparisons included lower FDIC deposit insurance premiums due to lower rates, and declines in various other expense categories such as insurance, equipment rental, and travel. In addition, a property tax rebate and a first quarter of 1994 partial refund of 1993's FDIC deposit insurance assessment also contributed to the decline in the six month comparison. Employee costs rose $4 million in the quarterly comparison and $2 million in the six month comparison. This was mainly due to an increase in the international payroll, reflecting strategic investments in Latin America; higher incentive compensation; and an increase in payroll taxes. Partially offsetting these increases was a decline in the domestic payroll resulting from a lower level of employees. Excluding Latin America, the acquisition of BankWorcester and the sales of the domestic factoring and freight management businesses, employee levels have declined approximately 1,300, or 9%, since June 30, 1993. In connection with the acquisition of BankWorcester, the Corporation recorded a $16 million restructuring charge comprised principally of severance costs and estimated costs to consolidate facilities and operations. Since this is an in- market acquisition, the Corporation anticipates that it will achieve cost savings through reductions in staff, as well as systems and space consolidations. The decline in OREO costs is due, in part, to lower valuation adjustments. The level of OREO assets has declined from $129 million at June 30, 1993 to $71 million at June 30, 1994. PROVISION FOR INCOME TAXES The provision for income taxes was $75 million for the second quarter of 1994, representing an effective tax rate of 44%. This compares with a provision and effective tax rate of $54 million and 43%, respectively, for the second quarter of 1993. For the first six months of 1994 the provision for income taxes before extraordinary items was $156 million, representing an effective tax rate of 44%. This compares with a provision and effective tax rate before the cumulative effect of accounting changes of $95 million and 42%, respectively, for the first six months of 1993. The increase in the income tax provision resulted from higher pre-tax income and, to a lesser extent, the higher effective tax rate. The increase in the effective tax rate was attributable to the increase in federal income tax rates enacted in the middle of 1993 and an increase in the estimate of foreign income taxes which may not be creditable for United States federal income tax purposes. FINANCIAL CONDITION ------------------- CONSOLIDATED BALANCE SHEET At June 30, 1994, the Corporation's total assets were $43.4 billion, an increase of $1.0 billion from March 31, 1994. This increase mainly reflects the addition of BankWorcester, which added approximately $1.5 billion of assets. Loans grew $1.4 billion due to a $1.0 billion increase from BankWorcester and a $.6 billion increase in loans from international operations, reflecting a higher volume of Latin American loans. The increase in loans was partially offset by a $.9 billion decline in federal funds sold and resale agreements as the level of federal funds sold was reduced at the end of the second quarter in connection with the Corporation's capital plan. Deposits grew $1.2 billion reflecting the acquisition of BankWorcester and an increase in interest bearing deposits from overseas offices which more than offset declines in domestic money market, certificate of deposit and noninterest bearing deposit accounts. Funds borrowed declined $.4 billion as a decline in funding associated with the lower level of federal funds sold and resale agreements discussed above was partially offset by increases in Brazil and from The First National Bank of Boston's short-term bank note program. Total outstandings from this note program grew from $1.6 billion at March 31 to $2.0 billion at June 30, 1994. 23 LIQUIDITY MANAGEMENT At June 30, 1994, the Corporation's level of liquid assets stood at $4.9 billion, compared with $5.0 billion at March 31, 1994. In addition, Bank of Boston Corporation (on a Parent Company only basis) had net liquid assets (liquid assets in excess of short-term funding commitments) of $216 million at June 30, 1994, compared with $96 million at March 31, 1994. The increase in the Parent Company's liquidity from March 31, 1994 resulted mainly from the issuance of $100 million of floating rate notes due June, 1996. Management considers overall liquidity, on both a consolidated and Parent Company only basis, to be adequate at June 30, 1994 to meet current obligations, support its expectations for future changes in asset and liability levels and carry on normal operations. Further, the Corporation has access to additional liquidity through the public markets. DERIVATIVE FINANCIAL INSTRUMENTS AND INTEREST RATE RISK MANAGEMENT The Corporation participates as a counterparty in various derivative financial instruments. In the negotiated over-the-counter (OTC) markets these instruments include swaps, forwards and options, which are based upon interest rates and foreign currencies. Standardized exchange-traded futures contracts are also utilized. The Corporation enters into derivative transactions in connection with its trading activities and for asset and liability management purposes. Derivatives have risks similar to balance sheet instruments. The principal or notional values of derivatives represent the volume of outstanding transactions and do not represent the potential for gain or loss associated with the market risks or credit risk of such transactions. As such, the actual market or credit exposure for all these instruments is significantly less than the notional amount and, historically, the Corporation's actual credit loss experience with respect to its derivatives has been immaterial. Gains and losses stemming from changes in the market values of the derivatives entered into in connection with the Corporation's trading activities are recognized currently as part of trading profits and commissions or foreign exchange profits. Income or expense related to instruments used to manage the Corporation's own balance sheet interest rate or foreign exchange risk are recorded over the period being managed as an adjustment to the yield of the related asset or liability. The primary focus of the Corporation's derivatives trading activities is to provide these products to the Corporation's customers. As such, the Corporation has generally taken only modest risk positions, within Board of Directors' approved limits, with respect to its derivatives trading portfolio. Foreign exchange trading profits were $11 million in the second quarter of 1994 compared with $13 million in the second quarter of 1993. For the first six months of 1994, foreign exchange trading profits were $20 million compared with $21 million for the first six months of 1993. Trading profits from the Corporation's interest rate-related derivatives businesses were $.3 million in the second quarter of 1994 compared with $.9 million in the second quarter of 1993. For the first six months of 1994, such profits were $3.5 million compared with $3.0 million for the first six months of 1993. 24 The following table presents information on the significant categories of the Corporation's derivative financial instruments held in the trading portfolio:
Trading Portfolio - ----------------- June 30, 1994 December 31, 1993 -------------------- -------------------- Notional Fair Notional Fair (in millions) Amount Value(1) Amount Value(1) -------- -------- -------- -------- Futures and Forwards $19,582 $ 1 $15,026 $ 0 Interest Rate Swaps 10,867 44 6,732 84 Interest Rate Options: Written or Sold 4,664 (25) 5,744 (14) Purchased 2,816 32 4,922 25 Foreign Exchange Spot and forward contracts 21,206 5 21,592 (10) Options written or sold 1,084 (23) 613 (22) Options purchased 1,079 26 691 21
(1) The trading portfolio is carried at fair value which 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. In certain cases, instruments are subject to daily cash settlements; as such, the fair value of these instruments is considered zero for purposes of the table. In connection with its asset and liability management, the Corporation uses both balance sheet instruments and derivatives to manage interest rate risk. Interest rate risk can be defined as an exposure to a movement in interest rates which could have a positive or negative effect on the Corporation's net income or financial position. Interest rate risk arises from the Corporation's normal banking activities due to an imbalance in the repricing or maturity schedules of assets and liabilities. The Corporation seeks to minimize its risk of exposure to changes in interest rates while also allowing for some imbalance which could enable it to profit from favorable market opportunities. Derivatives provide the Corporation with important flexibility in managing its interest rate exposure, enabling it to efficiently manage risk while minimizing the impact on balance sheet leverage and liquidity. For example, the Corporation may have floating rate liabilities funding fixed rate assets during a period of rising interest rates. Through the use of an interest rate swap, the Corporation can effectively convert its floating rate liabilities to a fixed rate funding source and safeguard its interest rate spread against rising rates. Policies are established by management and approved by the Corporation's Board of Directors, which establish limits for the amount of the Corporation's income at risk and market value exposure that could result under various interest rate scenarios. To evaluate the Corporation's exposure to various potential changes in interest rates and to facilitate the management of interest rate risk, the Corporation uses computer simulation models which allow it to assess the impact on market value and net interest revenue from various interest rate scenarios given the Corporation's existing interest rate risk position. 25 The following table presents information on the significant categories of the Corporation's derivative financial instruments held in the risk management portfolio:
Risk Management Portfolio - ------------------------- June 30, 1994 December 31, 1993 --------------------------------------------------- -------------------------------------------- Average Average Notional Remaining Fair Unrecognized Notional Remaining Fair Unrecognized (in millions) Amount Maturity Value(1) Gain/(Loss)(2) Amount Maturity Value(1) Gain(2) ------- --------- -------- -------------- ------- --------- -------- ---------- Futures and Forwards $ 2,390 4 months $ 5 $ 11 $3,581 3 months $ 2 $ 2 Interest Rate Swaps 4,846 4 years (138) (149) 3,463 4 years 47 46 Interest Rate Options (3): Written or Sold 9,150 9 months (12) (9) 39 6 months 0 0 Purchased 11,669 10 months 33 39 414 3 years 5 5 Foreign Exchange Spot and forward contracts 363 5 months 4 0 556 3 months 13 0
(1) 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. In certain cases, instruments are subject to daily cash settlements; as such, the fair value of these instruments is considered zero for purposes of the table. (2) 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. Such amounts are recognized as an adjustment of yield over the period being managed. At June 30, 1994, unrecognized gain/(loss) includes $31 million of unrecognized gain, with a weighted average amortization period of 22 months, from contracts which have been terminated or transferred to the trading portfolio, compared with $15 million, with a weighted average amortization period of 12 months, at December 31, 1993. Additional information on the Corporation's accounting policies for derivatives can be found in the Corporation's 1993 Annual Report to Stockholders on pages 59 and 60, which is incorporated by reference in its 1993 Annual Report on Form 10-K. (3) The increase in the notional amounts related to interest rate options from December 31, 1993 is due to transactions entered into during the first quarter as the Corporation adjusted its strategy in response to rising domestic interest rates. As noted in the table above, there has been a substantial decline in the fair value and unrecognized gain/loss of interest rate-related derivatives between December 31, 1993 and June 30, 1994. This decline was mainly caused by the increase in domestic interest rates that occurred during the first half of 1994. Since these derivatives are used to manage the Corporation's overall domestic interest rate risk, however, these declines must be examined in connection with changes in the value and yields of the Corporation's domestic assets and liabilities over the same period. In this context, the overall effect on the Corporation from rising domestic interest rates during the first half of 1994 was positive. The decline in the fair value of the derivatives during the second quarter of 1994 was offset by changes in the value of assets and liabilities. In addition, domestic net interest revenue in the second quarter of 1994 improved $25 million over the first quarter with the principal factor being wider spreads that were attributable to the increase in rates on earning assets outpacing the rise in rates on interest bearing liabilities. At June 30, 1994, the Corporation maintained a relatively neutral risk position with respect to potential future changes in domestic interest rates, however, this position can be changed quickly through the use of derivatives and/or balance sheet instruments as market conditions warrant. 26 CAPITAL Stockholders' equity increased $58 million from March 31, 1994. This was mainly due to second quarter net income of $95 million, partially offset by the payment of dividends and a decline, net of tax, in the securities available for sale portfolio from an unrealized gain of $3 million at March 31, 1994 to an unrealized loss of $8 million at June 30, 1994. In July 1994, the Board of Directors declared a quarterly dividend of $.22 per share payable on August 26. The payment of future common dividends will continue to be determined by the Board of Directors based on the Corporation's financial condition, recent earnings history and other factors. The Corporation's Tier 1 and total capital ratios were 7.1% and 12.3%, respectively, at June 30, 1994, compared with 7.4% and 12.7%, respectively, at March 31, 1994. The Corporation's leverage ratio at June 30, 1994 was 6.6% compared with 6.9% at March 31, 1994. The decline in the ratios from March 31 is mainly a result of the purchase of BankWorcester. As of June 30, 1994, the capital ratios of the Corporation and all of its banking subsidiaries exceeded the minimum capital ratio requirements of the "well capitalized" category under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). During the past few years, certain of the Corporation's subsidiaries had been subject to regulatory agreements which precluded them from being considered "well capitalized" under FDICIA. With the merger of South Shore Bank, Mechanics Bank and Multibank West into The First National Bank of Boston during the second quarter and the lifting of Bank of Boston Connecticut's regulatory agreement on July 15, however, all remaining regulatory agreements pertaining to the Corporation's banking subsidiaries were eliminated. The capital categories of the Corporation's banking subsidiaries are determined solely for purposes of applying FDICIA's provisions and, accordingly, such capital categories may not constitute an accurate representation of the overall financial condition or prospects of any of the Corporation's banking subsidiaries. In order to assist the Corporation's banking subsidiaries to maintain regulatory capital at desired levels and in connection with its capital planning process, the Corporation has provided capital contributions to certain of its banking subsidiaries in the past, and may contribute additional capital to its banking subsidiaries in future periods, if needed, to assist the subsidiaries in maintaining capital ratios at desired levels. There were no capital contributions made to banking subsidiaries during the first half of 1994, however, the Corporation purchased a $180 million subordinated note, which qualifies as tier 2 capital, from The First National Bank of Boston during the first quarter of 1994. 27 ACQUISITIONS AND DIVESTITURES The Corporation continues to engage in reviewing and discussing possible acquisitions and divestitures of financial institutions, as well as banking and other assets, in connection with the implementation of its business strategy. During 1994, the following events have occurred: . On January 31, 1994, the Corporation completed the sale of its domestic factoring business and recorded a pre-tax gain of $27 million. The sale of the Canadian factoring business remains subject to regulatory approval and is expected to close in the second half of 1994 with a pre-tax gain of approximately $5 million. . On May 27, 1994, the Corporation completed its acquisition of BankWorcester, a $1.5 billion bank holding company headquartered in Worcester, Massachusetts. Concurrent with the acquisition, BankWorcester's banking subsidiary, Worcester County Institution for Savings, was merged into The First National Bank of Boston. . On May 31, 1994, the Corporation completed the sale of its freight management business. . On June 24, 1994, the Corporation announced an agreement to sell two of its banking subsidiaries, Bank of Vermont and Casco Northern Bank, N.A. (Casco). At June 30, 1994, Casco had $1.1 billion and Bank of Vermont had $.7 billion of total assets. These sale transactions are subject to the purchaser obtaining required regulatory approvals. . In mid-July 1994, the Corporation received federal bank regulatory approval for its acquisition of Pioneer Financial, A Co-operative Bank (Pioneer). Pioneer, with assets of $.8 billion at June 30, 1994, is based in Middlesex County, Massachusetts. Consummation of this transaction is expected during the third quarter, subject to receiving remaining regulatory approvals. Additional information on certain of these purchase and sale transactions can be found in Note 2 to the Financial Statements. In addition to the above, the Corporation has continued to grow its mortgage servicing business. Two major bulk acquisitions that occurred during 1994 contributed $3.4 billion to total servicing volume. At June 30, 1994, the Corporation's mortgage banking subsidiary had a total servicing volume of $33 billion compared with $24 billion at June 30, 1993. 28 CREDIT PROFILE The segments of the lending portfolio are as follows:
June 30 March 31 Dec. 31 Sept. 30 June 30 (in millions) 1994 1994 1993 1993 1993 --------- --------- -------- --------- ------- Domestic: Commercial, industrial and financial $ 11,871 $ 12,064 $ 11,991 $ 11,380 $ 10,778 Commercial real estate: Construction 499 542 617 705 714 Other 3,084 2,851 3,123 3,054 3,167 -------- -------- -------- -------- -------- Total commercial real estate 3,583 3,393 3,740 3,759 3,881 Real estate loans secured by 1-4 family residential properties 4,215 3,923 4,159 4,291 3,836 Loans to individuals 2,283 1,795 1,610 1,556 1,530 Lease financing 1,263 1,257 1,264 1,226 1,187 Unearned income (198) (202) (204) (210) (298) --------- -------- -------- -------- -------- 23,017 22,230 22,560 22,002 20,914 -------- -------- -------- -------- -------- International: Loans and lease financing, net of unearned income 6,949 6,324 6,222 5,935 5,464 -------- --------- -------- -------- -------- Total loan and lease financing $ 29,966 $ 28,554 $ 28,782 $ 27,937 $ 26,378 ======== ========= ======== ======== ========
The $.8 billion increase in domestic loans and leases from March 31, 1994 was mainly due to the acquisition of BankWorcester. BankWorcester contributed nearly $1 billion in loans to the June 30, 1994 balance sheet of which approximately $.7 billion were in consumer-related categories. Before the effect of BankWorcester, domestic loans and leases declined $.2 billion stemming from runoff in the mortgage warehousing and mutual fund industry portfolios which exceeded growth in other portfolios, such as in the specialized industry and New England corporate businesses. International loans increased $.6 billion from March 31, 1994, reflecting ongoing growth in Latin America. Additional information on the Corporation's international outstandings can be found under Cross-Border Outstandings. Compared with June 30, 1993, loans and leases have grown approximately 10% before the effect of the BankWorcester acquisition. A discussion of the Corporation's real estate lending activities is included in the Corporation's 1993 Annual Report to Stockholders on pages 39 through 41, which is incorporated by reference in its 1993 Annual Report on Form 10-K. The following tables set forth the Corporation's domestic commercial real estate loans and OREO, and domestic commercial real estate nonaccrual loans and OREO, by geographic location. 29 DOMESTIC COMMERCIAL REAL ESTATE OUTSTANDINGS BY GEOGRAPHIC LOCATION
Other Other (in millions) Massachusetts Connecticut New England Florida Texas States Total Balance at June 30, 1994 (1) $1,505 $435 $741 $207 $82 $ 682 $3,652 ====== ==== ==== ==== ==== ====== ====== Balance at December 31, 1993 $1,373 $607 $802 $187 $54 $ 823 $3,846 ====== ==== ==== ==== === ====== ======
(1) Excludes assets transferred to accelerated disposition portfolio during 1994. DOMESTIC COMMERCIAL REAL ESTATE NONACCRUAL LOANS AND OREO BY GEOGRAPHIC LOCATION
Other Other (in millions) Massachusetts Connecticut New England Florida Texas States Total Balance at June 30, 1994 (1) $ 54 $62 $36 $18 $6 $83 $259 ==== === === === == ==== ==== Balance at December 31, 1993 $103 $68 $52 $15 $8 $121 $367 ==== === === === == ==== ==== Percent of related outstandings at June 30, 1994
(1) Excludes assets transferred to accelerated disposition portfolio during 1994. HIGHLY LEVERAGED TRANSACTIONS The Corporation's total loan portfolio at June 30, 1994 included $1.2 billion of highly leveraged transaction (HLT) loans to 74 customers, compared with $1.2 billion to 72 customers at March 31, 1994. The average HLT loan size was $17 million at both June 30, 1994 and March 31, 1994. The HLT loans are to customers operating in a variety of industries. The amount of unused commitments for HLTs at June 30, 1994 was $544 million, compared with $409 million at March 31, 1994. 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 June 30, 1994, $24 million of the HLT portfolio was on nonaccrual status, compared with $4 million at March 31, 1994. Net credit losses from the HLT portfolio were $3 million in the second quarter of 1994 while none were recognized in the preceding quarter. The Corporation actively manages the risks in its HLT portfolio, including adherence to special HLT lending limits and periodic reviews of the portfolio by senior managers. The Corporation has historically been involved in transactions that qualify as HLTs and it expects to continue to agent and participate in such transactions in the future. The Corporation, however, does not currently anticipate a substantial increase in HLT lending over the June 30, 1994 level. A discussion of the Corporation's HLT lending activities, policies and the effect of these activities on results of operations is included in the Corporation's 1993 Annual Report to Stockholders on pages 41 through 43, which is incorporated by reference in its 1993 Annual Report on Form 10-K. 30 NONACCRUAL LOANS AND OREO The details of consolidated nonaccrual loans and OREO are as follows:
June 30 March 31 Dec. 31 Sept. 30 June 30 (in millions) 1994 (1) 1994 (1) 1993 1993 1993 --------- -------- ------- -------- ------- Domestic: Commercial, industrial and financial $ 131 $ 112 $ 121 $ 131 $ 150 Commercial real estate: Construction 30 27 30 37 51 Other 160 134 231 225 275 ----- ------ ----- ------ ----- Total commercial real estate 190 161 261 262 326 Real estate loans secured by 1-4 family residential properties 30 17 64 65 59 Loans to individuals 9 13 10 13 20 Lease financing 0 0 1 1 1 ----- ------ ----- ------ ----- 360 303 457 472 556 ----- ------ ----- ------ ----- International 87 96 94 86 43 ----- ----- ----- ------ ----- Total nonaccrual loans 447 399 551 558 599 OREO 71 66 108 136 129 ----- ----- ----- ------ ----- Total $ 518 $ 465 $ 659 $ 694 $ 728 ===== ====== ===== ====== ===== Nonaccrual loans and OREO as a percent of related asset categories 1.7% 1.6% 2.3% 2.5% 2.7%
(1) Excludes assets transferred to accelerated disposition portfolio during 1994. The following table summarizes the changes in nonaccrual loans and OREO which have occurred during the last nine quarters:
1992 1993 1994 ---------------------------------- -------------------------------------------- ----------------- Second Third Fourth First Second Third Fourth First Second (in millions) Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr ------- ------- ------- ------ ------ ------ ------ ------ ------ Beginning balance $ 1,597 $ 1,323 $ 1,113 $ 949 $ 820 $ 728 $ 694 $ 659 $ 465 Additions from BankWorcester 12 Additions 156 184 180 107 117 135 127 169 173 Restructurings (61) (104) (29) (13) (14) Transfers to accelerated disposition portfolio (before writedown) (224) Sales, payments and other decreases (252) (180) (187) (132) (115) (105) (103) (88) (80) Credit losses and valuation write- downs (1) (117) (110) (128) (91) (80) (64) (59) (51) (52) ------- ------- ------- ------ ------ ------ ------ ------ ------ Ending balance $ 1,323 $ 1,113 $ 949 $ 820 $ 728 $ 694 $ 659 $ 465 $ 518 ======= ======= ======= ====== ====== ====== ====== ====== ======
(1) The credit losses shown for the first quarter of 1994 exclude the chargeoff taken on loans transferred to the accelerated disposition portfolio. Nonaccrual loans and OREO increased $53 million from March 31, 1994. This increase includes $12 million related to the acquisition of BankWorcester. Nonaccrual loans and OREO represent 1.7% of related assets at June 30, 1994 compared with 1.6% at March 31, 1994. Excluding the transfer of nonperforming assets to the accelerated disposition portfolio in the first quarter, the Corporation has 31 experienced an increase in its nonaccrual loan and OREO portfolio in each of the first two quarters of 1994. The level of nonaccrual loans and OREO is influenced by the economic environment, interest rates, the regulatory environment and other internal and external factors. Despite the increases that have occurred during the first half of 1994, the Corporation believes that the level of its nonaccrual loans and leases and OREO will remain within an acceptable range. ACCELERATED DISPOSITION PORTFOLIO During the first quarter of 1994, in order to expedite the disposition of a component of its remaining problem real estate assets and to strengthen its balance sheet, the Corporation transferred $378 million of lower quality real estate exposure to an accelerated disposition portfolio. At the point of transfer, and after an individual review of each exposure, the Corporation took a chargeoff of $119 million, leaving the March 31, 1994 carrying value of the pool at $259 million, of which $241 million related to balance sheet exposure. During the second quarter, this portfolio was reduced by $54 million principally as a result of dispositions that had no effect on earnings. Also, in connection with the BankWorcester acquisition, the Corporation acquired certain loans which it classified as available for sale. These loans were added to the accelerated disposition portfolio at their estimated disposition value of $31 million. As a result of the second quarter activity, the level of the accelerated disposition portfolio was reduced to $236 million at June 30, 1994, of which $218 million relates to balance sheet exposure. The carrying value of the June 30 portfolio approximates the estimated disposition value of the assets on a liquidation basis, and is not indicative of the value that would be realized if these assets were managed in the normal course of business or disposed of on a basis other than liquidation. Until liquidated, this portfolio will be carried at the lower of the established carrying value or estimated disposition value. The Corporation is actively engaged in a formal selling effort and expects to dispose of a majority of the portfolio during the second half of the year. RENEGOTIATED LOANS As part of its approach to managing credit, the Corporation renegotiates certain of its loans when a determination is made that greater economic value will ultimately be realized under the new terms than through foreclosure, liquidation or bankruptcy. Renegotiated loans totaled $81 million at June 30, 1994, compared with $116 million at March 31, 1994. The decline was due to a combination of factors including the sale of certain loans, the receipt of principal payments and the return of $10 million of renegotiated loans to nonaccrual status. The renegotiated loans outstanding at June 30, 1994, which had a yield of approximately 9 percent, are performing in accordance with their new terms and are not included in nonaccrual loans. Renegotiated loans as of each of the last five quarter-ends were as follows:
June 30 March 31 Dec. 31 Sept. 30 June 30 (dollars in millions) 1994 1994 1993 1993 1993 ------- -------- ------- -------- ------- Renegotiated loans $ 81 $ 116 $ 225 $ 244 $ 248 ==== ==== ==== ==== ==== Approximate yield on renegotiated loans 9% 8% 8% 8% 8% ==== ==== ==== ==== ====
In connection with the renegotiation of loans, the Corporation may obtain equity interests in the borrower. Under certain circumstances, the Corporation's investment in and loans to such borrowers are accounted for as investments and included in other assets. Such investments amounted to $41 million at June 30, 1994 compared with $42 million at March 31, 1994. 32 RESERVE FOR CREDIT LOSSES The reserve for credit losses at June 30, 1994 was $676 million, or 2.26%, of outstanding loans and leases, compared with $664 million or 2.33% at March 31, 1994 and $835 million, or 3.17%, at June 30, 1993. The reserve for credit losses was 151% of nonaccrual loans and leases at June 30, 1994, compared with 166% at March 31, 1994 and 140% at June 30, 1993. Net credit losses were $30 million for the second quarter of 1994 and, excluding the writedowns in connection with the accelerated disposition portfolio in the first quarter, were $62 million for the first half of 1994. This compares with $62 million for the second quarter and $138 million for the first half of 1993. As a percentage of average loans and leases on an annualized basis, net credit losses were .41% in the second quarter of 1994, compared with .46% for the first quarter of 1994, excluding the writedowns in connection with the accelerated disposition portfolio, and .96% for the second quarter of 1993.
Net credit losses are as follows: (in millions) Second Quarter Six Months ---------------- ------------- 1994 1993 1994* 1993 ---- ---- ---- ---- Domestic: Commercial, industrial and finance $ 6 $ 12 $ 4 $ 26 Commercial real estate 10 16 17 48 Loans secured by 1-4 family residential properties 2 4 5 7 Loans to individuals 9 6 20 10 ------- ------ ------- ------ 27 38 46 91 International 3 24 16 47 ------- ------ ------- ------ Total $ 30 $ 62 $ 62 $ 138 ======= ====== ====== ======
*Excludes $119 million of credit losses related to the transfer of assets to the accelerated disposition portfolio. * * * * * * * The economies of the United States and New England continued to improve during the first half of 1994. Management, however, cannot currently predict to what extent the domestic economic recovery or interest rate changes will affect future periods. In addition, it is uncertain what impact future changes in the economies in Latin America and other foreign countries where the Corporation does business will have on future periods, particularly in Brazil, which has implemented a new economic program in July and will hold a presidential election in October. No assurance, therefore, can be given that the positive trends achieved during the first half of 1994 will continue. 33 CROSS-BORDER OUTSTANDINGS Total cross-border outstandings, which are reported on a regulatory basis, represented 14% of consolidated total assets at June 30, 1994 and December 31, 1993. Cross-border outstandings in countries which individually amounted to 1% or more of consolidated total assets at June 30, 1994 and December 31, 1993 were approximately as follows:
Percentage of Consolidated (dollars in millions) Public Banks Other Total Total Assets Commitments(2) ------ ----- ------ ------ ------------- -------------- June 30, 1994 (1) ------------- Argentina $270 $230 $1,175 $1,675 3.9% $110 Brazil 50 900 950 2.2 20 Chile 135 150 175 460 1.1 40 United Kingdom 55 550 605 1.4 145 December 31,1993 (1) -------------------- Argentina $255 $225 $1,025 $1,505 3.7% $ 40 Brazil 110 695 805 2.0 20 United Kingdom 15 565 580 1.4 145
(1) Cross-border outstandings in countries which fell between .75% and 1.0% of consolidated total assets at June 30, 1994 and December 31, 1993 were approximately as follows: Korea $330 million at June 30, 1994; Canada $315 million, Chile $395 million and Korea $310 million at December 31, 1993. (2) Included within commitments are letters of credit and guarantees and the undisbursed portion of loan commitments. Amounts presented are net of reallocations. At June 30, 1994, approximately $3.7 billion of the Corporation's cross-border outstandings were to Less Developed Countries (LDCs), of which $3.1 billion were to Argentina, Brazil and Chile, three countries in which the Corporation maintains a branch network and subsidiaries. The $3.7 billion of LDC cross- border outstandings were mainly comprised of short-term performing trade credits, capital investments in branches and subsidiaries, and non-trade-related loans and leases not subject to country debt rescheduling agreements. The Corporation does not separately allocate a portion of its reserve for credit losses for LDC loans and leases; however, they are considered in the determination of the adequacy of the overall reserve for credit losses. Changes in aggregate cross-border outstandings to Argentina and Brazil since December 31, 1993 were approximately as follows:
(in millions) Argentina Brazil ---------- ------ Cross-border outstandings at December 31, 1993 $ 1,505 $ 805 Increase in non-trade-related loans and leases not subject to country debt rescheduling 92 Net change in trade-related cross-border outstandings, primarily short-term (81) 102 Net change in investment and trading securities 79 21 Net change in local currency assets funded by non-local currency liabilities 4 Net change in placements 68 Other 12 18 ----------- -------- Cross-border outstandings at June 30, $ 1,675(1) $ 950(2) 1994 =========== ========
(1) Approximately 46% are non-trade-related local dollar loans funded by locally generated dollar liabilities and approximately 23% are trade- related outstandings. (2) Approximately 65% are trade-related outstandings. 34 The Corporation has not experienced and does not expect to experience any collection problems stemming from currency restrictions or foreign exchange liquidity problems on its current portfolio of LDC cross-border outstandings. The Corporation, however, will be closely reviewing the level of its Brazilian cross-border outstandings, particularly in light of the country's new economic plan and the presidential elections scheduled for October (as previously described under "Results of Operations-Brazil"). Management may reduce the level of its Brazilian cross-border outstandings during the third quarter should the political and economic situation dictate that this is the most prudent course of action. While minimal problems have been experienced to date with respect to the Corporation's current portfolio of Brazilian cross- border outstandings, there can be no assurance, given the current situation, that such problems will not occur in the future. 35
Consolidated Balance Sheet Averages by Quarter Last Nine Quarters (in millions) 1992 1993 1994 ---------------------------- --------------------------------------- ----------------- 2 3 4 1 2 3 4 1 2 ---------------------------------------------------------------------------------------------- ASSETS Interest bearing deposits in other banks $ 1,315 $ 1,222 $ 1,252 $ 1,262 $ 1,422 $ 1,305 $ 1,185 $ 1,083 $ 902 Federal funds sold and securities purchased under agreements to resell 1,063 1,092 801 1,309 1,089 1,367 2,005 2,447 3,485 Trading securities 183 233 242 290 276 300 259 452 402 Loans held for sale 607 640 869 682 944 1,334 1,314 960 824 Securities 4,232 4,521 4,907 3,909 3,838 3,561 3,194 2,945 3,164 Loans and lease financing 25,248 25,577 25,269 25,224 25,854 26,953 28,172 28,615 29,105 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total earning assets 32,648 33,285 33,340 32,676 33,423 34,820 36,129 36,502 37,882 Other assets 3,592 3,589 3,956 3,775 4,078 4,248 4,274 4,712 4,820 ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL ASSETS $ 36,240 $ 36,874 $ 37,296 $ 36,451 $ 37,501 $ 39,068 $ 40,403 $ 41,214 $ 42,702 ====== ====== ====== ====== ====== ====== ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Domestic offices: Noninterest bearing $ 3,731 $ 3,762 $ 4,220 $ 4,031 $ 4,397 $ 4,578 $ 4,863 $ 4,633 $ 4,403 Interest bearing 20,771 20,567 20,084 19,245 18,580 18,360 18,096 17,110 16,672 Overseas offices: Noninterest bearing 290 360 362 349 336 387 469 497 393 Interest bearing 4,314 4,322 4,214 4,537 4,881 5,218 5,819 6,375 6,764 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total deposits 29,106 29,011 28,880 28,162 28,194 28,543 29,247 28,615 28,232 Federal funds purchased and repurchase agreements 1,420 1,708 2,207 1,705 2,315 3,430 3,787 3,619 4,014 Other funds borrowed 1,578 1,713 1,507 1,436 1,606 1,485 1,603 2,411 4,124 Notes payable 1,187 1,186 1,223 1,669 1,670 1,752 1,876 2,194 1,957 Other liabilities 865 919 957 886 1,022 1,085 1,073 1,433 1,404 Stockholders' equity 2,084 2,337 2,522 2,593 2,694 2,773 2,817 2,942 2,971 ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,240 $ 36,874 $ 37,296 $ 36,451 $ 37,501 $ 39,068 $ 40,403 $ 41,214 $ 42,702 ====== ====== ====== ====== ====== ====== ====== ====== ======
36 Consolidated Statement of Income by Quarter - Taxable Equivalent Basis Last Nine Quarters (in millions, except per share amounts)
1992 1993 1994 --------------------------- ------------------------------------- --------------- 2 3 4 1 2 3 4 1 2 ----- ----- ----- ----- ----- ----- ----- ----- ----- Net Interest Revenue $ 306.7 $ 327.9 $ 336.3 $ 324.2 $ 330.5 $ 340.8 $ 349.3 $ 340.7 $ 374.5 Taxable equivalent adjustment 2.2 2.1 3.7 1.8 1.7 2.3 2.0 1.5 1.5 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total net interest revenue 308.9 330.0 340.0 326.0 332.2 343.1 351.3 342.2 376.0 Provision for credit losses 45.2 44.5 23.0 22.5 27.6 10.0 10.0 45.0 25.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Net interest revenue after provision for credit losses 263.7 285.5 317.0 303.5 304.6 333.1 341.3 297.2 351.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Noninterest Income: Financial service fees 93.0 81.1 88.9 71.3 92.6 90.9 95.2 92.4 93.9 Trust and agency fees 40.5 41.1 42.0 43.9 45.2 43.1 45.5 47.7 50.3 Trading profits and commissions 5.4 5.5 .5 6.9 5.8 6.9 3.9 3.9 1.2 Securities portfolio gains 11.6 8.7 1.5 6.4 6.0 11.0 8.8 3.9 5.9 Other income 38.5 40.9 45.7 45.9 41.4 39.3 35.6 87.2 41.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total noninterest income 189.0 177.3 178.6 174.4 191.0 191.2 189.0 235.1 192.3 ----- ----- ----- ----- ----- ----- ----- ----- ----- Noninterest Expense: Salaries 146.1 154.9 163.7 159.1 161.7 160.4 153.3 157.8 161.5 Employee benefits 32.9 30.4 25.6 37.5 33.7 32.2 32.7 36.9 37.0 Occupancy expense 31.6 31.7 31.0 32.2 32.2 32.2 31.3 31.9 33.1 Equipment expense 24.7 24.6 25.5 25.6 24.0 23.3 23.4 23.6 23.4 Restructuring charge 85.0 16.4 Other expense 125.7 123.9 141.2 121.3 116.7 107.1 105.9 96.5 101.0 ----- ----- ----- ----- ----- ----- ----- ----- ----- Total noninterest expense 361.0 365.5 387.0 375.7 368.3 440.2 346.6 346.7 372.4 ----- ----- ----- ----- ----- ----- ----- ----- ----- Income before income taxes, extraordinary items and cumulative effect of changes in accounting principles 91.7 97.3 108.6 102.2 127.3 84.1 183.7 185.6 170.9 ----- ----- ----- ----- ----- ----- ----- ----- ----- Provision for income taxes 41.6 40.3 42.7 40.9 54.2 40.4 79.2 81.4 74.9 Taxable equivalent adjustment 2.2 2.1 3.7 1.8 1.7 2.3 2.0 1.5 1.5 ----- ----- ----- ----- ----- ----- ----- ----- ----- 43.8 42.4 46.4 42.7 55.9 42.7 81.2 82.9 76.4 ----- ----- ----- ----- ----- ----- ----- ----- ----- Income before extraordinary items and cumulative effect of changes in accounting principles 47.9 54.9 62.2 59.5 71.4 41.4 102.5 102.7 94.5 Extraordinary items 18.4 19.0 17.3 (6.6) Cumulative effect of changes in accounting principles, net 24.2 ----- ----- ----- ----- ----- ----- ----- ----- ----- NET INCOME $ 66.3 $ 73.9 $ 79.5 $ 83.7 $ 71.4 $ 41.4 $ 102.5 $ 96.1 $ 94.5 ===== ===== ===== ===== ===== ===== ===== ===== ===== Per Common Share: Income before extraordinary items and cumulative effect of changes in accounting principles: Primary $ .43 $ .47 $ .52 $ .49 $ .60 $ .30 $ .88 $ .88 $ .80 Fully diluted .42 .46 .50 .48 .59 .30 .85 .85 .77 Net Income: Primary $ .61 $ .65 $ .68 $ .72 $ .60 $ .30 $ .88 $ .82 $ .80 Fully diluted .59 .63 .66 .70 .59 .30 .85 .79 .77 Cash dividends declared .10 .10 .10 .10 .10 .22 .22
37
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis Quarters Ended June 30, 1994 In Millions of Dollars - ------------------------------------------------------------------------------------------------------------------------- Average Average Volume Interest(1) Rate ---------------------------------- Interest Revenue Interest Bearing Deposits in U.S. $ 187 $ 2.2 4.62% other Banks International(4) 715 16.3 9.16 ------ ----- Total 902 18.5 8.22 ------ ----- ------ Federal Funds Sold and Resale U.S. 1,847 18.3 3.98 Agreements International(4) 1,638 134.5 32.94 ------ ----- Total 3,485 152.8 17.59 ------ ----- ------ Trading Securities U.S. 183 2.2 4.93 International(4) 219 6.8 12.30 ------ ----- Total 402 9.0 8.98 ------ ----- ------ Loans Held for Sale U.S.(2) 824 12.8 6.23 ------ ----- ------ Securities U.S. Available For Sale 1,423 19.5 5.48 Held to Maturity 1,217 23.2 7.64 International(4) Available For Sale 349 11.9 13.75 Held to Maturity 175 5.7 13.38 ------ ----- Total Securities 3,164 60.3 7.64 ------ ----- ------ Loans and Leases (Net of Unearned Income) U.S. 22,411 423.8 7.59 International(4) 6,694 164.4 9.85 ------ ----- Total Loans and Leases(3) 29,105 588.2 8.11 ------ ----- ------ Interest-Earning Assets 37,882 841.6 8.91 Non-Interest-Earning Assets 4,820 ----- ------ ------ Total Assets $ 42,702 ====== ------------------------------------------------------------------------------- Interest Expense Deposits U.S. Savings Deposits $ 9,413 $ 45.6 1.94% Time Deposits 7,259 80.1 4.42 International(4) 6,764 116.4 6.90 ------ ----- Total 23,436 242.1 4.14 ------ ----- ------ Federal Funds Purchased and Repurchase Agreements U.S. 3,689 34.4 3.74 International(4) 325 20.8 25.75 ------ ----- Total 4,014 55.2 5.52 ------ ----- ------ Other Funds Borrowed U.S. 2,641 31.7 4.81 International(4) 1,483 107.9 29.19 ------ ----- Total 4,124 139.6 13.58 ------ ----- ------ Notes Payable U.S. 1,824 24.9 5.47 International(4) 133 3.8 11.56 ------ ----- Total 1,957 28.7 5.89 ------ ----- ------ Total Interest-Bearing Liabilities 33,531 465.6 5.57 Demand Deposits U.S. 4,403 ----- ------ Demand Deposits International 393 Other Non-Interest-Bearing Liabilities 1,404 Total Stockholders' Equity 2,971 ------ Total Liabilities and Stockholders' Equity $ 42,702 ====== ------------------------------------------------------------------------------- NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S. $ 28,092 $ 299.4 4.27% International 9,790 76.6 3.14 ------ ----- Total $ 37,882 $ 376.0 3.98% ====== ===== - -------------------------------------------------------------------------------------------------------------------------
(1) This data is shown with income on a fully taxable equivalent basis. (2) Amounts include the Corporation's accelerated disposition portfolio. (3) Data for loans includes nonaccrual and renegotiated balances as well as fees earned on loans. (4) During the first quarter of 1994, the Corporation reclassified the translation gains and losses associated with Brazilian local currency earning assets and interest bearing liabilities from noninterest income to interest income and interest expense, respectively. This reclassification is more fully discussed in Note 11 to the Financial Statements. 38
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis Quarters Ended June 30, 1993 In Millions of Dollars - ------------------------------------------------------------------------------------------------------------------------ Average Average Volume Interest(1) Rate --------------------------------- Interest Revenue Interest Bearing Deposits in U.S. $ 402 $ 3.1 3.06% other Banks International(4) 1,020 33.0 12.99 ------ ----- Total 1,422 36.1 10.18 ------ ----- ----- Federal Funds Sold and Resale U.S. 819 6.2 3.08 Agreements International(4) 270 15.0 22.20 ------ ----- Total 1,089 21.2 7.82 ------ ----- ----- Trading Securities U.S. 133 1.3 3.79 International(4) 143 0.5 1.57 ------ ----- Total 276 1.8 2.64 ------ ----- ----- Loans Held for Sale U.S.(2) 944 17.0 7.20 ------ ----- ----- Securities U.S.(5) 3,433 49.8 5.81 International(4)(5) 405 15.4 15.26 ------ ----- Total Securities 3,838 65.2 6.81 ------ ----- ----- Loans and Leases (Net of Unearned Income) U.S. 20,448 394.4 7.74 International(4) 5,406 123.2 9.14 ------ ----- Total Loans and Leases(3) 25,854 517.6 8.03 ------ ----- ----- Interest-Earning Assets 33,423 658.9 7.91 Non-Interest-Earning Assets 4,078 ----- ----- ------ Total Assets $ 37,501 ====== - ------------------------------------------------------------------------------------------------------------------------ Interest Expense Deposits U.S. Savings Deposits $ 9,371 $ 56.2 2.45% Time Deposits 9,209 107.3 4.67 International(4) 4,881 82.3 6.76 ------ ----- Total 23,461 245.8 4.20 ------ ----- ----- Federal Funds Purchased and Repurchase Agreements U.S. 2,236 16.4 2.94 International(4) 79 2.7 13.85 ------ ----- Total 2,315 19.1 3.31 ------ ----- ----- Other Funds Borrowed U.S. 992 12.6 5.09 International(4) 614 22.0 14.35 ------ ----- Total 1,606 34.6 8.64 ------ ----- ----- Notes Payable U.S. 1,564 25.0 6.42 International(4) 106 2.2 8.26 ------ ----- Total 1,670 27.2 6.54 ------ ----- ----- Total Interest-Bearing Liabilities 29,052 326.7 4.54 Demand Deposits U.S. 4,397 ----- ----- Demand Deposits International 336 Other Non-Interest-Bearing Liabilities 1,022 Total Stockholders' Equity 2,694 ------ Total Liabilities and Stockholders' Equity $ 37,501 ====== - ------------------------------------------------------------------------------------------------------------------------ NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S. $ 26,179 $ 267.4 4.10% International 7,244 64.8 3.59 ------ ----- Total $ 33,423 $ 332.2 3.99% ====== ===== - ------------------------------------------------------------------------------------------------------------------------
(1) This data is shown with income on a fully taxable equivalent basis. (2) Amounts include the Corporation's accelerated disposition portfolio. (3) Data for loans includes nonaccrual and renegotiated balances as well as fees earned on loans. (4) During the first quarter of 1994, the Corporation reclassified the translation gains and losses associated with Brazilian local currency earning assets and interest bearing liabilities from noninterest income to interest income and interest expense, respectively. This reclassification is more fully discussed in Note 11 to the Financial Statements. (5) Prior to January 1, 1994, average balances for Securities Available for Sale and Securities Held to Maturity were not separately accumulated. 39
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis Six Months Ended June 30, 1994 In Millions of Dollars - ------------------------------------------------------------------------------------------------------------------------------- Average Average Volume Interest(1) Rate ---------------------------------- Interest Revenue Interest Bearing Deposits in U.S. $ 217 $ 3.9 3.63 % Other Banks International(4) 776 36.9 9.58 ------ ------- Total 993 40.8 8.29 ------ ------- ------- Federal Funds Sold and Resale U.S. 1,586 28.8 3.66 Agreements International(4) 1,380 203.7 29.77 ------ ------- Total 2,966 232.5 15.81 ------ ------- ------- Trading Securities U.S. 148 3.4 4.66 International(4) 280 24.0 17.30 ------ ------- Total 428 27.4 12.93 ------ ------- ------- Loans Held for Sale U.S.(2) 892 28.5 6.43 ------ ------- ------- Securities U.S. Available For Sale 1,150 35.4 6.19 Held to Maturity 1,394 40.1 5.80 International(4) Available For Sale 293 21.7 14.90 Held to Maturity 217 8.4 7.83 ------ ------- Total Securities 3,054 105.6 6.61 ------ ------- ------- Loans and Leases (Net of Unearned Income) U.S. 22,359 824.9 7.44 International(4) 6,501 307.0 9.52 ------ ------- Total Loans and Leases(3) 28,860 1,131.9 7.91 ------ ------- ------- Interest-Earning Assets 37,193 1,566.7 8.49 ------- ------- Non-Interest-Earning Assets 4,765 ------ Total Assets $ 41,958 ====== ------------------------------------------------------------------------------------- Interest Expense Deposits U.S. Savings Deposits $ 9,336 $ 89.1 1.93 % Time Deposits 7,554 166.4 4.44 International(4) 6,569 226.2 6.94 ------ ------- Total 23,459 481.7 4.14 ------ ------- ------- Federal Funds Purchased and Repurchase Agreements U.S. 3,541 60.9 3.47 International(4) 276 31.1 22.68 ------ ------- Total 3,817 92.0 4.86 ------ ------- ------- Other Funds Borrowed U.S. 2,062 49.5 4.84 International(4) 1,206 163.4 27.32 ------ ------- Total 3,268 212.9 13.14 ------ ------- ------- Notes Payable U.S. 1,963 54.8 5.63 International(4) 112 7.1 12.83 ------ ------- Total 2,075 61.9 6.02 ------ ------- ------- Total Interest-Bearing Liabilities 32,619 848.5 5.25 ------- ------- Demand Deposits U.S. 4,518 Demand Deposits International 445 Other Non-Interest-Bearing Liabilities 1,418 Total Stockholders' Equity 2,958 ------ Total Liabilities and Stockholders' Equity $ 41,958 ====== ------------------------------------------------------------------------------------- NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S. $27,746 $573.6 4.17% International 9,447 144.6 3.09 ------ ------ Total $37,193 $718.2 3.89% ====== ====== - -------------------------------------------------------------------------------------------------------------------------------
(1) This data is shown with income on a fully taxable equivalent basis. (2) Amounts include the Corporation's accelerated disposition portfolio. (3) Data for loans includes nonaccrual and renegotiated balances as well as fees earned on loans. (4) During the first quarter of 1994, the Corporation reclassified the translation gains and losses associated with Brazilian local currency earning assets and interest bearing liabilities from noninterest income to interest income and interest expense, respectively. This reclassification is more fully discussed in Note 11 to the Financial Statements. 40
AVERAGE BALANCES AND INTEREST RATES, Taxable Equivalent Basis Six Months Ended June 30, 1993 In Millions of Dollars - ------------------------------------------------------------------------------------------------------------------------ Average Average Interest Revenue Volume Interest(1) Rate --------------------------------- Interest Bearing Deposits in U.S. $ 367 $ 6.0 3.28% other Banks International(4) 975 66.1 13.69 ------ ------- Total 1,342 72.1 10.84 ------ ------- ----- Federal Funds Sold and Resale U.S. 924 14.1 3.08 Agreements International(4) 274 29.4 21.56 ------ ------- Total 1,198 43.5 7.32 ------ ------- ----- Trading Securities U.S. 134 2.7 4.00 International(4) 149 1.0 1.42 ------ ------- Total 283 3.7 2.64 ------ ------- ----- Loans Held for Sale U.S.(2) 814 30.3 7.51 ------ ------- ----- Securities U.S.(5) 3,462 103.2 6.01 International(4)(5) 412 32.2 15.76 ------ ------- Total Securities 3,874 135.4 7.05 ------ ------- ----- Loans and Leases (Net of Unearned Income) U.S. 20,320 786.8 7.81 International(4) 5,222 249.2 9.62 ------ ------- Total Loans and Leases(3) 25,542 1,036.0 8.18 ------ ------- ----- Interest-Earning Assets 33,053 1,321.0 8.06 Non-Interest-Earning Assets 3,929 ------- ----- ------ Total Assets $ 36,982 ====== ------------------------------------------------------------------------------ Interest Expense Deposits U.S. Savings Deposits $ 9,296 $ 115.3 2.53% Time Deposits 9,615 229.2 4.81 International(4) 4,710 165.9 7.10 ------ ------- Total 23,621 510.4 4.36 ------ ------- ----- Federal Funds Purchased and Repurchase Agreements U.S. 1,878 27.1 2.91 International(4) 134 8.4 12.68 ------ ------- Total 2,012 35.5 3.56 ------ ------- ----- Other Funds Borrowed U.S. 969 22.0 4.58 International(4) 553 38.9 14.16 ------ ------- Total 1,522 60.9 8.06 ------ ------- ----- Notes Payable U.S. 1,562 50.4 6.50 International(4) 107 5.6 10.46 ------ ------- Total 1,669 56.0 6.76 ------ ------- ----- Total Interest-Bearing Liabilities 28,824 662.8 4.66 Demand Deposits U.S. 4,215 ------- ----- Demand Deposits International 342 Other Non-Interest-Bearing Liabilities 954 Total Stockholders' Equity 2,647 ------ Total Liabilities and Stockholders' Equity $ 36,982 ====== ------------------------------------------------------------------------------ NET INTEREST REVENUE AS A PERCENTAGE OF AVERAGE INTEREST EARNING ASSETS U.S. $ 26,021 $ 522.8 4.05% International 7,032 135.4 3.88 ------ ----- Total $ 33,053 $ 658.2 4.02% ====== ===== - ------------------------------------------------------------------------------------------------------------------------
(1) This data is shown with income on a fully taxable equivalent basis. (2) Amounts include the Corporation's accelerated disposition portfolio. (3) Data for loans includes nonaccrual and renegotiated balances as well as fees earned on loans. (4) During the first quarter of 1994, the Corporation reclassified the translation gains and losses associated with Brazilian local currency earning assets and interest bearing liabilities from noninterest income to interest income and interest expense, respectively. This reclassification is more fully discussed in Note 11 to the Financial Statements. (5) Prior to January 1, 1994, average balances for Securities Available for Sale and Securities Held to Maturity were not separately accumulated. 41 Change in Net Interest Revenue - Volume and Rate Analysis The following table summarizes the changes in net interest revenue, on a fully taxable equivalent basis, by the amount resulting from changes in rate and the amount resulting from changes in volume. Second Quarter 1994 Compared With Second Quarter 1993 - (in millions)
United States International Consolidated Increase Increase Increase (Decrease) (Decrease) (Decrease) Due to Due to Due to Change in Change in Change in Net Net Net Volume(2) Rate Change Volume(2) Rate Change Volume(2) Rate Change --------- ---- ------ --------- ---- ------ --------- ---- ------ Interest Income: Loans and lease financing $ 37.1 $ (7.7) $ 29.4 $ 31.7 $ 9.5 $ 41.2 $ 65.8 $ 4.8 $ 70.6 Other earning assets (.7) 1.5 .8 71.1 40.2 111.3 34.8 77.3 112.1 Adjustment(1) (2.2) 2.2 0 (14.5) 14.5 0 (1.5) 1.5 0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total interest income 34.2 (4.0) 30.2 88.3 64.2 152.5 99.1 83.6 182.7 Total interest expense 13.8 (15.6) (1.8) 68.4 72.3 140.7 54.8 84.1 138.9 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Interest Revenue $ 20.4 $ 11.6 $ 32.0 $ 19.9 $ (8.1) $ 11.8 $ 44.3 $ (.5) $ 43.8 ====== ====== ====== ====== ====== ====== ====== ====== ====== Six Months 1994 Compared with Six Months 1993 - (in millions) United States International Consolidated Increase Increase Increase (Decrease) (Decrease) (Decrease) Due to Due to Due to Change in Change in Change in Net Net Net Volume(2) Rate Change Volume(2) Rate Change Volume(2) Rate Change --------- ---- ------ --------- ---- ------ --------- ---- ------ Interest Income: Loans and lease financing $ 75.2 $ (37.1) $ 38.1 $ 60.4 $ (2.6) $ 57.8 $ 130.1 $ (34.2) $ 95.9 Other earning assets (8.2) (8.0) (16.2) 113.6 52.4 166.0 42.9 106.9 149.8 Adjustment(1) (7.1) 7.1 0 (20.2) 20.2 0 1.4 (1.4) 0 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total interest income 59.9 (38.0) 21.9 153.8 70.0 223.8 174.4 71.3 245.7 Total interest expense 24.3 (53.2) (28.9) 116.8 97.8 214.6 94.5 91.2 185.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Interest Revenue $ 35.6 $ 15.2 $ 50.8 $ 37.0 $ (27.8) $ 9.2 $ 79.9 $ (19.9) $ 60.0 ====== ====== ====== ====== ====== ====== ====== ====== ======
(1) Adjustment to reflect the effect on total volume and rate changes of the differences in the component mix of earning assets and interest bearing liabilities between periods. (2) The change due to the volume/rate variance has been allocated to volume and the change resulting from the difference in the number of days in the period has been allocated to rate. 42 PART II -- OTHER INFORMATION Item 1. Legal Proceedings. As previously reported, in January 1994, the Securities and Exchange Commission (the Commission) commenced an administrative proceeding against the Corporation. The administrative proceeding relates to the Commission's claim that the Corporation's second quarter 1989 Form 10-Q did not disclose known trends or uncertainties with respect to the Corporation's credit portfolio and specifically its domestic commercial real estate portfolio. The Corporation reported a significant loss in the third quarter of 1989 as a result of adding to its reserve for credit losses, primarily due to deterioration in the credit quality of its domestic commercial real estate portfolio. Management believes that the disclosures made in its second quarter 1989 Form 10-Q were appropriate and intends to defend the action vigorously. A hearing before an administrative law judge was conducted in May 1994, and the parties are in the process of preparing and filing post-trial briefs. Although management cannot predict the outcome of this proceeding, an unfavorable outcome will not result in any monetary penalties to the Corporation. As previously reported, in March 1993, a complaint was filed in Delaware Chancery Court against the Corporation, Society for Savings Bancorp, Inc. (Bancorp) and Bancorp's directors who voted in favor of the Corporation's acquisition of Bancorp. The action was brought by a Bancorp stockholder, individually and as a class action on behalf of all Bancorp stockholders of record on the date the acquisition was announced, and sought an injunction with respect to the proposed acquisition and damages in an unspecified amount. In July 1993, the Corporation acquired Bancorp. In December 1993, the Chancery Court granted summary judgment in favor of the Corporation, Bancorp and Bancorp's former directors. The plaintiff has appealed that decision to the Delaware Supreme Court. Hearing before a three-judge panel of the Court was held on April 5, 1994, and a second hearing before the full panel has been scheduled for October 21, 1994. Item 5. Other Information As previously reported, in March 1994, the Corporation announced that it had reached a definitive agreement to acquire Pioneer Financial, A Co-operative Bank (Pioneer) for $118 million in cash. Pioneer is based in Middlesex County, Massachusetts. The Pioneer transaction has been approved by the boards of directors of both companies and Pioneer's stockholders, and has also been approved by the Office of the Comptroller of the Currency (the OCC) and the Federal Deposit Insurance Corporation (the FDIC). The Pioneer transaction remains subject to the approval of the Massachusetts Board of Bank Incorporation and the Commissioner of Banks for the Commonwealth of Massachusetts and applications for these approvals have been submitted. The transaction may not be consummated until the 30th day after the date of the OCC approval, during which time the Justice Department is authorized to review the transaction on antitrust grounds. The Corporation's objective is to consummate the Pioneer Bank transaction in the third quarter of 1994, although no assurances can be given that the requisite regulatory approvals will be granted or, if granted, that such approvals will be received within these time frames. As previously reported, the Corporation obtained regulatory approval in April 1994 to merge Mechanics Bank, South Shore Bank and Multibank West into The First National Bank of Boston (FNBB) and on May 6, 1994 merged South Shore Bank into FNBB. The mergers of Multibank West and Mechanics Bank into FNBB were completed on June 10, 1994. 43 On June 23, 1994, the Corporation entered into stock purchase agreements (the Agreements) pursuant to which the purchaser will acquire all of the capital stock of two of the Corporation's subsidiaries, Bank of Vermont and Casco. The acquisitions are subject to the purchaser's receipt of applicable state and federal regulatory approvals. As previously reported, in 1991, Bank of Boston Connecticut entered into a stipulation and agreement with the Connecticut Banking Commissioner. In July 1994, the Connecticut Banking Commissioner terminated the agreement with Bank of Boston Connecticut as a result of progress made by Bank of Boston Connecticut in the areas addressed in the agreement. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10(a) Form of Severance Agreement for certain executive officers. 10(b) Form of Severance Agreement for certain executive officers. 11 Computation of Earnings Per Share. 12(a) Computation of the Corporation's Consolidated Ratio of Earnings to Fixed Charges (excluding interest on deposits). 12(b) Computation of the Corporation's Consolidated Ratio of Earnings to Fixed Charges (including interest on deposits). 12(c) Computation of the Corporation's Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (excluding interest on deposits). 12(d) Computation of the Corporation's Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividend Requirements (including interest on deposits). (b) Current Reports on Form 8-K. During the second quarter of 1994, the Corporation filed two Current Reports on Form 8-K. The Current Reports, dated May 27, 1994 and June 15, 1994, respectively, contained information pursuant to Items 5 and 7 of Form 8-K. 44 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. BANK OF BOSTON CORPORATION /S/Ira Stepanian ---------------- Ira Stepanian Chairman of the Board of Directors and Chief Executive Officer /S/William J. Shea ------------------ William J. Shea Vice Chairman, Chief Financial Officer and Treasurer August 12, 1994 - --------------- Date 45 EX-10.A 2 EXHIBIT 10.A EXHIBIT 10A: Form of Severance Agreement for members of the Chairman's Office AGREEMENT THIS AGREEMENT dated as of August 5, 1994, is made by and between Bank of Boston Corporation, a Massachusetts corporation (the "Company"), and ___________________ (the "Executive"). WHEREAS the Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and WHEREAS the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties with the Company and/or the Bank, as the case may be, without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other valuable consideration, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof. 2. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through August 31, 1997, provided that commencing on September 1, 1996 and each September 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than May 31 of the preceding year, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control shall have occurred prior to such September 1. If a Change in Control shall have occurred during the term of this Agreement, however, this Agreement shall continue in effect for a period of not less than three (3) years beyond the last day of the month in which such Change in Control occurred. Notwithstanding the foregoing provisions of this Section 2, this Agreement shall terminate, unless earlier terminated in accordance with this Agreement, (i) one (1) year after the Executive is notified in accordance with Section 10 hereof that the Compensation Committee, upon recommendation of the Company's chief executive officer, has voted to terminate this Agreement or (ii) if earlier, immediately after the Executive is notified in accordance with Section 10 hereof that the Compensation Committee has determined that the Executive's level of responsibility (other than reporting responsibility) has substantially changed from the Executive's current level of responsibility, in either case only if the notification occurs prior to a Potential Change in Control that results in a Change in Control. By way of illustration, if there were a change in the nature of the Executive's responsibilities (e.g., from technology to human resources) but the only change in the level of the Executive's responsibilities were a change in reporting responsibilities, these changes alone would not provide grounds for the Compensation Committee determination referred to in clause (ii) above. 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company or the Bank and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the Company or the Bank is terminated following a Change in Control and during the term of this Agreement. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company or the Bank following a Change in Control. This Agreement shall not be construed as creating an express or implied contract of employment, and except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company or the Bank. 4. Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the term of this Agreement, the Executive will remain in the employ of the Company or the Bank until the earliest of (i) a date which is six (6) months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control as a Change in Control in applying the definition of Good Reason), by reason of death or Retirement, or (iv) the termination by the Company or the Bank of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. 5.1 Following a Change in Control and during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive becomes eligible for benefits at least equal to those to which the Executive would have been entitled under the long-term disability insurance plan of the Company in effect immediately prior to the Change in Control. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period. 5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay or make available to the Executive any rights, compensation and benefits which are vested in the Executive or which the Executive has or is otherwise entitled to receive under any plan or program of the Company (including without limitation any retirement plan or any welfare plan providing post-retirement benefits) to the Executive as such rights, compensation or benefits become due. Such rights, compensation and benefits shall be determined under, and paid or made available in accordance with, the Company's applicable retirement, insurance and other compensation or benefit plans, programs and arrangements. 6. Severance Payments. 6.1 Subject to Section 6.2 hereof, the Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control and during the term of this Agreement, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Company or the Bank for Cause, (ii) by reason of death or Retirement, or (iii) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control or if the Executive terminates his employment with Good Reason prior to a Change in Control (determined by treating a Potential Change in Control as a Change in Control in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefits otherwise payable to the Executive under any then existing broad-based employee severance plan, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three (3) times the sum of (i) the higher of the Executive's annual base salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control and (ii) the higher of the average of the annual amounts paid to, or approved for, the Executive pursuant to the Performance Recognition Opportunity Plan, or any successor plan, with respect to the three (3) years (or the number of years employed, if less) immediately preceding (a) the occurrence of the event or circumstance upon which the Notice of Termination is based or (b) the Change in Control. (B) In lieu of any further life, disability, accident and health insurance benefits otherwise due to the Executive, the Company shall pay to the Executive a lump sum amount, in cash, equal to the cost to the Company (as determined by the Company in good faith with reference to its most recent actual experience) of providing such benefits, to the extent that the Executive is eligible to receive such benefits immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), for a period of three (3) years commencing on the Date of Termination. (C) The Executive shall continue to accrue service credit (for all purposes, including without limitation benefit accrual) under the Pension Plan, Thrift Plan, the Bonus SERP, the Excess SERP or any successor plans thereto, at the compensation level equal to the amount determined in accordance with Section 6.1(A) hereof for a period of three (3) years. 6.2 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would be subject (in whole or part) to the Excise Tax, then the Severance Payments shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments), is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments) over (ii) the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Date of Termination shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive, does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company in accordance with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the Executive receiving the greater of clauses (A) and (B) of this Section. 6.3 The payments provided for in Section 6.1 hereof shall be made not later than the fifth day following the Date of Termination; however, if the amounts of such payments, and the limitation on such payments set forth in Section 6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined by the Executive, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in seeking to obtain or enforce any benefit or right provided by this Agreement, in accordance with Section 14 hereof (including without limitation fees and expenses incurred in seeking to secure the Executive's rights provided by Section 14 hereof). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Termination Procedures and Compensation During Dispute. 7.1 Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination (which, in the case of a termination by the Company or the Bank, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction provided that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including without limitation salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. If the Executive's employment by the Company or the Bank is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in Section 6 or Section 7.4 hereof shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or the Bank, or otherwise. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Bank of Boston Corporation 100 Federal Street Boston, MA 02110 Attention: Director, Human Resources Copy to: General Counsel To the Executive: _________________ _________________ _________________ 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. Except as expressly provided herein, no waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an instrument under seal. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6, 7, 8 and 14 hereof shall survive the expiration of the term of this Agreement. 12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Executive shall, however, be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Bank" shall mean the Company's subsidiary, The First National Bank of Boston, or if applicable, any other direct or indirect subsidiary of the Company by which the Executive is then employed during the term of this Agreement. (B) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (C) "Board" shall mean the Board of Directors of the Company. (D) "Bonus SERP" shall mean The First National Bank of Boston Bonus Supplemental Employee Retirement Plan. (E) "Cause" for termination by the Company or the Bank of the Executive's employment, after any Change in Control, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company or the Bank (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in gross misconduct which is demonstrably and materially injurious to the Company or any of its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. (F) A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) There is an acquisition of control of the Company as defined in Section 2(a)(2) of the Bank Holding Company Act of 1956, or any similar successor provision, as in effect at the time of the acquisition; or (II) Continuing Directors constitute two-thirds (2/3) or less of the membership of the Board, whether as the result of a proxy contest or for any other reason or reasons; or (III) Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty- five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities; or (IV) There is a change in control of the Company of a nature that would be required to be reported in response to item 1(a) of Current Report on Form 8-K or item 6(e) of Schedule 14A of Regulation 14A or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company is then subject to such reporting requirement, including without limitation any merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) forty-five percent (45%) or more of the combined voting power of the voting securities (entitled to vote generally for the election of directors) of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation and which would result in those persons who are Continuing Directors immediately prior to such merger or consolidation constituting more than two-thirds (2/3) of the membership of the Board or the board of such surviving or parent entity immediately after, or subsequently at any time as contemplated by or as a result of, such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquired twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (V) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). (G) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (H) "Company" shall mean Bank of Boston Corporation and (except in determining, under Section 15(F) hereof, whether or not any Change in Control of the Company has occurred in connection with such succession) any successor to its business and/or assets which assumes or agrees to perform this Agreement, by operation of law or otherwise. Payments or benefits from the Company shall include those from the Bank. (I) "Compensation Committee" shall mean the Compensation and Nominating Committee of the Board. (J) "Continuing Director" shall mean any director (i) who has continuously been a member of the Board since not later than the date of a Potential Change in Control or (ii) who is a successor of a director described in clause (i), if such successor (and any intervening successor) shall have been recommended or elected to succeed a Continuing Director by a majority of the then Continuing Directors. (K) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (L) "Excess SERP" shall mean The First National Bank of Boston Excess Benefit Supplemental Employee Retirement Plan. (M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (N) "Executive" shall mean the individual named in the first paragraph of this Agreement. (O) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following acts by the Company or the Bank, or failures by the Company or the Bank to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof or, in the case of paragraph (III) below, such act is not objected to in writing by the Executive within four (4) months after notification by the Company to the Executive of the Company's or the Bank's intention to take the action contemplated by such paragraph (III): (I) the assignment to the Executive of any duties inconsistent with the Executive's status as a senior executive officer of the Company or the Bank or a meaningful alteration, adverse to the Executive, in the nature or status of the Executive's responsibilities (other than reporting responsibilities) from those in effect immediately prior to the Change in Control; (II) a reduction by the Company or the Bank in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company or the Bank, as the case may be, and all senior executives of any Person in control of the Company; (III) the Company's or the Bank's requiring the Executive to be based anywhere other than the Boston Metropolitan Area (or, if different, the metropolitan area in which the Company's or the Bank's principal executive offices are located immediately prior to the Change in Control) except for required travel on the Company or Bank business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within fourteen (14) days of the date such compensation is due; (V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation, including without limitation the Company's stock award, incentive compensation and bonus plans, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control; (VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the Change in Control; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 9.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (P) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (Q) "Pension Plan" shall mean the Retirement Plan of The First National Bank of Boston and Certain Affiliated Companies. (R) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to a registered offering of such securities in accordance with an agreement with the Company, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (S) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities (entitled to vote generally for the election of directors); or (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (T) "Retirement" shall be deemed the reason for the termination of the Executive's employment if the Executive voluntarily retires and receives benefits under the Pension Plan or other applicable retirement plan then maintained by the Company and in effect immediately prior to the Change in Control, or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive. (U) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (V) "Thrift Plan" shall mean the Thrift- Incentive Plan of The First National Bank of Boston and Certain Affiliated Companies. (W) "Total Payments" shall mean those payments described in Section 6.2 hereof. BANK OF BOSTON CORPORATION By _______________________ Name: Title: __________________________ [Name of Executive] EX-10.B 3 EXHIBIT 10.B EXHIBIT 10B: Form of Severance Agreement for members of the Corporate Working Committee AGREEMENT THIS AGREEMENT dated as of August 5, 1994, is made by and between Bank of Boston Corporation, a Massachusetts corporation (the "Company"), and _____________ (the "Executive"). WHEREAS the Company considers it essential to the best interests of its stockholders to foster the continuous employment of key management personnel; and WHEREAS the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control (as defined in the last Section hereof) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and WHEREAS the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties with the Company and/or the Bank, as the case may be, without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other valuable consideration, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this Agreement are provided in the last Section hereof. 2. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect through August 31, 1997, provided that commencing on September 1, 1996 and each September 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than May 31 of the preceding year, the Company or the Executive shall have given notice not to extend this Agreement or a Change in Control shall have occurred prior to such September 1. If a Change in Control shall have occurred during the term of this Agreement, however, this Agreement shall continue in effect for a period of not less than two (2) years beyond the last day of the month in which such Change in Control occurred. Notwithstanding the foregoing provisions of this Section 2, this Agreement shall terminate, unless earlier terminated in accordance with this Agreement, (i) one (1) year after the Executive is notified in accordance with Section 10 hereof that the Compensation Committee, upon recommendation of the Company's chief executive officer, has voted to terminate this Agreement or (ii) if earlier, immediately after the Executive is notified in accordance with Section 10 hereof that the Compensation Committee has determined that the Executive's level of responsibility (other than reporting responsibility) has substantially changed from the Executive's current level of responsibility, in either case only if the notification occurs prior to a Potential Change in Control that results in a Change in Control. By way of illustration, if there were a change in the nature of the Executive's responsibilities (e.g., from technology to human resources) but the only change in the level of the Executive's responsibilities were a change in reporting responsibilities, these changes alone would not provide grounds for the Compensation Committee determination referred to in clause (ii) above. 3. Company's Covenants Summarized. In order to induce the Executive to remain in the employ of the Company or the Bank and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments described in Section 6.1 hereof and the other payments and benefits described herein in the event the Executive's employment with the Company or the Bank is terminated following a Change in Control and during the term of this Agreement. No amount or benefit shall be payable under this Agreement unless there shall have been (or, under the terms hereof, there shall be deemed to have been) a termination of the Executive's employment with the Company or the Bank following a Change in Control. This Agreement shall not be construed as creating an express or implied contract of employment, and except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company or the Bank. 4. Executive's Covenants. The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the term of this Agreement, the Executive will remain in the employ of the Company or the Bank until the earliest of (i) a date which is six (6) months from the date of such Potential Change of Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason (determined by treating the Potential Change in Control as a Change in Control in applying the definition of Good Reason), by reason of death or Retirement, or (iv) the termination by the Company or the Bank of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. 5.1 Following a Change in Control and during the term of this Agreement, during any period that the Executive fails to perform the Executive's full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive's full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period, until the Executive becomes eligible for benefits at least equal to those to which the Executive would have been entitled under the long-term disability insurance plan of the Company in effect immediately prior to the Change in Control. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect at the time the Notice of Termination is given, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period. 5.3 If the Executive's employment shall be terminated for any reason following a Change in Control and during the term of this Agreement, the Company shall pay or make available to the Executive any rights, compensation and benefits which are vested in the Executive or which the Executive has or is otherwise entitled to receive under any plan or program of the Company (including without limitation any retirement plan or any welfare plan providing post-retirement benefits) to the Executive as such rights, compensation or benefits become due. Such rights, compensation and benefits shall be determined under, and paid or made available in accordance with, the Company's applicable retirement, insurance and other compensation or benefit plans, programs and arrangements. 6. Severance Payments. 6.1 Subject to Section 6.2 hereof, the Company shall pay the Executive the payments described in this Section 6.1 (the "Severance Payments") upon the termination of the Executive's employment following a Change in Control and during the term of this Agreement, in addition to the payments and benefits described in Section 5 hereof, unless such termination is (i) by the Company or the Bank for Cause, (ii) by reason of death or Retirement, or (iii) by the Executive without Good Reason. The Executive's employment shall be deemed to have been terminated following a Change in Control by the Company without Cause or by the Executive with Good Reason if the Executive's employment is terminated prior to a Change in Control without Cause at the direction of a Person who has entered into an agreement with the Company the consummation of which will constitute a Change in Control or if the Executive terminates his employment with Good Reason prior to a Change in Control (determined by treating a Potential Change in Control as a Change in Control in applying the definition of Good Reason) if the circumstance or event which constitutes Good Reason occurs at the direction of such Person. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefits otherwise payable to the Executive under any then existing broad-based employee severance plan, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two (2) times the sum of (i) the higher of the Executive's annual base salary in effect immediately prior to the occurrence of the event or circumstance upon which the Notice of Termination is based or in effect immediately prior to the Change in Control and (ii) the higher of the average of the annual amounts paid to, or approved for, the Executive pursuant to the Performance Recognition Opportunity Plan, or any successor plan, with respect to the three (3) years (or the number of years employed, if less) immediately preceding (a) the occurrence of the event or circumstance upon which the Notice of Termination is based or (b) the Change in Control. (B) In lieu of any further life, disability, accident and health insurance benefits otherwise due to the Executive, the Company shall pay to the Executive a lump sum amount, in cash, equal to the cost to the Company (as determined by the Company in good faith with reference to its most recent actual experience) of providing such benefits, to the extent that the Executive is eligible to receive such benefits immediately prior to the Notice of Termination (without giving effect to any reduction in such benefits subsequent to a Change in Control which reduction constitutes Good Reason), for a period of two (2) years commencing on the Date of Termination. (C) The Executive shall continue to accrue service credit (for all purposes, including without limitation benefit accrual) under the Pension Plan, Thrift Plan, the Bonus SERP, the Excess SERP or any successor plans thereto, at the compensation level equal to the amount determined in accordance with Section 6.1(A) hereof for a period of two (2) years. 6.2 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would be subject (in whole or part) to the Excise Tax, then the Severance Payments shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement) if (A) the net amount of such Total Payments, as so reduced (and after deduction of the net amount of federal, state and local income tax on such reduced Total Payments), is greater than (B) the excess of (i) the net amount of such Total Payments, without reduction (but after deduction of the net amount of federal, state and local income tax on such Total Payments) over (ii) the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments. For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Date of Termination shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive, does not constitute a "parachute payment" within the meaning of section 280G(b)(2) of the Code, (including by reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which constitutes reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company in accordance with the principles of sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth in Section 6.3 hereof, the Company shall provide the Executive with its calculation of the amounts referred to in this Section and such supporting materials as are reasonably necessary for the Executive to evaluate the Company's calculations. If the Executive objects to the Company's calculations, the Company shall pay to the Executive such portion of the Severance Payments (up to 100% thereof) as the Executive determines is necessary to result in the Executive receiving the greater of clauses (A) and (B) of this Section. 6.3 The payments provided for in Section 6.1 hereof shall be made not later than the fifth day following the Date of Termination; however, if the amounts of such payments, and the limitation on such payments set forth in Section 6.2 hereof, cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined by the Executive, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive in seeking to obtain or enforce any benefit or right provided by this Agreement, in accordance with Section 14 hereof (including without limitation fees and expenses incurred in seeking to secure the Executive's rights provided by Section 14 hereof). Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 7. Termination Procedures and Compensation During Dispute. 7.1 Notice of Termination. After a Change in Control and during the term of this Agreement, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination", with respect to any purported termination of the Executive's employment after a Change in Control and during the term of this Agreement, shall mean the date specified in the Notice of Termination (which, in the case of a termination by the Company or the Bank, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). 7.3 Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given or, if later, prior to the Date of Termination (as determined without regard to this Section 7.3), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of a court of competent jurisdiction provided that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 7.4 Compensation During Dispute. If a purported termination occurs following a Change in Control and during the term of this Agreement, and such termination is disputed in accordance with Section 7.3 hereof, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including without limitation salary) and continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all other amounts due under this Agreement (other than those due under Section 5.2 hereof) and shall not be offset against or reduce any other amounts due under this Agreement. 8. No Mitigation. If the Executive's employment by the Company or the Bank is terminated during the term of this Agreement, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 or Section 7.4 hereof. Further, the amount of any payment or benefit provided for in Section 6 or Section 7.4 hereof shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or the Bank, or otherwise. 9. Successors; Binding Agreement. 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Bank of Boston Corporation 100 Federal Street Boston, MA 02110 Attention: Director, Human Resources Copy to: General Counsel To the Executive: _________________ _________________ _________________ 11. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Board. Except as expressly provided herein, no waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an instrument under seal. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under Sections 6, 7, 8 and 14 hereof shall survive the expiration of the term of this Agreement. 12. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes; Arbitration. All claims by the Executive for benefits under this Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by the Board of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. Any further dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The Executive shall, however, be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms shall have the meanings indicated below: (A) "Bank" shall mean the Company's subsidiary, The First National Bank of Boston, or if applicable, any other direct or indirect subsidiary of the Company by which the Executive is then employed during the term of this Agreement. (B) "Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the Exchange Act. (C) "Board" shall mean the Board of Directors of the Company. (D) "Bonus SERP" shall mean The First National Bank of Boston Bonus Supplemental Employee Retirement Plan. (E) "Cause" for termination by the Company or the Bank of the Executive's employment, after any Change in Control, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company or the Bank (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in gross misconduct which is demonstrably and materially injurious to the Company or any of its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. (F) A "Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) There is an acquisition of control of the Company as defined in Section 2(a)(2) of the Bank Holding Company Act of 1956, or any similar successor provision, as in effect at the time of the acquisition; or (II) Continuing Directors constitute two-thirds (2/3) or less of the membership of the Board, whether as the result of a proxy contest or for any other reason or reasons; or (III) Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing twenty- five percent (25%) or more of the combined voting power of the Company's then outstanding voting securities; or (IV) There is a change in control of the Company of a nature that would be required to be reported in response to item 1(a) of Current Report on Form 8-K or item 6(e) of Schedule 14A of Regulation 14A or any similar item, schedule or form under the Exchange Act, as in effect at the time of the change, whether or not the Company is then subject to such reporting requirement, including without limitation any merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) forty-five percent (45%) or more of the combined voting power of the voting securities (entitled to vote generally for the election of directors) of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation and which would result in those persons who are Continuing Directors immediately prior to such merger or consolidation constituting more than two-thirds (2/3) of the membership of the Board or the board of such surviving or parent entity immediately after, or subsequently at any time as contemplated by or as a result of, such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquired twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (V) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). (G) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (H) "Company" shall mean Bank of Boston Corporation and (except in determining, under Section 15(F) hereof, whether or not any Change in Control of the Company has occurred in connection with such succession) any successor to its business and/or assets which assumes or agrees to perform this Agreement, by operation of law or otherwise. Payments or benefits from the Company shall include those from the Bank. (I) "Compensation Committee" shall mean the Compensation and Nominating Committee of the Board. (J) "Continuing Director" shall mean any director (i) who has continuously been a member of the Board since not later than the date of a Potential Change in Control or (ii) who is a successor of a director described in clause (i), if such successor (and any intervening successor) shall have been recommended or elected to succeed a Continuing Director by a majority of the then Continuing Directors. (K) "Date of Termination" shall have the meaning stated in Section 7.2 hereof. (L) "Excess SERP" shall mean The First National Bank of Boston Excess Benefit Supplemental Employee Retirement Plan. (M) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (N) "Executive" shall mean the individual named in the first paragraph of this Agreement. (O) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence (without the Executive's express written consent) of any one of the following acts by the Company or the Bank, or failures by the Company or the Bank to act, unless, in the case of any act or failure to act described in paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof or, in the case of paragraph (III) below, such act is not objected to in writing by the Executive within four (4) months after notification by the Company to the Executive of the Company's or the Bank's intention to take the action contemplated by such paragraph (III): (I) the assignment to the Executive of any duties inconsistent with the Executive's status as a senior executive officer of the Company or the Bank or a meaningful alteration, adverse to the Executive, in the nature or status of the Executive's responsibilities (other than reporting responsibilities) from those in effect immediately prior to the Change in Control; (II) a reduction by the Company or the Bank in the Executive's annual base salary as in effect on the date hereof or as the same may be increased from time to time except for across-the-board salary reductions similarly affecting all senior executives of the Company or the Bank, as the case may be, and all senior executives of any Person in control of the Company; (III) the Company's or the Bank's requiring the Executive to be based anywhere other than the Boston Metropolitan Area (or, if different, the metropolitan area in which the Company's or the Bank's principal executive offices are located immediately prior to the Change in Control) except for required travel on the Company or Bank business to an extent substantially consistent with the Executive's present business travel obligations; (IV) the failure by the Company, without the Executive's consent, to pay to the Executive any portion of the Executive's current compensation, or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company, within fourteen (14) days of the date such compensation is due; (V) the failure by the Company to continue in effect any compensation plan in which the Executive participates immediately prior to the Change in Control which is material to the Executive's total compensation, including without limitation the Company's stock award, incentive compensation and bonus plans, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Executive's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of the Executive's participation relative to other participants, as existed at the time of the Change in Control; (VI) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect at the time of the Change in Control; or (VII) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 9.1 hereof; for purposes of this Agreement, no such purported termination shall be effective. The Executive's right to terminate the Executive's employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (P) "Notice of Termination" shall have the meaning stated in Section 7.1 hereof. (Q) "Pension Plan" shall mean the Retirement Plan of The First National Bank of Boston and Certain Affiliated Companies. (R) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to a registered offering of such securities in accordance with an agreement with the Company, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (S) "Potential Change in Control" shall be deemed to have occurred if the conditions set forth in any one of the following paragraphs shall have been satisfied: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities (entitled to vote generally for the election of directors); or (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (T) "Retirement" shall be deemed the reason for the termination of the Executive's employment if the Executive voluntarily retires and receives benefits under the Pension Plan or other applicable retirement plan then maintained by the Company and in effect immediately prior to the Change in Control, or in accordance with any retirement arrangement established with the Executive's consent with respect to the Executive. (U) "Severance Payments" shall mean those payments described in Section 6.1 hereof. (V) "Thrift Plan" shall mean the Thrift- Incentive Plan of The First National Bank of Boston and Certain Affiliated Companies. (W) "Total Payments" shall mean those payments described in Section 6.2 hereof. BANK OF BOSTON CORPORATION By ________________________ Name: Title: _________________________ [Name of Executive] EX-11 4 EXHIBIT 11 EXHIBIT 11 BANK OF BOSTON CORPORATION Computation of Earnings Per Common Share (in thousands, except per share amounts)
Quarters Ended Six Months Ended June 30 June 30 EARNINGS 1994 1993 1994 1993 -------- ------- ------- ------- ------- 1. Net income $ 94,500 $ 71,387 $ 190,640 $ 155,062 2. Less: Preferred dividends 9,357 7,979 18,674 15,918 ------- ------- ------- ------- 3. Net income applicable to primary earnings per common share 85,143 63,408 171,966 139,144 4. Add: Interest expense on convertible debentures, net of tax 1,073 1,087 2,134 2,167 ------- ------- ------- ------- 5. Net income applicable to fully diluted earnings per common share $ 86,216 $ 64,495 $ 174,100 $ 141,311 ======= ======= ======= ======= SHARES ------ 6. Weighted average number of common shares outstanding 106,619 105,285 106,410 105,124 7. Incremental shares from assumed exercise of dilutive stock options as of the beginning of the period using the treasury stock method 637 757 615 791 8. Incremental shares from assumed conversion of debentures at date of issuance 4,030 4,035 4,030 4,038 ------- ------- ------- ------- 9. Adjusted number of common shares 111,286 110,077 111,055 109,953 ======= ======= ======= ======= PER SHARE CALCULATION --------------------- 10. Primary net income per common share $ .80 $ .60 $ 1.62 $ 1.32 (Item 3 / Item 6); see note below 11. Fully diluted net income per common share $ .77 $ .59 $ 1.56 $ 1.29 (Item 5 / Item 9); see note below
Note - Income per common share before extraordinary items and cumulative effect of accounting changes, net, on both a primary and fully diluted basis for the six months ended June 30, 1994 and June 30, 1993 are computed by adding to the numerator $6,535 and subtracting from the numerator $24,203, respectively. EX-12.A 5 EXHIBIT 12.A BANK OF BOSTON CORPORATION EXHIBIT 12(a) COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Excluding Interest on Deposits) The Corporation's ratios of earnings to fixed charges (excluding interest on deposits) for the six months ended June 30, 1994 and 1993 and for the five years ended December 31, 1993 were as follows:
Six Months Ended June 30, Years Ended December 31, (Dollars in thousands) 1994 1993 1993 1992 1991 1990 1989 ------- ------- ------- ------- -------- -------- --------- Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114 Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649) Cumulative effect of changes in accounting principles, net of tax (24,203) (24,203) Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951 ------- ------- ------- ------- -------- -------- --------- Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065 ======= ======= ======= ======= ======== ======== ========= Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482 Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007 ------- ------- ------- ------- -------- -------- --------- Total fixed charges 380,572 165,885 404,937 373,067 391,880 630,775 1,116,489 ------- ------- ------- ------- -------- -------- --------- Earnings (for ratio calculation) $ 734,061 $ 391,789 $ 894,443 $ 731,761 $ 212,977 $ 121,457 $ 1,339,554 ======= ======= ======= ======= ======== ======== ========= Total fixed charges $ 380,572 $ 165,885 $ 404,937 $ 373,067 $ 391,880 $ 630,775 $ 1,116,489 ======= ======= ======= ======= ======== ======== ========= Ratio of earnings to fixed charges 1.93 2.36 2.21 1.96 .54 .19 1.20 ======= ======= ======= ======= ======== ======== =========
For purposes of computing the consolidated ratio of earnings to fixed charges "earnings" represent income (loss) before extraordinary items and cumulative effect of changes in accounting principles plus applicable income taxes and fixed charges. "Fixed charges" include gross interest expense (excluding interest on deposits) and the proportion deemed representative of the interest factor of rent expense, net of income from subleases. Ratios for the periods presented reflect the reclassification of Brazilian translation gains and losses more fully discussed in Note 11. EX-12.B 6 EXHIBIT 12.B BANK OF BOSTON CORPORATION EXHIBIT 12(b) COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES (Including Interest on Deposits) The Corporation's ratios of earnings to fixed charges (including interest on deposits) for the six months ended June 30, 1994 and 1993 and for the five years ended December 31, 1993 were as follows:
Six Months Ended June 30, Years Ended December 31, (Dollars in thousands) 1994 1993 1993 1992 1991 1990 1989 --------- ------- --------- --------- --------- --------- --------- Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114 Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649) Cumulative effect of changes in accounting principles, net of tax (24,203) (24,203) Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951 --------- ------- --------- --------- --------- --------- --------- Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065 ========= ======= ========= ========= ========= ========= ========= Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482 Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007 Interest on deposits 481,697 510,430 1,015,956 1,406,742 1,808,436 2,420,296 2,243,854 --------- ------- --------- --------- --------- --------- --------- Total fixed charges 862,269 676,315 1,420,893 1,779,809 2,200,316 3,051,071 3,360,343 --------- ------- --------- --------- --------- --------- --------- Earnings (for ratio calculation)$ 1,215,758 $ 902,219 $ 1,910,399 $ 2,138,503 $ 2,021,413 $ 2,541,753 $ 3,583,408 ========= ======= ========= ========= ========= ========= ========= Total fixed charges $ 862,269 $ 676,315 $ 1,420,893 $ 1,779,809 $ 2,200,316 $ 3,051,071 $ 3,360,343 ========= ======= ========= ========= ========= ========= ========= Ratio of earnings to fixed charges 1.41 1.33 1.34 1.20 .92 .83 1.07 ========= ======= ========= ========= ========= ========= =========
For purposes of computing the consolidated ratio of earnings to fixed charges "earnings" represent income (loss) before extraordinary items and cumulative effect of changes in accounting principles plus applicable income taxes and fixed charges. "Fixed charges" include gross interest expense (including interest on deposits) and the proportion deemed representative of the interest factor of rent expense, net of income from subleases. Ratios for the periods presented reflect the reclassification of Brazilian translation gains and losses more fully discussed in Note 11. EX-12.C 7 EXHIBIT 12.C BANK OF BOSTON CORPORATION EXHIBIT 12(c) 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 six months ended June 30, 1994 and 1993 and for the five years ended December 31, 1993 were as follows:
Six Months Ended June 30, Years Ended December 31, (Dollars in thousands) 1994 1993 1993 1992 1991 1990 1989 ------- -------- -------- -------- --------- --------- --------- Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114 Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649) Cumulative effect of changes in accounting principles, net of tax (24,203) (24,203) Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951 ------- ------- ------- ------- -------- -------- --------- Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065 ======= ======= ======= ======= ======== ======== ========= Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482 Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007 ------- ------- ------- ------- -------- -------- --------- Total fixed charges $ 380,572 $ 165,885 $ 404,937 $ 373,067 $ 391,880 $ 630,775 $ 1,116,489 Preferred stock dividend requirements 33,536 27,535 61,377 33,186 13,255 13,748 22,568 Total combined fixed charges ------- ------- ------- ------- -------- -------- --------- and preferred stock dividend $ 414,108 $ 193,420 $ 466,314 $ 406,253 $ 405,135 $ 644,523 $ 1,139,057 requirements ======= ======= ======= ======= ======== ======== ========= Earnings (for ratio calculation) (Pretax earnings (loss) plus total fixed charges) $ 734,061 $ 391,789 $ 894,443 $ 731,761 $ 212,977 $ 121,457 $ 1,339,554 ======= ======= ======= ======= ======== ======== ========= Ratio of earnings to combined fixed charges and preferred stock dividend requirements 1.77 2.03 1.92 1.80 .53 .19 1.18 ======= ======= ======= ======= ======== ======== =========
For purposes of computing the consolidated ratio of earnings to combined fixed charges and preferred stock dividend requirements "earnings" represent income (loss) before extraordinary items and cumulative effect of changes in accounting principles plus applicable income taxes and fixed charges. "Fixed charges" include gross interest expense (excluding interest on deposits) and the proportion deemed representative of the interest factor of rent expense, net of income from subleases. Pretax earnings required for preferred stock dividends were computed using tax rates for the applicable year. No tax adjustments were made in loss years. Ratios for the periods presented reflect the reclassification of Brazilian translation gains and losses more fully discussed in Note 11. EX-12.D 8 EXHIBIT 12.D BANK OF BOSTON CORPORATION EXHIBIT 12(d) 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 six months ended June 30,1994 and 1993 and for the five years ended December 31, 1993 were as follows:
Six Months Ended June 30, Years Ended December 31, (Dollars in thousands) 1994 1993 1993 1992 1991 1990 1989 --------- --------- --------- --------- --------- --------- --------- Net income (loss) $ 190,640 $ 155,062 $ 299,026 $ 278,881 $ (113,155) $ (468,248) $ 138,114 Extraordinary items, net of tax 6,535 (72,968) (7,758) (43,649) Cumulative effect of changes in accounting principles, net of tax (24,203) (24,203) Income tax expense (benefit) 156,314 95,045 214,683 152,781 (57,990) 2,579 84,951 --------- --------- --------- --------- --------- --------- --------- Pretax earnings (loss) $ 353,489 $ 225,904 $ 489,506 $ 358,694 $ (178,903) $ (509,318) $ 223,065 ========= ========= ========= ========= ========= ========= ========= Fixed charges: Portion of rental expense (net of sublease rental income) which approximates the interest factor 13,750 13,526 27,063 28,159 30,370 38,747 35,482 Interest on borrowed funds 366,822 152,359 377,874 344,908 361,510 592,028 1,081,007 Interest on deposits 481,697 510,430 1,015,956 1,406,742 1,808,436 2,420,296 2,243,854 --------- --------- --------- --------- --------- --------- --------- Total fixed charges 862,269 676,315 1,420,893 1,779,809 2,200,316 3,051,071 3,360,343 Preferred stock dividend requirements 33,536 27,535 61,377 33,186 13,255 13,748 22,568 --------- --------- --------- --------- --------- --------- --------- Total combined fixed charges and preferred stock dividend requirements $ 895,805 $ 703,850 $1,482,270 $1,812,995 $2,213,571 $3,064,819 $3,382,911 ========= ========= ========= ========= ========= ========= ========= Earnings (for ratio calculation) (Pretax earnings (loss) plus total fixed charges) $1,215,758 $ 902,219 $1,910,399 $2,138,503 $2,021,413 $2,541,753 $3,583,408 ========= ========= ========= ========= ========= ========= ========= Ratio of earnings to combined fixed charges and preferred stock dividend requirements 1.36 1.28 1.29 1.18 .91 .83 1.06 ========= ========= ========= ========= ========= ========= =========
For purposes of computing the consolidated ratio of earnings to combined fixed charges and preferred stock dividend requirements "earnings" represent income (loss) before extraordinary items and cumulative 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. No tax adjustments were made in loss years. Ratios for the periods presented reflect the reclassification of Brazilian translation gains and losses more fully discussed in Note 11. -----END PRIVACY-ENHANCED MESSAGE-----