-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WeTzzmuk/7Yz0oFYqqmiGdgXCWcmVowS1d0LAjT04oEQ9Ba5Kj0Kx9AavtwMyClW gCvAeXxS6j94uEIYSrvo+Q== 0000929624-96-000270.txt : 19961115 0000929624-96-000270.hdr.sgml : 19961115 ACCESSION NUMBER: 0000929624-96-000270 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKAMERICA CORP CENTRAL INDEX KEY: 0000009672 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 941681731 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07377 FILM NUMBER: 96661465 BUSINESS ADDRESS: STREET 1: BANK OF AMERICA CTR STREET 2: 555 CALIFORNIA ST CITY: SAN FRANCISCO STATE: CA ZIP: 94104 BUSINESS PHONE: 4156223530 MAIL ADDRESS: STREET 1: 555 CALIFORNIA STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94104 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDING SEPT. 30, 1996 BankAmerica Corporation Analytical Review and Form 10-Q [Bank America Logo goes here] 1 9 9 6 3rd Q u a r t e r SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-7377 Exact name of registrant as specified in its charter: BankAmerica Corporation State or other jurisdiction of incorporation or organization: Delaware I.R.S. Employer Identification Number: 94-1681731 Address of principal executive offices: Bank of America Center San Francisco, California 94104 Registrant's telephone number, including area code: 415-622-3530 Former name, former address, and former fiscal year, if changed since last report: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $1.5625 par value ------ 358,825,724 shares outstanding on September 30, 1996./*/ /*/ In addition, 28,465,838 shares were held in treasury. - -------------------------------------------------------------------------------- This document serves both as an analytical review for analysts, shareholders, and other interested persons, and as the quarterly report on Form 10-Q of BankAmerica Corporation to the Securities and Exchange Commission, which has taken no action to approve or disapprove the report or to pass upon its accuracy or adequacy. Additionally, this document is to be read in conjunction with the consolidated financial statements and notes thereto included in BankAmerica Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. CONTENTS ================================================================================ Part I Item 1. FINANCIAL Financial Statements: INFORMATION Consolidated Statement of Operations................... 2 Consolidated Balance Sheet............................. 3 Consolidated Statement of Cash Flows................... 4 Consolidated Statement of Changes in Stockholders' Equity................................................ 5 Notes to Consolidated Financial Statements............. 6 Item 2. Management's Discussion and Analysis: Highlights............................................. 14 Business Sectors....................................... 16 Operating and Financial Leverage....................... 19 Results of Operations: Net Interest Income.................................. 20 Noninterest Income................................... 24 Noninterest Expense.................................. 26 Income Taxes......................................... 27 Balance Sheet Review:.................................. 28 Credit Card Securitization........................... 29 Credit Risk Management: Loan Portfolio Management............................ 31 Domestic Consumer Loans............................ 32 Domestic Commercial Loans.......................... 33 Foreign Loans...................................... 34 Emerging Market Exposure............................. 34 Allowance for Credit Losses.......................... 35 Nonperforming Assets................................. 37 Foreign Exchange and Derivatives Contracts............. 40 Interest Rate Risk Management.......................... 41 Funding and Capital: Liquidity Review..................................... 43 Capital Management................................... 43 - -------------------------------------------------------------------------------- Part II Item 6. OTHER INFORMATION Exhibits and Reports on Form 8-K....................... 45 Signatures............................................. 46 ================================================================================ 1 FINANCIAL STATEMENTS BANKAMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS
==================================================================================================================================== 1996 1995 NINE MONTHS ENDED ------------------ ----------------------------- SEPTEMBER 30 THIRD SECOND FIRST FOURTH THIRD ------------------- (DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME Loans, including fees $3,371 $3,307 $3,297 $3,287 $3,244 $ 9,975 $ 9,420 Interest-bearing deposits in banks 95 96 117 119 115 308 347 Federal funds sold 9 7 6 5 10 22 27 Securities purchased under resale agreements 178 176 155 147 160 509 471 Trading account assets 268 247 216 200 189 731 541 Available-for-sale and held-to-maturity securities 285 293 298 313 326 876 963 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 4,206 4,126 4,089 4,071 4,044 12,421 11,769 INTEREST EXPENSE Deposits 1,332 1,307 1,314 1,307 1,262 3,953 3,616 Federal funds purchased 17 20 22 35 27 59 96 Securities sold under repurchase agreements 201 176 163 147 154 540 434 Other short-term borrowings 243 208 178 168 162 629 462 Long-term debt 254 249 254 265 272 757 802 Subordinated capital notes 7 7 12 12 11 26 34 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 2,054 1,967 1,943 1,934 1,888 5,964 5,444 - ---------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 2,152 2,159 2,146 2,137 2,156 6,457 6,325 PROVISION FOR CREDIT LOSSES 235 250 180 130 110 665 310 - ---------------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 1,917 1,909 1,966 2,007 2,046 5,792 6,015 NONINTEREST INCOME Deposit account fees 345 346 344 334 329 1,035 969 Credit card fees 92 90 79 84 82 261 231 Trust fees 53 56 63 72 72 172 228 Other fees and commissions 360 333 320 304 323 1,013 965 Trading income 153 178 165 115 132 496 412 Venture capital activities 97 112 110 93 54 319 244 Net gain (loss) on sales of subsidiaries and operations 41 83 51 42 - 175 (17) Net gain on sales of assets 64 21 49 29 27 134 42 Net gain on available-for-sale securities 7 4 30 7 17 41 27 Other income 107 97 63 78 121 267 287 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST INCOME 1,319 1,320 1,274 1,158 1,157 3,913 3,388 NONINTEREST EXPENSE Salaries 822 814 821 819 839 2,457 2,490 Employee benefits 191 213 202 147 195 606 571 Occupancy 188 186 190 198 185 564 540 Equipment 180 175 163 169 170 518 494 Amortization of intangibles 93 93 95 99 110 281 329 Communications 89 90 92 93 89 271 266 Regulatory fees and related expenses 95 13 13 23 7 121 153 Other expense 423 413 437 418 398 1,273 1,192 - ---------------------------------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST EXPENSE 2,081 1,997 2,013 1,966 1,993 6,091 6,035 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,155 1,232 1,227 1,199 1,210 3,614 3,368 PROVISION FOR INCOME TAXES 472 509 507 495 506 1,488 1,408 - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 683 $ 723 $ 720 $ 704 $ 704 $ 2,126 $ 1,960 - -----------------------------------------------------------======================================================================= EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 1.75 $ 1.84 $ 1.79 $ 1.74 $ 1.72 $ 5.38 $ 4.75 EARNINGS PER COMMON SHARE -- ASSUMING FULL DILUTION 1.75 1.84 1.79 1.74 1.72 5.38 4.72 DIVIDENDS DECLARED PER COMMON SHARE 0.54 0.54 0.54 0.46 0.46 1.62 1.38 ==================================================================================================================================
See notes to consolidated financal statements. 2 BANKAMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
========================================================================================================================= 1996 1995 ----------------------------------------- ------------------------- (IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - ------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 13,619 $ 12,478 $ 12,870 $ 14,312 $ 12,532 Interest-bearing deposits in banks 5,829 5,194 5,585 5,761 5,832 Federal funds sold 306 276 143 721 229 Securities purchased under resale agreements 6,287 7,001 6,198 4,962 6,811 Trading account assets 14,000 12,633 11,215 9,516 9,883 Available-for-sale securities 11,717 10,964 11,287 12,043 9,979 Held-to-maturity securities 4,200 4,280 4,523 4,656 6,927 Loans 161,833 160,640 156,155 155,373 151,212 Less: Allowance for credit losses 3,511 3,495 3,496 3,554 3,655 - ------------------------------------------------------------------------------------------------------------------------- Net loans 158,322 157,145 152,659 151,819 147,557 Customers' acceptance liability 3,165 2,837 2,761 2,295 2,268 Accrued interest receivable 1,435 1,451 1,469 1,458 1,448 Goodwill, net 4,017 4,066 4,115 4,192 4,263 Identifiable intangibles, net 1,664 1,708 1,753 1,806 2,134 Unrealized gains on off-balance-sheet instruments 6,598 7,297 7,551 7,801 8,843 Premises and equipment, net 3,968 3,980 4,010 3,985 4,011 Other assets 7,826 7,531 8,104 7,119 7,209 - ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $242,953 $238,841 $234,243 $232,446 $229,926 - --------------------------------------------------======================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits in domestic offices: Interest-bearing $ 83,779 $ 83,954 $ 84,314 $ 84,097 $ 84,345 Noninterest-bearing 37,589 34,737 34,570 36,820 34,231 Deposits in foreign offices: Interest-bearing 42,035 41,444 40,127 37,886 35,525 Noninterest-bearing 1,498 1,710 1,506 1,691 1,536 - ------------------------------------------------------------------------------------------------------------------------- Total deposits 164,901 161,845 160,517 160,494 155,637 Federal funds purchased 1,093 2,740 2,125 5,160 3,110 Securities sold under repurchase agreements 8,489 8,861 7,640 6,383 7,187 Other short-term borrowings 16,263 14,530 11,523 7,627 10,289 Acceptances outstanding 3,165 2,837 2,761 2,295 2,268 Accrued interest payable 868 833 842 848 811 Unrealized losses on off-balance-sheet instruments 6,458 7,310 7,719 8,227 9,547 Other liabilities 5,750 4,824 5,875 5,862 5,334 Long-term debt 15,099 14,597 14,718 14,723 15,277 Subordinated capital notes 355 356 356 605 605 - ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 222,441 218,733 214,076 212,224 210,065 STOCKHOLDERS' EQUITY Preferred stock 2,242 2,242 2,423 2,623 2,623 Common stock 605 605 604 602 600 Additional paid-in capital 8,458 8,439 8,384 8,328 8,271 Retained earnings 10,989 10,544 10,067 9,606 9,133 Net unrealized gain (loss) on available-for-sale securities (27) (79) (56) 1 (51) Common stock in treasury, at cost (1,755) (1,643) (1,255) (938) (715) - ------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 20,512 20,108 20,167 20,222 19,861 - ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $242,953 $238,841 $234,243 $232,446 $229,926 - --------------------------------------------------======================================================================= See notes to consolidated financial statements. 3
BANKAMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS ================================================================================ NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ (IN MILLIONS) 1996 1995 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,126 $ 1,960 Adjustments to net income to arrive at net cash provided (used) by operating activities: Provision for credit losses 665 310 Net gain on sales of assets and subsidiaries and operations (309) (25) Net amortization of loan fees and discounts (57) (80) Depreciation and amortization of premises and equipment 441 408 Amortization of intangibles 281 329 Provision for deferred income taxes 466 187 Change in assets and liabilities net of effects from acquisitions and pending dispositions: Decrease in accrued interest receivable 22 1 Increase (decrease) in accrued interest payable 22 (20) Increase in trading account assets (4,484) (2,934) Increase in current income taxes payable 71 287 Deferred fees received from lending activities 187 101 Net cash used by loans held for sale (553) (883) Other, net (1,240) 1,330 - -------------------------------------------------------------------------------- Net cash provided (used) by operating activities (2,362) 971 CASH FLOWS FROM INVESTING ACTIVITIES Activity in available-for-sale securities: Sales proceeds 1,127 2,094 Maturities, prepayments, and calls 4,483 4,086 Purchases (5,205) (5,644) Activity in held-to-maturity securities: Maturities, prepayments, and calls 934 2,080 Purchases (515) (691) Proceeds from loan sales and securitizations 3,194 1,281 Purchases of loans (2,407) (970) Purchases of premises and equipment (479) (501) Proceeds from sales of other real estate owned 392 392 Net cash provided (used) by: Loan originations and principal collections (8,735) (10,093) Interest-bearing deposits in banks (71) 400 Federal funds sold 415 411 Securities purchased under resale agreements (1,325) (1,552) Cash used by acquisitions (54) (2) Other, net 252 81 - -------------------------------------------------------------------------------- Net cash used by investing activities (7,994) (8,628) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 2,864 2,563 Principal payments and retirements of long-term debt subordinated capital notes (2,442) (2,077) Proceeds from issuance of common stock 83 117 Proceeds from issuance of treasury stock 46 -- Preferred stock repurchased (391) (206) Treasury stock purchased (901) (704) Common stock dividends (587) (515) Preferred stock dividends (141) (174) Net cash provided (used) by: Deposits 4,466 1,242 Federal funds purchased (4,067) (173) Securities sold under repurchase agreements 2,106 1,682 Other short-term borrowings 8,636 4,944 Other, net (18) (94) - ------------------------------------------------------------------------------- Net cash provided by financing activities 9,654 6,605 Effect of exchange rate changes on cash and due from banks 9 6 - ------------------------------------------------------------------------------- Net decrease in cash and due from banks (693) (1,046) Cash and due from banks at beginning of period 14,312 13,578 - ------------------------------------------------------------------------------- CASH AND DUE FROM BANKS AT END OF PERIOD $ 13,619 $12,532 - --------------------------------------------------============================= See notes to consolidated financial statements.
4 BANKAMERICA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
============================================================================================================= 1996 1995 -------------------------------- ---------------------- THIRD SECOND FIRST FOURTH THIRD (IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER - ------------------------------------------------------------------------------------------------------------- PREFERRED STOCK Balance, beginning of quarter $ 2,242 $ 2,423 $ 2,623 $ 2,623 $ 2,723 Preferred stock repurchased - (181) (200) - (100) - ------------------------------------------------------------------------------------------------------------- Balance, end of quarter 2,242 2,242 2,423 2,623 2,623 COMMON STOCK Balance, beginning of quarter 605 604 602 600 598 Common stock issued - 1 2 2 2 - ------------------------------------------------------------------------------------------------------------- Balance, end of quarter 605 605 604 602 600 ADDITIONAL PAID-IN CAPITAL Balance, beginning of quarter 8,439 8,384 8,328 8,271 8,213 Common stock issued 8 55 74 57 67 Preferred stock repurchased - - (18) - (9) Treasury stock issued 11 - - - - - ------------------------------------------------------------------------------------------------------------- Balance, end of quarter 8,458 8,439 8,384 8,328 8,271 RETAINED EARNINGS Balance, beginning of quarter 10,544 10,067 9,606 9,133 8,663 Net income 683 723 720 704 704 Common stock dividends (194) (195) (198) (169) (171) Preferred stock dividends (43) (45) (53) (53) (56) Foreign currency translation adjustments, net of related income taxes (1) (6) (8) (9) (7) - ------------------------------------------------------------------------------------------------------------- Balance, end of quarter 10,989 10,544 10,067 9,606 9,133 NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES Balance, beginning of quarter (79) (56) 1 (51) (69) Valuation adjustments, net of related income taxes 52 (23) (57) 52 18 - ------------------------------------------------------------------------------------------------------------- Balance, end of quarter (27) (79) (56) 1 (51) COMMON STOCK IN TREASURY, AT COST Balance, beginning of quarter (1,643) (1,255) (938) (715) (508) Treasury stock purchased (200) (385) (316) (222) (230) Treasury stock issued 98 1 - - 29 Other (10) (4) (1) (1) (6) - ------------------------------------------------------------------------------------------------------------- Balance, end of quarter (1,755) (1,643) (1,255) (938) (715) - ------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $20,512 $ 20,108 $ 20,167 $ 20,222 $ 19,861 - ---------------------------------------------------========================================================== See notes to consolidated financial statements. 5
BANKAMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE 1. The unaudited consolidated financial statements of FINANCIAL STATEMENT BankAmerica Corporation and subsidiaries (BAC) are PRESENTATION prepared in conformity with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. All such adjustments are of a normal recurring nature. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in BankAmerica Corporation's (the Parent) Annual Report on Form 10-K for the year ended December 31, 1995. The unaudited consolidated financial statements of BAC include the accounts of the Parent and companies in which more than 50 percent of the voting stock is owned directly or indirectly by the Parent, including Bank of America NT&SA (the Bank), Bank of America NW, National Association (formerly Seattle-First National Bank), Bank of America Illinois, and other banking and nonbanking subsidiaries. The revenues, expenses, assets, and liabilities of the subsidiaries are included in the respective line items in the unaudited consolidated financial statements after elimination of intercompany accounts and transactions. Certain amounts in prior periods have been reclassified to conform to the current presentation. - -------------------------------------------------------------------------------- NOTE 2. During the nine-month periods ended September 30, 1996 and SUPPLEMENTAL 1995, BAC made interest payments on deposits and other DISCLOSURE OF CASH interest-bearing liabilities of $5,942 million and FLOW INFORMATION $5,464 million, respectively, and made net income tax payments of $951 million and $906 million, respectively. During the nine-month periods ended September 30, 1996 and 1995, there were foreclosures of loans with carrying values of $358 million and $380 million, respectively. In addition, loans made to facilitate the sale of other real estate owned totaled $10 million and $4 million, respectively. - -------------------------------------------------------------------------------- NOTE 3. During the nine-month period ended September 30, 1996, BAC AVAILABLE-FOR-SALE sold available-for-sale securities for aggregate proceeds AND HELD-TO-MATURITY of $1,127 million, resulting in gross realized gains of SECURITIES $63 million and gross realized losses of $22 million. During the nine-month period ended September 30, 1995, BAC sold available-for-sale securities for aggregate proceeds of $2,094 million, resulting in gross realized gains of $189 million and gross realized losses of $162 million. The fair values and amortized costs of available-for-sale and held-to-maturity securities were as follows:
AVAILABLE-FOR-SALE HELD-TO-MATURITY SECURITIES SECURITIES ------------------- ----------------- FAIR AMORTIZED FAIR AMORTIZED (IN MILLIONS) VALUE COST VALUE COST - -------------------------------------------------------------------------------- September 30, 1996 $11,717 $11,765 $3,892 $4,200 June 30, 1996 10,964 11,094 3,886 4,280 March 31, 1996 11,287 11,380 4,143 4,523 December 31, 1995 12,043 12,042 4,332 4,656 September 30, 1995 9,979 10,064 6,444 6,927
6 ================================================================================ During the nine-month periods ended September 30, 1996 and 1995, trading income included net unrealized holding gains on trading securities of $28 million and $34 million, respectively. These amounts exclude the net unrealized trading results of the Parent's securities broker and dealer subsidiaries. During the fourth quarter of 1995, the Financial Accounting Standards Board allowed financial statement preparers a one-time opportunity to reassess the classifications of securities accounted for under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result of this reassessment, BAC reclassified $2.1 billion of held-to-maturity securities to available-for-sale securities. In connection with this reclassification, gross unrealized gains of $28 million and gross unrealized losses of $42 million were recorded in available-for-sale securities and in stockholders' equity (on a net-of-tax basis). - -------------------------------------------------------------------------------- NOTE 4. During the first quarter of 1996, BAC's Board of Directors STOCK REPURCHASE authorized a new stock repurchase program. This new program PROGRAM enables the Parent to buy back up to $2.0 billion of its common stock by the end of 1997. The new program, which replaces the stock repurchase program announced in February 1995, also enables the Parent to buy back or redeem up to $1.0 billion of its preferred stock by the end of 1997. During the nine months ended September 30, 1996, the Parent repurchased 12.3 million shares of its common stock under the current and pre-existing stock repurchase programs at an average per-share price of $73.25. These transactions reduced stockholders' equity by $901 million. On March 31, 1996, the Parent redeemed all 400,000 outstanding shares of its 11% Preferred Stock, Series J (Preferred Stock, Series J) under terms of a stock repurchase program that was replaced during the first quarter of 1996. This transaction reduced stockholders' equity by $218 million. The shares were represented by 8 million depositary shares, each corresponding to a one-twentieth interest in a share of Preferred Stock, Series J. The redemption price was $26.375 per depositary share. The quarterly dividend of $0.6875 per depositary share was paid on March 31, 1996 to holders of record on March 15, 1996. In addition, on April 16, 1996, the Parent redeemed all 7,250,000 outstanding shares of its 9 5/8% Cumulative Preferred Stock, Series F, reducing stockholders' equity by $181 million. The redemption price was equal to the stated value of $25.00 per share, plus dividends of $0.30747 per share accrued and unpaid at the redemption date. The remaining buyback and redemption authorities for common stock and preferred stock under the current program totaled $1.3 billion and $0.8 billion, respectively, at September 30, 1996. 7 BANKAMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued ================================================================================ NOTE 5. The following is a summary of the components of income tax INCOME TAXES expense:
1996 1995 NINE MONTHS ENDED --------------------------- ----------------- SEPTEMBER 30 THIRD SECOND FIRST FOURTH THIRD ------------------ (IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1996 1995 -------------------------------------------------------------------------------------------------------- PROVISION FOR INCOME TAXES Federal $301 $361 $362 $355 $354 $1,024 $1,004 State and local 90 95 93 74 91 278 260 Foreign 81 53 52 66 61 186 144 -------------------------------------------------------------------------------------------------------- $472 $509 $507 $495 $506 $1,488 $1,408 ----------------------------------------================================================================
BAC's estimated annual effective income tax rates for the three-month periods ended September 30, 1996 and 1995 were 41.2 percent and 41.8 percent, respectively. These rates are higher than the federal statutory tax rate of 35.0 percent due principally to state income taxes. - -------------------------------------------------------------------------------- NOTE 6. Earnings per common share have been computed based on the EARNINGS PER following: COMMON SHARE
1996 1995 NINE MONTHS ENDED --------------------------- ----------------- SEPTEMBER 30 (DOLLAR AMOUNTS IN MILLIONS, THIRD SECOND FIRST FOURTH THIRD ------------------ SHARE AMOUNTS IN THOUSANDS) QUARTER QUARTER QUARTER QUARTER QUARTER 1996 1995 -------------------------------------------------------------------------------------------------------- Net income applicable to common stock $640 $678 $667 $651 $648 $1,985 $1,786 Average number of common shares outstanding 359,017 361,858 366,067 368,300 371,871 362,314 371,876 Average number of common and common equivalent shares outstanding 365,672 368,543 372,385 374,283 376,643 368,866 375,950 Average number of common shares outstanding -- assuming full dilution 365,885 368,591 373,548 374,669 377,421 369,341 379,248
- -------------------------------------------------------------------------------- NOTE 7. In the ordinary course of business, BAC enters into OFF-BALANCE-SHEET various types of transactions that involve credit-related TRANSACTIONS financial instruments and foreign exchange and derivatives contracts that contain off-balance-sheet risk. Credit-related financial instruments are typically customer-driven, while foreign exchange and derivatives contracts are entered into both on behalf of customers and for BAC's own account in managing interest rate and foreign exchange risk. CREDIT-RELATED FINANCIAL INSTRUMENTS The table on page 9 is a summary of the contractual amounts of each significant class of credit-related financial instruments outstanding. These amounts represent the amounts at risk should the contract be fully drawn upon, the client defaults, and the value of any existing collateral become worthless. 8 ================================================================================
1996 1995 ---------------------------------- ------------------ (IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - ------------------------------------------------------------------------------------------------------------------------------ Commitments to extend credit: Unutilized credit card lines $37,271 $36,978 $35,982 $34,465 $34,445 Other commitments to extend credit/a/ 92,965 97,954 95,790 94,524 95,517 Standby letters of credit and financial guarantees/b/ 16,486 17,121 16,344 16,336 15,675 Commercial letters of credit 3,833 4,596 4,236 4,128 4,342 - ------------------------------------------------------------------------------------------------------------------------------
/a/ Represents agreements to extend credit to customers for which BAC may have received fees. These commitments have specified interest rates and generally have fixed expiration dates and may be terminated by BAC if certain conditions of the contract are violated. /b/ Net of participations sold of $2,940 million at September 30, 1996, $2,619 million at June 30, 1996, $2,619 million at March 31, 1996, $2,383 million at December 31, 1995, and $2,607 million at September 30, 1995. FOREIGN EXCHANGE AND DERIVATIVES CONTRACTS The tables on page 10 summarize the notional amounts, credit risk, and credit exposure for each significant class of foreign exchange and derivative contract outstanding in BAC's trading portfolio and the notional amounts and credit risk for each significant class of foreign exchange and derivative contract outstanding in BAC's asset and liability management portfolio. These tables should be read in conjuction with the descriptions of such products and their risks included on pages 27-29, 38-41, and 70-79 of BAC's 1995 Annual Report to Shareholders. 9 BANKAMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ================================================================================
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES ------------------------------------------------------------------------------------------------------------------------------ SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------------------------ ----------------------------------- NOTIONAL CREDIT CREDIT NOTIONAL CREDIT CREDIT (IN MILLIONS) AMOUNT RISK/a/ EXPOSURE/b/ AMOUNT RISK/b/ EXPOSURE/b/ ------------------------------------------------------------------------------------------------------------------------------ INTEREST RATE CONTRACTS Interest rate swaps $ 443,941 $ 8,176 $3,024/c/ $ 418,240 $ 8,647 $2,787/c/ Futures and forward rate contracts: Commitments to purchase 177,392 60 60 160,126 9 9 Commitments to sell 209,706 295 295 190,538 381 381 Written options 35,173 -/d/ -/d/ 35,217 -/d/ -/d/ Purchased options 48,926 399 291 45,351 494 390 ------------------------------------------------------------------------------------------------------------------------------ 915,138 8,930 3,670 849,472 9,531 3,567 FOREIGN EXCHANGE CONTRACTS Spot, forward, and futures contracts 727,551 6,165 1,603 592,441 8,781 2,553 Written options 37,466 -/d/ -/d/ 21,095 -/d/ -/d/ Purchased options 35,545 281 212 20,244 395 268 Currency swaps 26,673 1,161 1,070 23,085 1,517 1,403 ------------------------------------------------------------------------------------------------------------------------------ 827,235 7,607 2,885 656,865 10,693 4,224 Stock index options and commodity contracts 1,168 51 43 878 12 10 ------------------------------------------------------------------------------------------------------------------------------ $1,743,541/e/ $16,588 $6,598 $1,507,215/f/ $20,236 $7,801 ----------------------------------------------================================================================================ DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES ------------------------------------------------------------------------------------------------------------------------------ SEPTEMBER 30, 1996 DECEMBER 31, 1995 --------------------------- ------------------------------- NOTIONAL CREDIT NOTIONAL CREDIT (IN MILLIONS) AMOUNT RISK/a/ AMOUNT RISK/a/ ------------------------------------------------------------------------------------------------------------------------------ INTEREST RATE CONTRACTS Interest rate swaps $33,342 $ 30 $33,543 $155 Futures and forward rate contracts 51,301 - 28,702 - Purchased options 10,700 75 9,200 60 ------------------------------------------------------------------------------------------------------------------------------ 96,343 105 71,445 215 FOREIGN EXCHANGE CONTRACTS Spot, forward, and futures contracts 1,869 - 1,900 - Currency swaps 627 - 430 61 ------------------------------------------------------------------------------------------------------------------------------ 2,496 - 2,330 61 ------------------------------------------------------------------------------------------------------------------------------ $97,839/e/ $105 $73,775/f/ $276 -------------------------------------------------------=======================================================================
/a/ Excluding the effects of legally enforceable master netting agreements. /b/ Including the effects of legally enforceable master netting agreements. /c/ Including the effects of cross product netting of certain interest rate derivatives and currency swaps. /d/ Interest rate and foreign exchange options written have no credit risk or credit exposure. /e/ Interest rate swaps and interest rate options in both the trading and asset and liability management portfolios include $12.1 billion, and $0.7 billion, respectively, of intercompany hedging-related contracts. Foreign exchange contracts in both the trading and asset and liability management portfolios include $2.3 billion of intercompany hedging-related contracts. /f/ Interest rate swaps and interest rate options in both the trading and asset and liability management portfolios include $14.2 billion and $0.7 billion, respectively, of intercompany hedging-related contracts. Foreign exchange contracts in both the trading and asset and liability management portfolios include $1.9 billion of intercompany hedging-related contracts. For most contracts, notional amounts are used solely to determine cash flows to be exchanged. However, certain foreign exchange contracts are designed for principal amounts to be exchanged on a common settlement date. The notional or contract amounts associated with foreign exchange and derivative financial instruments are not recorded as assets or liabilities on the balance sheet and do not represent the potential for gain or loss associated with such transactions. Credit risk represents BAC's potential loss on these transactions if all counterparts failed to perform according to the terms of the contract 10 ================================================================================ and the value of any existing collateral became worthless, based on then-current currency exchange and interest rates at each respective date. Credit exposure represents the potential loss to which BAC is exposed, after taking into consideration legally enforceable master netting agreements. Historically, losses associated with counterparty nonperformance on derivative and foreign exchange instruments have been immaterial. The following tables summarize the average and period-end fair values of each significant class of foreign exchange and derivative contract outstanding in BAC's trading portfolio and the period-end fair values for each significant class of foreign exchange and derivative contract in BAC's asset and liability management portfolio. Fair value amounts were generally calculated using discounted cash flow models based on current market yields for similar instruments and the maturity of each instrument. These amounts include the effects of master netting agreements.
FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES ------------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------------------------ ------------------------------------ AVERAGE AVERAGE FAIR VALUE FAIR VALUE FOR THE PERIOD END FOR THE PERIOD END (IN MILLIONS) QUARTER ENDED/a/ FAIR VALUE YEAR ENDED/a/ FAIR VALUE ------------------------------------------------------------------------------------------------------------------------- INTEREST RATE CONTRACTS Interest rate swaps: Assets $ 3,062 $ 3,024 $ 2,522 $ 2,787 Liabilities (2,778) (2,614) (2,258) (2,605) Futures and forward rate contracts: Assets 333 355 319 390 Liabilities (323) (372) (291) (373) Written options (244) (249) (222) (237) Purchased options 280 291 263 390 ------------------------------------------------------------------------------------------------------------------------- 330 435 333 352 FOREIGN EXCHANGE CONTRACTS Spot, forward, and futures contracts: Assets 2,355 1,603 3,979 2,553 Liabilities (2,718) (1,872) (4,429) (3,048) Written options (340) (229) (431) (355) Purchased options 284 212 403 268 Currency swaps: Assets 1,169 1,070 1,762 1,403 Liabilities (1,397) (1,109) (2,062) (1,600) ------------------------------------------------------------------------------------------------------------------------- (647) (325) (778) (779) Stock index options and commodity contracts: Assets 22 43 13 10 Liabilities (21) (13) (8) (9) ------------------------------------------------------------------------------------------------------------------------- 1 30 5 1 ------------------------------------------------------------------------------------------------------------------------- $ (316) $ 140 $ (440) $ (426) ----------------------------------------------=========================================================================== FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES ------------------------------------------------------------------------------------------------------------------------- (IN MILLIONS) SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------------------------------------------------------------------------------------------------------------- INTEREST RATE CONTRACTS Interest rate swaps $(585) $ 33 Futures and forward rate contracts (5) 56 Purchased options (23) 3 ------------------------------------------------------------------------------------------------------------------------- (613) 92 FOREIGN EXCHANGE CONTRACTS Spot, forward, and futures contracts (42) - Currency swaps - 47 ------------------------------------------------------------------------------------------------------------------------- (42) 47 ------------------------------------------------------------------------------------------------------------------------- $(655) $139 -----------------------------------------------------------------------------------------================================
/a/ Average fair value amounts are calculated based on monthly balances. 11 BANKAMERICA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued ================================================================================ TRADING ACTIVITIES Trading income represents the net amount earned from BAC's trading activities, which include entering into transactions to meet customer demand and taking positions for BAC's own account in a diverse range of financial instruments and markets. The profitability of these trading activities depends largely on the volume and diversity of the transactions BAC executes, the level of risk it is willing to assume, and the volatility of price and rate movements. Trading income, as disclosed in BAC's consolidated statement of operations, does not include the net interest income derived from foreign exchange contracts and derivatives associated with trading activities. However, the trading-related net interest income amounts are presented in the table below as they are considered in evaluating the overall profitability of those activities.
TRADING-RELATED INCOME ------------------------------------------------------------------------------------------------ 1996 1995 NINE MONTHS ENDED ------------------------- ----------------- SEPTEMBER 30 THIRD SECOND FIRST FOURTH THIRD ----------------- (IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1996 1995 ------------------------------------------------------------------------------------------------ TRADING INCOME Interest rate $ 17 $ 8 $ 12 $ 20 $ 13 $ 37 $ 47 Foreign exchange 64 90 98 66 74 252 237 Debt instruments 72 80 55 29 45 207 128 ------------------------------------------------------------------------------------------------ $153 $ 178 $165 $ 115 $132 $ 496 $ 412 -------------------------------================================================================= OTHER TRADING-RELATED INCOME/a/ Interest rate $ 5 $ 7 $ 6 $ 18 $ 7 $ 18 $ 12 Foreign exchange 4 7 6 9 10 17 19 Debt instruments 52 59 44 38 37 155 114 ------------------------------------------------------------------------------------------------ $ 61 $ 73 $ 56 $ 65 $ 54 $ 190 $ 145 -------------------------------=================================================================
/a/ Primarily includes the net interest revenue and expense associated with these contracts. To reflect the business purpose and use of the financial contracts into which BAC enters, trading income and the related net interest revenue or expense associated with such contracts have been allocated into three broad functional categories: interest rate trading, foreign exchange trading, and debt instruments trading. Trading-related income from interest rate instruments primarily includes results from transactions using interest rate and currency swaps, interest rate futures, option contracts, and forward rate agreements, as well as cash instruments used in the management of this function. Foreign exchange trading-related income primarily includes the results from transactions using foreign exchange spot, forward, futures, and option contracts. Trading-related income from debt instruments primarily represents the results from trading activities in various debt securities, including U.S. government and government agency securities, foreign government securities, mortgage-backed securities, municipal bonds, and corporate debt. 12 =============================================================================== ASSET AND LIABILITY MANAGEMENT ACTIVITIES BAC uses derivative instruments, primarily interest rate contracts, to manage interest rate risk related to specific assets and liabilities, including fixed rate and adjustable rate residential mortgages, long-term debt, and deposits. Foreign exchange contracts are used to hedge net capital exposure and foreign currency exposures. For a detailed description of BAC's asset and liability management objectives and strategies used to achieve those objectives, refer to page 75 of BAC's 1995 Annual Report to Shareholders. The expected maturities and weighted average interest rates associated with BAC's asset and liability management interest rate swap portfolio at September 30, 1996 were not significantly different from those at year-end 1995. SECURITIES LENDING BAC completed the divestiture of its securities lending portfolio during the third quarter of 1996 following its decision in 1995 to exit the institutional trust and securities services business. Securities lending transactions were conducted primarily for institutional trust customers and, at times, these customers were indemnified against various losses. All securities lending transactions were collateralized by U.S. government or federal agency securities, cash, or letters of credit with total market value equal to or in excess of the market value of the securities lent. The following summarizes indemnified securities lending transactions and the associated collateral:
1996 1995 ------------------------------------- ----------------------- (IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 ----------------------------------------------------------------------------------------------------- Indemnified securities lent $ - $73 $ 134 $207 $894 Associated collateral - 75 135 209 909 -----------------------------------------------------------------------------------------------------
Note 8. On September 30, 1996, Congress passed legislation that would SPECIAL DEPOSIT recapitalize the Savings Association Insurance Fund (SAIF) to ASSESSMENT 1.25 percent of insured deposits as prescribed by the Federal Deposit Insurance Corporation Improvement Act. This legislation imposed a one-time assessment on SAIF deposits held on March 31, 1995. BAC recognized a charge of $82 million in the third quarter of 1996 as a result of this assessment. In conjunction with the SAIF recapitalization, the Federal Deposit Insurance Corporation has proposed lowering the rates on assessments paid to the SAIF, and widening the spread of the rates between institutions. Under the proposal, the effective SAIF rates would be zero for well-capitalized and well-managed institutions. In addition, beginning January 1, 1997, Bank Insurance Fund (BIF) member institutions will begin sharing in the cost of funding Financing Corporation (FICO) interest payments. The cost of funding these interest payments will be in the form of an assessment on both BIF and SAIF insured deposits. The assessment rate will be lower for BIF deposits than for SAIF deposits. Actual rates will fluctuate over time depending on the amount of deposits insured by the BIF and SAIF at the time the assessment is made. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS HIGHLIGHTS ================================================================================ The following is a summary of third-quarter 1996 financial information for BankAmerica Corporation and subsidiaries (BAC). . BAC reported third-quarter 1996 earnings per share and net income of $1.75 and $683 million, respectively, compared with $1.72 and $704 million for the same period a year ago. Net income includes a one-time assessment of $82 million associated with the recapitalization of the Savings Association Insurance Fund (SAIF). Excluding the effect of this assessment, earnings per share and net income for the third quarter of 1996 would have been $1.88 and $731 million, respectively, which would represent increases of 9 percent and 4 percent compared with the same period a year ago. . As part of its efforts to strategically redeploy capital, BAC entered into the following transactions in the third quarter of 1996: - Acquisition of approximately $1.8 billion of lease-related financial assets from subsidiaries of Ford Motor Company; - Securitization of $500 million of credit card receivables from BAC's $9.5 billion managed credit card portfolio and the sale of $1.4 billion of conforming fixed-rate first mortgages from BAC's $37 billion mortgage portfolio; - Signing of definitive agreements to divest 68 branches in Texas. . Net interest income was down $4 million from the amount reported in the third quarter of 1995. Excluding the effect of the credit card securitization discussed above, net interest income would have increased $6 million from the third quarter of 1995. BAC's net interest margin for the third quarter of 1996 was 4.17 percent, down 35 basis points from the third quarter of 1995. . Noninterest income increased $162 million, or 14 percent, from the third quarter of 1995. Third-quarter 1996 noninterest income included gains on the liquidation of an Australian subsidiary ($43 million) and a reduction of BAC's equity interest in KorAm Bank, an Asian investment ($39 million). . Excluding the effect of the one-time SAIF assessment of $82 million, noninterest expense would have been essentially unchanged from the third quarter of 1995. BAC's expense-to- revenue ratio, excluding the effect of the SAIF assessment, would have been 54.47 percent in the third quarter of 1996, a decrease of 67 basis points from 55.14 percent in the previous quarter. . Nonaccrual assets decreased $369 million, or 25 percent, between June 30, 1996 and September 30, 1996. Net credit losses were $226 million for the third quarter of 1996, a decline of $20 million, or 8 percent, from the second quarter of 1996, but up $75 million, or 50 percent, from the comparable quarter a year ago. The provision for credit losses was $235 million, down $15 million from the second quarter of 1996, but up $125 million from the third quarter of 1995. . In connection with BAC's ongoing efforts to return excess capital to its shareholders, BAC repurchased 2.5 million shares of its common stock during the third quarter of 1996 at an average per-share price of $78.48, which reduced stockholders' equity by $200 million. 14 ================================================================================
FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 NINE MONTHS ENDED ----------------------------- ------------------ SEPTEMBER 30 (DOLLAR AMOUNTS IN MILLIONS, THIRD SECOND FIRST FOURTH THIRD -------------------- EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER QUARTER 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Interest income $ 4,206 $ 4,126 $ 4,089 $ 4,071 $ 4,044 $ 12,421 $ 11,769 Interest expense 2,054 1,967 1,943 1,934 1,888 5,964 5,444 - ------------------------------------------------------------------------------------------------------------------------------- Net interest income 2,152 2,159 2,146 2,137 2,156 6,457 6,325 Provision for credit losses 235 250 180 130 110 665 310 Noninterest income 1,319 1,320 1,274 1,158 1,157 3,913 3,388 Noninterest expense 2,081 1,997 2,013 1,966 1,993 6,091 6,035 - ------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 1,155 1,232 1,227 1,199 1,210 3,614 3,368 Provision for income taxes 472 509 507 495 506 1,488 1,408 - ------------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 683 $ 723 $ 720 $ 704 $ 704 $ 2,126 $ 1,960 - ------------------------------------------------------------------------------------------------------------------------------- ADJUSTED NET INCOME/A/ $ 731 NA NA NA NA $ 2,174 NA - ------------------------------------------------------------------------------------------------------------------------------- PER SHARE DATA Earnings per common and common equivalent share: As reported $ 1.75 $ 1.84 $ 1.79 $ 1.74 $ 1.72 $ 5.38 $ 4.75 As adjusted/a/ 1.88 NA NA NA NA 5.51 NA Earnings per common share -- assuming full dilution: As reported 1.75 1.84 1.79 1.74 1.72 5.38 4.72 As adjusted/a/ 1.88 NA NA NA NA 5.51 NA Dividends declared per common share 0.54 0.54 0.54 0.46 0.46 1.62 1.38 - ------------------------------------------------------------------------------------------------------------------------------- STOCK DATA Book value per common share at period end $ 50.92 $ 49.64 $ 48.74 $ 47.90 $ 46.59 $ 50.92 $ 46.59 Common stock price range: High 85 1/4 80 3/8 79 1/8 68 1/2 61 1/8 85 1/4 61 1/8 Low 72 69 3/4 58 3/4 57 52 1/2 58 3/4 39 1/2 Closing common stock price 82 1/8 75 3/4 77 1/2 64 3/4 59 7/8 82 1/8 59 7/8 Average number of common and common equivalent shares outstanding (in thousands) 365,672 368,543 372,385 374,283 376,643 368,866 375,980 Average number of common shares outstanding -- assuming full dilution (in thousands) 365,885 368,591 373,548 374,669 377,421 369,341 379,248 Number of common shares outstanding at period end (in thousands) 358,826 359,893 364,082 367,447 369,998 358,826 369,998 - ------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA AT PERIOD END Loans $161,833 $160,640 $156,155 $155,373 $151,212 $161,833 $151,212 Total assets 242,953 238,841 234,243 232,446 229,926 242,953 229,926 Deposits 164,901 161,845 160,517 160,494 155,637 164,901 155,637 Long-term debt and subordinated capital notes 15,454 14,953 15,074 15,328 15,882 15,454 15,882 Common equity 18,270 17,866 17,744 17,599 17,238 18,270 17,238 Total equity 20,512 20,108 20,167 20,222 19,861 20,512 19,861 - ------------------------------------------------------------------------------------------------------------------------------- SELECTED FINANCIAL RATIOS Expense to revenue/b/ 56.82% 55.14% 55.83% 56.58% 56.38% 55.92% 58.59% Expense to revenue, as adjusted/ab/ 54.47 NA NA NA NA 55.13 NA Rate of return (based on net income) on: Average common equity 14.16 15.42 15.19 14.96 15.09 14.92 14.44 Average common equity, as adjusted/a/ 15.23 NA NA NA NA 15.28 NA Average total equity 13.44 14.56 14.28 14.05 14.14 14.09 13.47 Average total equity, as adjusted/a/ 14.40 NA NA NA NA 14.41 NA Average total assets 1.12 1.21 1.22 1.20 1.21 1.18 1.16 Average total equity, as adjusted/a/ 1.19 NA NA NA NA 1.21 NA - ------------------------------------------------------------------------------------------------------------------------------- CAPITAL RATIOS Ratio of common equity to total assets 7.52% 7.48% 7.58% 7.57% 7.50% 7.52% 7.50% Ratio of total equity to total assets 8.44 8.42 8.61 8.70 8.64 8.44 8.64 Ratio of average total equity to average total assets 8.31 8.29 8.55 8.55 8.59 8.39 8.63 - -------------------------------------------------------------------------------------------------------------------------------
/a/ Adjusted to exclude the income statement effect of the previously discussed one-time SAIF assessment that increased noninterest expense by $82 million in the third quarter of 1996. /b/ Excludes net other real estate owned expense and amortization of intangibles. NA-Not applicable. 15 BUSINESS SECTORS ================================================================================ SELECTED BUSINESS SECTOR DATA
- -------------------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30/a/ U.S. CORPORATE AND TOTAL CONSUMER BANKING/b/ INTERNATIONAL BANKING MIDDLE MARKET BANKING ---------------- ------------------ --------------------- --------------------- (DOLLAR AMOUNTS IN MILLIONS) 1996 1995 1996 1995 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Results Net interest income $6,457 $6,325 $4,173 $4,003 $1,109 $ 986 $ 632 $ 640 Provision for credit losses 665 310 767 481 (23) 20 (25) (1) Noninterest income 3,913 3,388 1,756 1,456 1,682 1,423 159 150 Noninterest expense 6,091 6,035 3,577 3,505 1,430 1,357 382 387 - -------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 3,614 3,368 1,585 1,473 1,384 1,032 434 404 Provision for income taxes 1,488 1,408 670 620 532 423 178 169 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) 2,126 1,960 915 853 852 609 256 235 Preferred stock dividends 141 174 54 64 40 51 12 14 - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON EQUITY $1,985 $1,786 $ 861 $ 789 $ 812 $ 558 $ 244 $ 221 - ---------------------------------------========================================================================================= SELECTED AVERAGE BALANCE SHEET COMPONENTS Loans $157,421 $145,254 $82,190 $74,464 $41,501 $39,540 $18,569 $16,931 Earning assets 202,303 186,743 80,893 73,084 71,721 65,626 18,175 16,610 Total assets 240,636 225,475 90,880 82,428 90,901 85,771 20,614 19,371 Deposits 161,123 152,882 95,456 95,531 44,787 36,127 7,318 7,566 Common equity 17,777 16,542 6,832 6,084 5,082 4,848 1,468 1,295 SELECTED FINANCIAL RATIOS Return on average common equity 14.92% 14.44% 16.83% 17.34% 21.34% 15.38% 22.19% 22.88% Expense to revenue/c/ 55.92 58.59 55.46 58.00 49.22 53.77 44.41 44.55 ================================================================================================================================
For reporting purposes, BAC segregates its operations into business or operating sectors. BAC's Vice Chairmen oversee the operations of the businesses that comprise the sectors and are responsible for each sector's financial performance. The Vice Chairmen regularly review their respective businesses to evaluate past performance and make decisions regarding the future allocation of resources. All Vice Chairmen are accountable to the Chief Executive Officer. BAC determines its business sector results based on an internal management reporting system that allocates revenues, expenses, assets, and liabilities to each business. Furthermore, for internal business sector monitoring, the unallocated allowance for credit losses and related provision for credit losses are assigned to the businesses. Equity is assigned to each business on a risk-adjusted basis taking into account goodwill and tax-effected identifiable intangibles. While BAC manages its hedging activities centrally, the effects of hedging are allocated to the businesses through a transfer pricing process. As a result, the effects of hedging interest rate risk are reflected in the appropriate business sectors. The information set forth in the tables on pages 16-17 reflects the condensed income statements and selected average balance sheet line items and financial ratios by business sector. The information presented does not necessarily represent the business sectors' financial condition and results of operations as if they were independent entities. For a detailed discussion of the composition of each business sector, refer to pages 6-15 of BAC's 1995 Annual Report to Shareholders. 16 ================================================================================
- ---------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30/a/ --------------------------------------------------------------------- PRIVATE BANKING AND COMMERCIAL REAL ESTATE INVESTMENT SERVICES OTHER ---------------------- ------------------- ---------------- (DOLLAR AMOUNTS IN MILLIONS) 1996 1995 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net interest income $ 334 $ 359 $ 137 $ 130 $ 72 $ 207 Provision for credit losses (36) (205) 1 (2) (19) 17 Noninterest income 24 26 288 260 4 73 Noninterest expense 75 92 326 315 301 379 - ---------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 319 498 98 77 (206) (116) Provision for income taxes 130 208 39 31 (61) (43) - ---------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) 189 290 59 46 (145) (73) PREFERRED STOCK DIVIDENDS 7 9 4 4 24 32 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON EQUITY $ 182 $ 281 $ 55 $ 42 $ (169) $ (105) - -----------------------------------------------------================================================================= SELECTED AVERAGE BALANCE SHEET COMPONENTS Loans $10,542 $10,331 $4,309 $3,681 $ 310 $ 307 Earning assets 9,987 9,791 4,259 3,683 17,268 17,949 Total assets 10,512 10,204 4,865 4,332 22,864 23,369 Deposits 2,122 1,568 6,935 5,670 4,505 6,420 Common equity 824 857 457 399 3,114 3,059 SELECTED FINANCIAL RATIOS Return on average common equity 29.64% 43.80% 16.11% 13.93% NM NM Expense to revenue/c/ 23.07 25.75 72.12 75.76 NM NM ======================================================================================================================
/a/ For comparability purposes, both 1996 and 1995 amounts reflect BAC's business-sector allocation methodologies at September 30, 1996. /b/ Includes the income statement effect of the one-time assessment to recapitalize SAIF, which is more fully described on page 26. /c/ Excludes net other real estate owned expense and amortization of intangibles. NM - Not meaningful. Consumer Banking--Consumer Banking's net income for the first nine months of 1996 was up $62 million, or 7 percent, from the amount reported for the same period last year. This increase largely reflected growth in the residential and consumer installment loan portfolios, as well as in the credit card portfolio. Included in this sector's net income is a one-time assessment of $82 million associated with the recapitalization of the SAIF. Excluding the effect of this assessment, net income for the nine months ended September 30, 1996 would have been $963 million, up $110 million, or 13 percent, from the same period a year ago. Net interest income was up from the first nine months of 1995 primarily due to increased loan volumes. Noninterest income increased due to higher revenues from service fees and charges associated with deposit accounts, an $82 million gain on the sale of a Hong Kong consumer and commercial subsidiary, and increased gains on loan sales. The increases in net interest and noninterest income, coupled with BAC's efforts to keep noninterest expense at targeted levels, resulted in an expense-to-revenue ratio, excluding the effect of the one-time SAIF assessment, of 55.17 percent for the first nine months of 1996, a decrease from 58.00 percent for the first nine months of 1995. The provision for credit losses increased $286 million primarily as a result of growth in the consumer loan portfolio. Average loan outstandings grew $7.7 billion, or 10 percent, from the first nine months of 1995, primarily representing growth in the residential first mortgage, manufactured housing, and credit card portfolios. 17 ================================================================================ U.S Corporate and International Banking -- U.S. Corporate and International Banking's net income for the first nine months of 1996 increased $243 million, or 40 percent, compared with the same period a year ago. The increase reflected higher net interest and noninterest income levels and a reduction in the provision for credit losses, partially offset by higher noninterest expense. The increase in net interest income resulted from loan growth, especially in the foreign portfolios. Noninterest income was up $259 million from the same period a year ago. This increase resulted primarily from higher trading-related income and venture capital distributions. In addition, the 1996 amount included a $43 million gain on the liquidation of an Australian subsidiary and a $39 million gain that resulted from a reduction of BAC's equity interest in Koram Bank, an Asian investment. The 1995 amount included a $50 million gain on the sale of an asset received in lieu of debt repayment. The reduction in the provision for credit losses was primarily a result of improved credit quality. Noninterest expense increased primarily due to higher group variable compensation resulting from higher incentive accruals associated with trading activities. This sector's expense-to-revenue ratio decreased 455 basis points from the first nine months of 1995. Middle Market Banking -- Middle Market Banking's net income for the first nine months of 1996 increased $21 million, or 9 percent, from the same period of 1995. This increase was primarily attributable to a reduction in the provision for credit losses. Net interest income decreased $8 million from the first nine months of 1995 as continued price competition resulted in a shift from higher priced loans, such as those tied to the reference rate, to lower priced loans, such as those that are LIBOR-based. The provision for credit losses decreased due to improved credit quality in the commercial loan portfolio. Average loan outstandings increased $1.6 billion, or 10 percent, primarily in commercial and industrial loans. Commercial Real Estate -- Commercial Real Estate's net income for the first nine months of 1996 decreased $101 million, or 35 percent, from the first nine months of 1995, largely due to the effect of lower credit recoveries on the provision for credit losses, primarily related to construction loans. The provision for credit losses changed from ($205) million in the first nine months of 1995 to ($36) million in the first nine months of 1996. Private Banking and Investment Services -- Private Banking and Investment Services' net income increased $13 million, or 28 percent, for the first nine months of 1996 compared to the same period a year ago. The increase primarily resulted from higher noninterest income partially offset by increased noninterest expense. Noninterest income increased due to growth in mutual fund and annuity revenues as well as higher trust-related fees. Noninterest expense increased primarily due to higher performance-based pay. Other -- "Other" amounts are primarily associated with certain corporate expenses and various other support services. "Other" also includes the results from corporate liquidity management activities, along with any residual differences between actual centrally managed external hedging results and the allocation of interest rate risk hedging to the appropriate businesses. The income and expenses related to the Institutional Trust and Securities Services (ITSS) business are included in this sector. However, the corporation had substantially divested ITSS by the end of the first quarter of 1996. This sector had a net loss of $145 million in the first nine months of 1996, compared with a net loss of $73 million in the same period a year ago. This increased net loss was primarily attributable to lower results from corporate liquidity management activities. Partially offsetting this decrease was the recognition of a $50 million pre-tax gain during 1996 associated with the divestiture of BAC's ITSS business. 18 ================================================================================ OPERATING AND BAC's results for the third quarter and the first nine FINANCIAL LEVERAGE months of 1996 demonstrated BAC's ability to manage its operating and financial leverage. By managing expenses and repurchasing and redeeming stock, as discussed below, excluding the effect of the SAIF assessment, BAC's performance would have resulted in increases in net income for the third quarter and first nine months of 1996 of 4 percent and 11 percent, respectively, as well as increases in fully diluted earnings per share of 9 percent and 17 percent, respectively, compared to the same periods in 1995. Operating Leverage is achieved when the rate of revenue growth exceeds that of expenses. As shown in the table below, excluding the effect of the SAIF assessment, revenue for the third quarter and first nine months of 1996 would have increased 5 percent and 7 percent, respectively, from the same periods in 1995, while noninterest expense would have remained essentially unchanged. Financial Leverage is achieved when the rates of growth in common shares outstanding and preferred dividends are below that of net income. Excluding the effect of the SAIF assessment, growth in net income for the third quarter and first nine months of 1996 would have been 4 percent and 11 percent, respectively, compared to the same periods in 1995. As a result of BAC's stock repurchase program, the average number of fully diluted shares decreased 3 percent for both the third quarter and the first nine months of 1996 from the comparable periods in 1995. Additionally, preferred dividends for the third quarter and the first nine months of 1996 decreased 23 percent and 19 percent, respectively, from the same periods in 1995.
- ------------------------------------------------------------------------------------------------------------------------------- OPERATING AND FINANCIAL LEVERAGE - ------------------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED THIRD QUARTER SEPTEMBER 30 --------------------- PERCENTAGE ---------------------- PERCENTAGE (DOLLAR AMOUNTS IN MILLIONS) 1996/a/ 1995 CHANGE 1996/a/ 1995 CHANGE - ------------------------------------------------------------------------------------------------------------------------------- OPERATING LEVERAGE COMPONENTS Net interest income $2,152 $2,156 -% $ 6,457 $6,325 2% Noninterest income 1,319 1,157 14 3,913 3,388 15 - ------------------------------------------------------------------------------------------------------------------------------- Total revenue 3,471 3,313 5 10,370 9,713 7 Noninterest expense 1,999 1,993 - 6,009 6,035 - - ------------------------------------------------------------------------------------------------------------------------------- Operating income/b/ 1,472 1,320 12 4,361 3,678 19 Provision for credit losses 235 110 114 665 310 115 Provision for income taxes 506 506 - 1,522 1,408 8 - ------------------------------------------------------------------------------------------------------------------------------- FINANCIAL LEVERAGE COMPONENTS Net income 731 704 4 2,174 1,960 11 Preferred stock dividends 43 56 (23) 141 174 (19) Earnings per common share -- assuming full dilution 1.88 1.72 9 5.51 4.72 17 Average number of common shares outstanding -- assuming full dilution 365,885 377,421 (3) 369,341 379,248 (3) - -------------------------------------------------------------------------------------------------------------------------------
/a/ Adjusted to exclude the income statement effect of the previously discussed one-time SAIF assessment of $82 million in the third quarter of 1996. /b/ Represents net income before the provisions for credit losses and income taxes. 19 RESULTS OF OPERATIONS ================================================================================ NET INTEREST Taxable-equivalent net interest income for the third quarter INCOME and first nine months of 1996 was $2,157 million and $6,468 million, respectively, a decrease of $6 million and an increase of $123 million, compared to the same periods a year ago. Excluding the effect of a credit card securitization in the third quarter of 1996, taxable-equivalent net interest income would have increased $4 million and $133 million from the third quarter and first nine months of 1995, respectively. The increase for the first nine months of 1996, compared to the same period a year ago, resulted primarily from growth in earning assets, partially offset by a decrease in the net interest margin. Average earning assets totaled $206.6 billion and $202.3 billion for the third quarter and first nine months of 1996, respectively, up $15.7 billion and $15.6 billion from the same periods in 1995. These increases primarily reflected broad-based growth in the loan portfolio as average loans increased $10.9 billion and $12.2 billion from the third quarter and first nine months of 1995, respectively. In addition, other average earning assets rose $4.8 billion and $3.4 billion from the third quarter and first nine months of 1995, respectively. BAC's net interest margin for the third quarter and first nine months of 1996 was 4.17 percent and 4.26 percent, respectively, down 35 and 27 basis points from the comparable periods a year ago. The yield on average earning assets declined, with no corresponding decline in the cost of funds. The yield on average earning assets decreased 32 basis points and 23 basis points from the third quarter and first nine months of 1995, respectively, due to lower prevailing market rates. No corresponding decrease in the cost of funds occurred as the rates on domestic interest- bearing deposits, the largest component of interest-bearing liabilities, increased. In addition, BAC has experienced a shift in the mix of liabilities toward wholesale funding sources, including foreign interest-bearing deposits and domestic purchased funds, which are more costly than traditional core deposits. Growth in lower-yielding average earning assets other than loans also contributed to the decline in the margin. BAC's net interest income and margin include the results of hedging with certain on- and off-balance sheet financial instruments. Hedging with derivative financial instruments reduced net interest income by approximately $5 million in the third quarter and increased it by approximately $25 million in the first nine months of 1996. During the third quarter and first nine months of 1995, hedging increased net interest income by approximately $10 million and $50 million, respectively. The effect of the hedging amounts on the net interest margin for both the third quarter and first nine months of 1996 as well as the comparable periods of 1995 was less than 5 basis points. 20 ================================================================================ [THIS PAGE INTENTIONALLY LEFT BLANK] 21 ================================================================================ Average Balances, Interest, and Average Rates - -------------------------------------------------------------------------------
Third Quarter 1996 --------------------------------- (dollar amounts in millions) Balance\a\ Interest\b\ Rate\b\ - ---------------------------------------------------------------------------------------------------- Assets Interest-bearing deposits in banks $ 5,518 $ 95 6.86% Federal funds sold 664 9 5.38 Securities purchased under resale agreements 11,793 178 6.01 Trading account assets 13,270 269 8.06 Available-for-sale securities\cd\ 11,373 210 7.34 Held-to-maturity securities\c\ 4,221 78 7.40 Domestic loans: Consumer-residential first mortgages 38,291 715 7.46 Consumer-residential junior mortgages 14,469 311 8.56 Consumer-credit card 8,967 324 14.43 Other consumer 17,635 438 9.88 Commercial and industrial 32,790 636 7.73 Commercial loans secured by real estate 11,696 254 8.69 Construction and development loans secured by real estate 2,649 82 12.25 Financial institutions 2,742 31 4.51 Lease financing 2,106 32 5.92 Agricultural 1,574 34 8.50 Loans for purchasing or carrying securities 1,167 19 6.51 Other 1,141 19 6.91 -------- ------ Total domestic loans 135,227 2,895 8.54 Foreign loans 24,552 477 7.73 -------- ------ Total loans\d\ 159,779 3,372 8.41 -------- ------ Total earning assets 206,618 $4,211 8.12 ====== Nonearning assets 40,684 Less: Allowance for credit losses 3,533 -------- Total Assets $243,769 ======== Liabilities and Stockholders' Equity Domestic interest-bearing deposits: Transaction $ 13,091 $ 40 1.20% Savings 12,903 66 2.04 Money market 27,732 225 3.24 Time 30,367 392 5.13 -------- ------ Total domestic interest-bearing deposits 84,093 723 3.42 Foreign interest-bearing deposits: Banks located in foreign countries 12,120 173 5.68 Governments and official institutions 10,630 139 5.20 Time, savings, and other 18,992 297 6.22 -------- ------ Total foreign interest-bearing deposits 41,742 609 5.80 -------- ------ Total interest-bearing deposits 125,835 1,332 4.21 Federal funds purchased 1,225 17 5.33 Securities sold under repurchase agreements 13,471 201 5.92 Other short-term borrowings 16,104 243 6.01 Long-term debt 14,819 254 6.83 Subordinated capital notes 355 7 8.15 -------- ------ Total interest-bearing liabilities 171,809 $2,054 4.76 ====== Domestic noninterest-bearing deposits 34,081 Foreign noninterest-bearing deposits 1,598 Other noninterest-bearing liabilities 16,076 -------- Total liabilities 223,564 Stockholders' equity 20,205 -------- Total Liabilities and Stockholders' Equity $243,769 ======== Interest income as a percentage of average earning assets 8.12% Interest expense as a percentage of average earning assets (3.95) ------ Net Interest Margin 4.17% ====== Third Quarter 1995 --------------------------------- (dollar amounts in millions) Balance\a\ Interest\b\ Rate\b\ - ---------------------------------------------------------------------------------------------------- Assets Interest-bearing deposits in banks $ 5,887 $ 115 7.73% Federal funds sold 663 10 5.87 Securities purchased under resale agreements 9,232 160 6.89 Trading account assets 9,252 191 8.19 Available-for-sale securities\cd\ 9,957 200 8.02 Held-to-maturity securities\c\ 7,055 129 7.30 Domestic loans: Consumer-residential first mortgages 35,972 651 7.24 Consumer-residential junior mortgages 14,099 319 8.98 Consumer-credit card 8,399 312 14.86 Other consumer 14,395 368 10.14 Commercial and industrial 31,392 660 8.34 Commercial loans secured by real estate 10,642 245 9.21 Construction and development loans secured by real estate 3,285 89 10.80 Financial institutions 2,531 37 5.76 Lease financing 1,858 29 6.18 Agricultural 1,607 40 9.84 Loans for purchasing or carrying securities 1,184 22 7.24 Other 1,351 22 6.48 -------- ------ Total domestic loans 126,715 2,794 8.78 Foreign loans 22,127 452 8.10 -------- ------ Total loans\d\ 148,842 3,246 8.68 ======== ====== Total earning assets 190,888 $4,051 8.44 ====== Nonearning assets 42,689 Less: Allowance for credit losses 3,668 Total Assets $229,909 ======== Liabilities and Stockholders' Equity Domestic interest-bearing deposits: Transaction $ 13,063 $ 39 1.19% Savings 13,557 71 2.08 Money market 28,576 219 3.03 Time 29,630 382 5.12 -------- ------ Total domestic interest-bearing deposits 84,826 711 3.33 Foreign interest-bearing deposits: Banks located in foreign countries 10,520 162 6.10 Governments and official institutions 7,417 107 5.74 Time, savings, and other 17,081 282 6.54 -------- ------ Total foreign interest-bearing deposits 35,018 551 6.24 ======== ====== Total interest-bearing deposits 119,844 1,262 4.18 Federal funds purchased 1,800 27 6.02 Securities sold under repurchase agreements 9,670 154 6.31 Other short-term borrowings 9,966 162 6.48 Long-term debt 15,463 272 6.98 Subordinated capital notes 605 11 7.52 -------- ------ Total interest-bearing liabilities 157,348 $1,888 4.76 ====== Domestic noninterest-bearing deposits 33,515 Foreign noninterest-bearing deposits 1,623 Other noninterest-bearing liabilities 17,670 -------- Total liabilities 210,156 Stockholders' equity 19,753 -------- Total Liabilities and Stockholders' Equity $229,909 ======== Interest income as a percentage of average earning assets 8.44% Interest expense as a percentage of average earning assets (3.92) ------ Net Interest Margin 4.52% ====== - 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22 - -------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30 ---------------------------------- 1996 --------------------------------- (DOLLAR AMOUNTS IN MILLIONS) BALANCE\A\ INTEREST\B\ RATE\B\ - ---------------------------------------------------------------------------------------------------- ASSETS Interest-bearing deposits in banks $ 5,662 $ 308 7.26% Federal funds sold 545 22 5.39 Securities purchased under resale agreements 10,753 509 6.33 Trading account assets 12,257 733 7.99 Available-for-sale securities\cd\ 11,256 638 7.56 Held-to-maturity securities\c\ 4,409 246 7.44 DOMESTIC LOANS: Consumer-residential first mortgages 37,666 2,111 7.47 Consumer-residential junior mortgages 14,143 913 8.62 Consumer-credit card 9,003 988 14.62 Other consumer 17,043 1,263 9.90 Commercial and industrial 32,775 1,912 7.80 Commercial loans secured by real estate 11,282 749 8.85 Construction and development loans secured by real estate 2,955 240 10.85 Financial institutions 2,856 95 4.44 Lease financing 2,000 96 6.40 Agricultural 1,599 105 8.76 Loans for purchasing or carrying securities 1,171 58 6.64 Other 1,153 58 6.77 -------- ------- Total domestic loans 133,646 8,588 8.58 Foreign loans 23,775 1,388 7.80 -------- ------- Total loans\d\ 157,421 9,976 8.46 -------- ------- Total earning assets 202,303 $12,432 8.20 ======= Nonearning assets 41,858 Less: Allowance for credit losses 3,525 -------- TOTAL ASSETS $240,636 ======== LIABILITIES AND STOCKHOLDERS' EQUITY DOMESTIC INTEREST-BEARING DEPOSITS: Transaction $ 13,178 $ 119 1.20% Savings 13,003 199 2.05 Money market 27,796 662 3.18 Time 30,057 1,130 5.02 -------- ------- Total domestic interest-bearing deposits 84,034 2,110 3.36 FOREIGN INTEREST-BEARING DEPOSITS: Banks located in foreign countries 13,169 581 5.89 Governments and official institutios 9,440 372 5.26 Time, savings, and other 18,858 890 6.31 -------- ------- Total foreign interest-bearing deposits 41,467 1,843 5.94 -------- ------- Total interest-bearing deposits 125,501 3,953 4.21 Federal funds purchased 1,472 59 5.32 Securities sold under repurchase agreements 12,117 540 5.95 Other short-term borrowings 13,780 629 6.10 Long-term debt 14,829 757 6.82 Subordinated capital notes 436 26 8.03 -------- ------- Total interest-bearing liabilities 168,135 $ 5,964 4.74 Domestic noninterest-bearing deposits 34,025 ======= Foreign noninterest-bearing deposits 1,597 Other noninterest-bearing liabilities 16,725 -------- Total liabilities 220,482 Stockholders' equity 20,154 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $240,636 ======== INTEREST INCOME AS A PERCENTAGE OF AVERAGE EARNING ASSETS 8.20% INTEREST EXPENSE AS A PERCENTAGE OF AVERAGE EARNING ASSETS (3.94) ----- NET INTEREST MARGIN 4.26% ===== 1995 --------------------------------- (DOLLAR AMOUNTS IN MILLIONS) BALANCE\A\ INTEREST\B\ RATE\B\ - ---------------------------------------------------------------------------------------------------- ASSETS Interest-bearing deposits in banks $ 5,816 $ 347 7.97% Federal funds sold 600 27 5.98 Securities purchased under resale agreements 9,029 471 6.98 Trading account assets 8,952 545 8.14 Available-for-salesecurities\cd\ 9,707 568 7.81 Held-to-maturity securities\c\ 7,385 405 7.32 DOMESTIC LOANS Consumer-residential first mortgages 35,089 1,826 6.94 Consumer-residential junior mortgages 13,879 946 9.12 Consumer-credit card 8,057 912 15.09 Other consumer 13,655 1,011 9.89 Commercial and industrial 30,590 1,953 8.53 Commercial loans secured by real estate 10,525 716 9.07 Construction and development loans secured by real estate 3,410 289 11.34 Financial institutions 2,419 108 5.99 Lease financing 1,821 85 6.25 Agricultural 1,635 119 9.75 Loans for purchasing or carrying securities 1,309 69 7.08 Other 1,389 68 6.54 -------- ------- Total domestic loans 123,778 8,102 8.74 Foreign loans 21,476 1,324 8.24 -------- ------- Total loans\d\ 145,254 9,426 8.67 -------- ------- Total earning assets 186,743 $ 11,789 8.43 Nonearning assets 42,426 ======= Less: Allowance for credit losses 3,694 -------- TOTAL ASSETS $ 225,475 ======== LIABILITIES AND STOCKHOLDERS' EQUITY DOMESTIC INTEREST-BEARING DEPOSITS: Transaction $ 13,266 $ 118 1.20% Savings 13,662 212 2.08 Money market 29,337 649 2.96 Time 30,077 1,087 4.83 -------- ------- Total domestic interest-bearing deposits 86,342 2,066 3.20 FOREIGN INTEREST-BEARING DEPOSITS: Banks located in foreign countries 9,709 484 6.66 Governments and official institutions 6,645 291 5.85 Time, savings, and other 15,613 775 6.64 -------- ------- Total foreign interest-bearing deposits 31,967 1,550 6.48 -------- ------- Total interest-bearing deposits 118,309 3,616 4.09 Federal funds purchased 2,131 96 6.01 Securities sold under repurchase agreements 9,130 434 6.36 Other short-term borrowings 9,183 462 6.73 Long-term debt 15,175 802 7.07 Subordinated capital notes 605 34 7.60 -------- ------- Total interest-bearing liabilities 154,533 $ 5,444 4.71 Domestic noninterest-bearing deposits 32,913 ======= Foreign noninterest-bearing deposits 1,660 Other noninterest-bearing liabilities 16,915 -------- Total liabilities 206,021 Stockholders' equity 19,454 -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 225,475 ======== Interest income as a percentage of average earning assets 8.43% Interest expense as a percentage of average earning assets (3.90) ----- NET INTEREST MARGIN 4.53% ===== - 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/a/ Average balances are obtained from the best available daily, weekly, or monthly data. /b/ Interest income and average rates are presented on a taxable-equivalent basis. The taxable-equivalent adjustments are based on a marginal tax rate of 40 percent. /c/ Refer to the table on page 30 of the Balance Sheet Review section for more detail on available-for-sale and held-to-maturity securities. /d/ Average balances include nonaccrual assets. 23 ================================================================================ NONINTEREST Noninterest income for the third quarter and first nine INCOME months of 1996 was $1,319 million and $3,913 million, respectively, up $162 million and $525 million from the comparable periods in 1995. The increases were reflected in higher fees and commissions, trading income, and other noninterest income. Total fees and commissions for the third quarter and first nine months of 1996 increased $44 million and $88 million, respectively, from the corresponding periods in 1995, reflecting BAC's focus on fee-generating activities. Revenues from retail deposit account fees rose $23 million and $83 million in the third quarter and first nine months of 1996,respectively, compared to the same periods in 1995, primarily due to service fees and charges associated with deposit accounts. Total credit card fees increased $10 million and $30 million from the third quarter and first nine months of 1995, respectively, largely due to higher interchange fees from the introduction of the VERSATEL(R)Check Card this year. Other fees and commissions increased by $37 million and $48 million from the third quarter and first nine months of 1995, respectively, primarily due to higher loan fees and charges and financial services fees. Loan fees and charges, net of amortization expense and valuation adjustments on mortgage servicing rights, increased $18 million and $16 million from the third quarter and first nine months of 1995, respectively, reflecting BAC's expanded mortgage banking activities. Financial services fees, which include syndication and brokerage fees, increased $12 million and $9 million from the third quarter and first nine months of 1995. The increases in the above categories were partially offset by a decline in trust fees of $19 million and $56 million for the third quarter and first nine months of 1996, respectively. Trust fees declined due to the divestiture of ITSS, and lower fee revenue from personal trust activities. Trading income for the third quarter and first nine months of 1996 increased $21 million and $84 million, respectively, from the same periods a year ago. The improvement in the current year is attributable to BAC's 1995 investments in Latin America and other emerging market debt securities as well as European securities. For more information on the functional components of trading income, refer to Note 7 of the Notes to Consolidated Financial Statements on pages 8- 13. Other noninterest income increased $97 million and $353 million in the third quarter and first nine months of 1996, respectively, compared to the same periods a year ago. Higher income related to venture capital activities, net gains on sales of subsidiaries and operations, and net gains on sales of assets, contributed to the increase and were partially offset by declines in other income. Noninterest income related to venture capital activities increased $43 million and $75 million in the third quarter and first nine months of 1996, respectively, from the comparable periods in 1995. These increases were primarily due to realized capital gains and partnership distributions. The net gain on sales of subsidiaries and operations increased $41 million and $192 million in the third quarter and first nine months of 1996, respectively, compared to the same periods a year ago. Third quarter and year-to-date 1996 amounts included a $39 million gain that resulted from a reduction of BAC's equity interest in KorAm Bank, an Asian investment, while year-to-date 1996 included a gain of $82 million from the sale of a Hong Kong consumer and commercial finance subsidiary and a net gain of $50 million associated with the divestiture of BAC's ITSS business. 24
================================================================================ NONINTEREST INCOME - -------------------------------------------------------------------------------- NINE MONTHS ENDED THIRD QUARTER SEPTEMBER 30 ------------------- ------------------- (IN MILLIONS) 1996 1995 1996 1995 - -------------------------------------------------------------------------------- FEES AND COMMISSIONS Deposit account fees: Retail $ 261 $ 238 $ 770 $ 687 Commercial 84 91 265 282 Credit card fees: Membership 6 12 29 39 Other 86 70 238 192 Trust fees: Corporate and employee benefit 2 12 15 41 Personal and other 51 60 157 187 Other fees and commissions: Loan fees and charges 92 74 258 242 Off-balance-sheet credit-related instrument fees 91 88 264 256 Financial services fees 64 52 152 143 Mutual fund and annuity commissions 23 21 75 60 Other 90 88 264 264 - -------------------------------------------------------------------------------- 850 806 2,481 2,393 - -------------------------------------------------------------------------------- Trading income 153 132 496 412 - -------------------------------------------------------------------------------- OTHER NONINTEREST INCOME Venture capital activities 97 54 319 244 Net gain (loss) on sales of subsidiaries and operations 41 - 175 (17) Net gain on sales of assets/a/ 64 27 134 42 Net gain on available-for-sale securities 7 17 41 27 Other income 107 121 267 287 - -------------------------------------------------------------------------------- 316 219 936 583 - -------------------------------------------------------------------------------- $1,319 $1,157 $3,913 $3,388 ================================================================================
/a/ Net gain on sales of assets includes gains and losses from the disposition of loans, premises and equipment, and certain other assets. - -------------------------------------------------------------------------------- Net gain on sales of assets increased $37 million and $92 million in the third quarter and first nine months of 1996, respectively, compared to the same periods a year ago. These increases included higher gains on loan sales and gains on sales of leased personal property, primarily airplanes. Other income decrease $14 million and $20 million in the third quarter and first nine months of 1996, respectively, compared to the same periods a year ago. Third quarter and year-to-date 1996 amounts included a $43 million gain on the liquidation Australian subsidiary, while year-to-date 1995 included higher other earnings of $75 million, primarily due to a $50 million gain from the sale of an asset received in lieu of debt repayment. In addition, equity income decreased $18 million from the first nine months of 1995. These decreases were partially offset by $39 million in higher dividends earned on investments in the first nine months of 1996. 25 - -------------------------------------------------------------------------------- NONINTEREST Noninterst expense for the third quarter and first nine months EXPENSE of 1996 was $2,081 million and $6,091 million, respectively, up $88 million and $56 million from the comparable periods in 1995. Noninterest expense in the third quarter and first nine months of 1998 included a one-time assessment associated with the recapitalization of the SAIF of $82 million, while the third quarter and first nine months of 1995 included a $65 million refund received from the Federal Deposit Insurance Corporation (FDIC), both of which are discussed in more detail below. Personnel expense (salaries and employee benefits) for the third quarter of 1996 was $1,013 million, down $21 million from the third quarter of 1995. Personnel expense for the first nine months of 1996 was $3,063 million, essentially unchanged from the same period in 1995. Salary expense decreased by $17 million and $33 million for the third quarter and first nine months of 1996, respectively, compared to the same periods a year ago, primarily due to reduced staff levels. The decline in year-to-date 1996 salaries was more than offset by an increase of $35 million in employee benefits, primarily attributable to retirement plan enhancements that became effective January 1, 1996. BAC's staff level on a full-time-equivalent (FTE) basis was approximately 78,200 at September 30, 1996, down from approximately 80,200 at September 30, 1995. FTE is a measurement equal to one full-time employee working a standard day. BAC had approximately 92,700 employees at September 30, 1996, down from approximately 95,500 at the same date a year earlier. These amounts include both full-time and part-time employees. Regulatory fees and related expenses were $95 million and $121 million for the third quarter and first nine months of 1996, respectively, up $65 million and down $32 million from the same periods a year ago. Regulatory fees in the third quarter and first nine months of 1996 included a one-time assessment of $82 million associated with the recapitalization of the SAIF. Regulatory fees in the third quarter and first nine months of 1995 include a $85 million refund received from the FDIC. Approximately $50 million of this refund related to a reduction of third quarter 1995 insurance rates, while the remaining portion was applicable to payments made in the second quarter of 1995 for the month of June. This refund resulted from a reduction in the FDIC assessment rate announced in 1995. Under the new rate structure, the well-capitalized and highest rated banks only pay a membership fee for BIF Insurance, effective January 1996. 26
- -------------------------------------------------------------------------------------------------------------------------- Other expense for the third quarter and first nine months of 1996 increased by $25 million and $85 million, respectively, compared to the same periods in 1995 and included increases to litigation and other reserves. - -------------------------------------------------------------------------------------------------------------------------- NONINTEREST EXPENSE - -------------------------------------------------------------------------------------------------------------------------- NINE MONTHS ENDED THIRD QUARTER SEPTEMBER 30 ------------------------ ------------------------ (IN MILLIONS) 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Salaries $ 822 $ 839 $ 2,457 $ 2,490 Employee benefits 191 195 606 571 Occupancy 188 185 564 540 Equipment 180 170 518 494 Amortization of intangibles 93 110 281 329 Communications 89 89 271 266 Regulatory fees and related expenses 95 7 121 153 Other real estate owned expense 15 15 11 15 Other expense 408 383 1,262 1,177 - -------------------------------------------------------------------------------------------------------------------------- $ 2,081 $ 1,993 $ 6,091 $ 6,035 ========================================================================================================================== Full-time-equivalent staff at period end 78,200 80,200 78,200 80,200 Employees at period end 92,700 95,500 92,700 95,500 - --------------------------------------------------------------------------------------------------------------------------
INCOME The provision for income taxes was $472 million and $506 million TAXES for the quarters ended September 30, 1996 and 1995, respectively, reflecting forecasted annual effective income tax rates of 41.2 percent and 41.8 percent, respectively. For further information concerning BAC's provision for federal, state, and foreign income taxes for the most recent five quarters, refer to Note 5 of the Notes to Consolidated Financial Statements on page 8. 27 Balance Sheet Review ================================================================================ Interest-earning assets totaled $204 billion at September 30, 1996, up $11 billion, or 6 percent, from year-end 1995. Growth in interest-earning assets, primarily loans, trading account assets, and securities purchased under resale agreements, was funded by increases in liabilities, such as short-term borrowings, foreign interest-bearing deposits, and securities sold under repurchase agreements. Total deposits at September 30, 1996 increased $4.4 billion from December 31, 1995. The growth was primarily attributable to a $4.0 billion increase in foreign deposits that resulted from BAC's continued participation in selected global markets. In June 1996, The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125), which is effective for fiscal years beginning after December 31, 1996. However, the FASB has since issued an Exposure Draft that, if implemented, would delay the adoption of SFAS No. 125 as it applies to securities lending, repurchase agreements, dollar rolls, and other similar secured financing transactions until after December 31, 1997. BAC does not expect that, at adoption, SFAS No. 125 will have a material effect on its financial position or results of operations. 28
==================================================================================================== CREDIT CARD During the third quarter of 1996, $0.5 billion of credit card SECURITIZATION receivables was securitized and sold. The securitization affects, among other things, the manner and time period in which revenue is reported in the statement of operations. The amounts that would otherwise be included in net interest revenue are instead included in noninterest income as fees and commissions, net of any credit losses on the securitized portion of the credit card portfolio. - ---------------------------------------------------------------------------------------------------- IMPACT OF CREDIT CARD SECURITIZATION - ---------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 1996 ----------------------------------------------------- BEFORE CREDIT CARD CREDIT CARD (DOLLAR AMOUNTS IN MILLIONS) SECURITIZATION SECURITIZATION REPORTED - ---------------------------------------------------------------------------------------------------- Operating Results Net interest income $ 2,162 $ (10) $ 2,152 Noninterest income 1,314 5 1,319 - ---------------------------------------------------------------------------------------------------- Total revenue 3,476 (5) 3,471 Noninterest expense 2,081 - 2,081 - ---------------------------------------------------------------------------------------------------- Income before provision for credit losses and income taxes 1,395 (5) 1,390 Provision for credit losses 240 (5)/a/ 235 - ---------------------------------------------------------------------------------------------------- Income before income taxes $ 1,155 $ - $ 1,155 ==================================================================================================== NET INTEREST MARGIN 4.18% (0.01)% 4.17% - ---------------------------------------------------------------------------------------------------- BALANCE SHEET DATA AT PERIOD END Credit card loans outstanding $ 9,521 $ (500) $ 9,021 Total assets 243,453 (500) 242,953 - ---------------------------------------------------------------------------------------------------- AVERAGE BALANCE SHEET DATA Credit card loans 9,370 (403) 8,967 Earning assets 207,021 (403) 206,618 Total assets 244,172 (403) 243,769 - ---------------------------------------------------------------------------------------------------- NET CREDIT LOSSES 116 (5) 111 - ---------------------------------------------------------------------------------------------------- SELECTED FINANCIAL RATIOS Annualized ratio of net credit losses to average credit card loans outstanding 4.96% (0.01)% 4.95% Delinquent credit card loan ratio 2.30 (0.01) 2.29 ====================================================================================================
/a/ Represents the investors' share of charge-offs. 29
==================================================================================================================================== AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES - AVERAGE BALANCES, INTEREST, AND AVERAGE RATES - ------------------------------------------------------------------------------------------------------------------------------------ THIRD QUARTER 1996 THIRD QUARTER 1995 ------------------------------------------------ ------------------------------------------------ RATE RATE RATE BASED ON RATE BASED ON BASED ON AMORTIZED BASED ON AMORTIZED (DOLLAR AMOUNTS IN MILLIONS) BALANCE/A/ INTEREST/B/ FAIR VALUE/B/ COST/B/ BALANCE/A/ INTEREST/B/ FAIR VALUE/B/ COST/B/ - ------------------------------------------------------------------------------------------------------------------------------------ AVAILABLE-FOR-SALE SECURITIES U.S. Treasury and other government agency securities $ 1,559 $ 26 6.69% 6.59% $1,644 $ 26 6.31% 6.30% Mortgage-backed securities 5,995 103 6.91 6.82 4,877 85 7.00 7.01 Other domestic securities 753 11 5.64 6.57 714 9 5.24 5.97 Foreign securities 3,066/c/ 70 8.96/d/ 8.54/d/ 2,722/c/ 80 11.62/d/ 10.77/d/ - ------------------------------------------------------------------------------------------------------------------------------------ $11,373 $210 7.34% 7.25% $9,957 $200 8.02% 7.93% - ------------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 1996 THIRD QUARTER 1995 ---------------------------------- ---------------------------------- (DOLLAR AMOUNTS IN MILLIONS) BALANCE/A/ INTEREST/B/ RATE/B/ BALANCE/A/ INTEREST/B/ RATE/B/ - ------------------------------------------------------------------------------------------------------------------------------------ HELD-TO-MATURITY SECURITIES U.S. Treasury and other government agency securities $ 16 $ - 4.65% $ 381 $ 7 6.78% Mortgage-backed securities 2,262 43 7.59 4,494 80 7.16 State, county, and municipal securities 408 7 7.33 441 8 7.26 Other domestic securities 66 1 6.75 177 3 7.37 Foreign securities 1,469 27 7.18 1,562 31 7.82 - ------------------------------------------------------------------------------------------------------------------------------------ $4,221 $ 78 7.40% $7,055 $ 129 7.30% - ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30 -------------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------------ ------------------------------------------------ RATE RATE RATE BASED ON RATE BASED ON BASED ON AMORTIZED BASED ON AMORTIZED (DOLLAR AMOUNTS IN MILLIONS) BALANCE/A/ INTEREST/B/ FAIR VALUE/B/ COST/B/ BALANCE/A/ INTEREST/B/ FAIR VALUE/B/ COST/B/ - ------------------------------------------------------------------------------------------------------------------------------------ AVAILABLE-FOR-SALE SECURITIES U.S. Treasury and other government agency securities $ 1,471 $ 74 6.72% 6.69% $1,658 $ 81 6.55% 6.48% Mortgage-backed securities 6,217 317 6.81 6.79 4,973 259 6.95 6.87 Other domestic securities 740 32 5.72 6.69 640 25 5.19 5.76 Foreign securities 2,828/c/ 215 10.14/d/ 9.58/d/ 2,436/c/ 203 11.12/d/ 9.97/d/ - ------------------------------------------------------------------------------------------------------------------------------------ $11,256 $638 7.56% 7.51% $9,707 $ 568 7.81% 7.58% - ------------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30 -------------------------------------------------------------------------------------------------- 1996 1995 ---------------------------------- ---------------------------------- (DOLLAR AMOUNTS IN MILLIONS) BALANCE/A/ INTEREST/B/ RATE/B/ BALANCE/A/ INTEREST/B/ RATE/B/ - ------------------------------------------------------------------------------------------------------------------------------------ HELD-TO-MATURITY SECURITIES U.S. Treasury and other government agency securities $ 38 $ 1 4.86% $ 421 $ 21 6.79% Mortgage-backed securities 2,347 134 7.60 4,597 246 7.14 State, county, and municipal securities 421 24 7.58 443 26 7.86 Other domestic securities 112 6 7.31 182 11 7.68 Foreign securities 1,491 81 7.23 1,742 101 7.73 - ------------------------------------------------------------------------------------------------------------------------------------ $4,409 $ 246 7.44% $7,385 $ 405 7.32% - ------------------------------------------------------------------------------------------------------------------------------------
/a/ Average balances are obtained from the best available daily, weekly, or monthly data. /b/ Interest income and average rates are presented on a taxable-equivalent basis. The taxable-equivalent adjustments are based on a marginal tax rate of 40 percent. /c/ Average balances include nonaccrual assets. /d/ Rates reflect interest received on nonaccrual debt-restructuring par bonds. 30 Credit Risk Management ================================================================================ Loan Portfolio Total Loans at September 30, 1996 were up $6.5 billion, Management or 4 percent, from year-end 1995. This growth was primarily in the domestic consumer and foreign portfolios.
====================================================================================================== LOAN OUTSTANDINGS - ------------------------------------------------------------------------------------------------------ 1996 1995 --------------------------------- -------------------- (IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - ------------------------------------------------------------------------------------------------------ DOMESTIC Consumer: Residential first mortgages $ 37,445 $ 38,012 $ 37,701 $ 36,572 $ 36,082 Residential junior mortgages 14,525 14,386 13,889 13,777 14,162 Other installment 15,998 15,057 14,682 13,834 12,728 Credit card 9,021 9,342 8,919 9,139 8,622 Other individual lines of credit 1,845 1,824 1,845 1,847 1,816 Other 303 307 304 319 289 - ------------------------------------------------------------------------------------------------------ 79,137 78,928 77,340 75,488 73,699 Commercial: Commercial and industrial 33,076 33,097 32,193 32,745 31,896 Loans secured by real estate 12,062 11,410 11,052 10,975 10,776 Construction and development loans secured by real estate 2,530 2,896 3,107 3,153 3,214 Financial institutions 2,537 3,075 2,705 2,834 2,561 Lease financing 2,682 2,019 1,941 1,927 1,910 Agricultural 1,561 1,581 1,585 1,737 1,591 Loans for purchasing or carrying securities 1,328 1,399 1,402 1,458 1,236 Other 1,253 1,146 1,211 1,574 1,409 - ------------------------------------------------------------------------------------------------------ 57,029 56,623 55,196 56,403 54,593 - ------------------------------------------------------------------------------------------------------ 136,166 135,551 132,536 131,891 128,292 FOREIGN Commercial and industrial 16,257 15,958 15,183 15,003 15,314 Banks and other financial institutions 3,480 4,077 2,916 3,386 2,795 Governments and official institutions 943 1,015 1,334 1,020 1,077 Other 4,987 4,039 4,186 4,073 3,734 - ------------------------------------------------------------------------------------------------------ 25,667 25,089 23,619 23,482 22,920 - ------------------------------------------------------------------------------------------------------ Total loans 161,833 160,640 156,155 155,373 151,212 Less: Allowance for credit losses 3,511 3,495 3,496 3,554 3,655 - ------------------------------------------------------------------------------------------------------ $158,322 $157,145 $152,659 $151,819 $147,557 - --------------------------------------------==========================================================
31 ========================================================================================================= Domestic Consumer Loans -- During the nine months ended September 30, 1996, domestic consumer loans rose by $3.6 billion, or 5 percent, particularly in the southwest, midwest, and southeast regions of the country, reflecting increased diversification in BAC's lending activities. The rise in loans included an increase of $2.2 billion in other installment loans, primarily due to growth in manufactured housing loans in the South, reflecting strong customer demand and BAC's continued expansion in this region. In addition, residential first mortgages increased $0.9 billion and residential junior mortgages increased by $0.7 billion. Continuation of this level of loan growth will depend upon both future economic conditions and customer demand. ==========================================================================================================
DOMESTIC CONSUMER LOANS BY GEOGRAPHIC AREA AND LOAN TYPE AS OF SEPTEMBER 30, 1996
- ---------------------------------------------------------------------------------------------------------- RESIDENTIAL RESIDENTIAL FIRST JUNIOR CREDIT MANUFACTURED OTHER TOTAL (IN MILLIONS) MORTGAGES MORTGAGES CARD HOUSING AUTO CONSUMER CONSUMER -------------------------------------------------------------------------------------------------------- California $26,764 $ 9,635 $4,401 $1,066 $2,307 $2,244 $46,417 Washington 1,705 1,862 1,281 337 1,373 506 7,064 Arizona 1,307 879 301 206 563 150 3,406 Texas 892 137 417 563 648 305 2,962 Oregon 1,113 503 254 146 289 197 2,502 Nevada 702 347 144 95 192 107 1,587 Other/a/ 4,962 1,162 2,223 5,214 431 1,207 15,199 -------------------------------------------------------------------------------------------------------- $37,445 $14,525 $9,021 $7,627 $5,803 $4,716 $79,137 ========================================================================================================
/a/ No other state individually exceeded 2 percent of total domestic consumer loans. Delinquent domestic consumer loans that are 60 days or more past due totaled $902 million at September 30, 1996, a decrease of $120 million from the December 31, 1995 level. The decrease is primarily due to a reduced level of delinquencies in residential first mortgages in Southern California. =========================================================================================================== DOMESTIC CONSUMER LOAN DELINQUENCY INFORMATION/a/
- ----------------------------------------------------------------------------------------------------------- 1996 1995 -------------------------------- ------------------------- (DOLLAR AMOUNTS IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - ----------------------------------------------------------------------------------------------------------- DELINQUENT CONSUMER LOANS Residential first mortgages $518 $535 $609 $642 $644 Residential junior mortgages 64 70 82 90 92 Credit card 207 204 199 190 164 Other 113 96 94 100 81 - ----------------------------------------------------------------------------------------------------------- $902 $905 $984 $1,022 $ 981 - ----------------------------------------------------------------------------------------------------------- DELINQUENT CONSUMER LOAN RATIOS/b/ Residential first mortgages 1.38% 1.41% 1.61% 1.76% 1.79% Residential junior mortgages 0.44 0.48 0.59 0.67 0.65 Credit card 2.29 2.19 2.23 2.08 1.91 Other 0.63 0.56 0.56 0.62 0.55 Total 1.14 1.15 1.27 1.36 1.33 - ---------------------------------------------==============================================================
/a/ 60 days or more past due. /b/ Ratios represent delinquency balances expressed as a percentage of total loans for that loan category. 32 ================================================================================ Domestic Commercial Loans -- Domestic commercial loans increased $0.6 billion, or 1 percent, during the nine months ended September 30, 1996. Loans secured by real estate increased by $1.1 billion and lease financing increased by $0.8 billion, primarily due to the acquisition of a transportation and industrial lease financing portfolio during the third quarter of 1996. These increases were partially offset by decreases in most other commercial loan categories. ================================================================================ Domestic Commercial Loans Secured by Real Estate by Geographic Area and Project Type at September 30, 1996 ================================================================================
Light Apartment & (in millions) Office Retail Industry Condominium Hotel Other Total ============================================================================== California $1,478 $1,409 $1,370 $ 941 $146 $ 776 $ 6,120 Washington 483 354 503 440 161 531 2,472 Nevada 154 182 69 196 107 186 894 Oregon 137 127 68 150 44 44 570 Arizona 58 98 56 90 41 111 454 Other/a/ 520 244 133 214 221 220 1,552 - ------------------------------------------------------------------------------ $2,830 $2,414 $2,199 $2,031 $720 $1,868 $12,062 - -----------------=============================================================
/a/ No other state individually exceeded 2 percent of total domestic commercial loans secured by real estate. ============================================================================== Domestic Construction and Development Loans by Geographic Area and Project Type at September 30, 1996
======================================================================================== Apartment & Light (in millions) Subdivision Retail Condominium Office Industry Hotel Other Total ======================================================================================== California $253 $244 $101 $137 $ 86 $ 74 $ 73 $ 968 Washington 227 62 64 67 24 15 66 525 Nevada 69 41 84 32 26 33 61 346 Arizona 48 11 57 1 3 - 16 136 Texas 17 23 54 1 - - 9 104 Oregon 6 17 29 12 - 3 16 83 Georgia 15 53 11 - - 1 - 80 Other/a/ 21 118 37 12 22 - 78 288 - ---------------------------------------------------------------------------------------- $656 $569 $437 $262 $161 $126 $319 $2,530 - ------------------======================================================================
/a/ No other state individually exceeded 2 percent of total domestic construction and development loans. 33 ================================================================================ Foreign Loans -- Foreign loans increased $2.2 billion, or 9 percent, between year-end 1995 and September 30, 1996. Commercial and industrial loans grew by $1.3 billion. In addition, other loans increased by $0.9 billion, primarily due to the acquisition of a transportation and industrial lease financing portfolio during the third quarter of 1996. - -------------------------------------------------------------------------------- EMERGING MARKET In connection with its effort to maintain a diversified EXPOSURE portfolio, BAC limits its exposure to any one country. In particular, BAC monitors its exposure to economies that are considered to be emerging markets. As indicated in the table below, at September 30, 1996, BAC's emerging market exposure totaled $10.5 billion, or 4 percent of total assets, compared to $8.8 billion, or 4 percent, at year-end 1995. This exposure represents loans, restructured debt, which is included in the securities portfolios, and other monetary assets. BAC's investments in emerging markets are predominantly concentrated in Latin America and Asia. As developing countries in these areas improve their economic performance, business environment, infrastructure, and regional trade capabilities, BAC expects to continue to expand its investment in these regions. ================================================================================
EMERGING MARKET EXPOSURE - ------------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1996 ------------------------------------------------------------------------------------------------ LOANS AVAILABLE-FOR-SALE SECURITIES/a/ HELD-TO-MATURITY SECURITIES/a/ --------------------- -------------------------------- -------------------------------- MEDIUM-AND (IN MILLIONS) TOTAL/c/ SHORT-TERM LONG-TERM COLLATERALIZED UNCOLLATERALIZED COLLATERALIZED UNCOLLATERALIZED - ------------------------------------------------------------------------------------------------------------------- Mexico $2,740 $ 265 $ 575/d/ $325 $18 $ 856 $161 Brazil 1,435 588 - 6 10 - 30 India 1,158 96 103 - - - - Chile 1,020 155 172 - - - - Argentina 935 238 64 - 2 - 38 China 646 274 21 - - - - Indonesia 433 248 44 - - - - Philippines 432 62 23 21 32 - - Colombia 417 120 212 - 15 - 3 Venezuela 395 20 9 19 - 288 21 Other/e/ 893 73 155 136 - - - - -------------------------------------------------------------------------------------------------------------------- $10,504 $2,139/f/ $1,378/f/ $507/g/ $77/g/ $1,144/h/ $253/h/ - ------------------==================================================================================================
OTHER/B/ ---------------------- MEDIUM-AND SHORT-TERM LONG-TERM - --------------------------------- Mexico $ 527 $ 13 Brazil 784 17 India 956 3 Chile 608 85 Argentina 559 34 China 337 14 Indonesia 140 1 Philippines 279 15 Colombia 66 1 Venezuela 19 19 Other/e/ 529 - - --------------------------------- $4,804 $202 - ---------------==================
/a/ Represents medium- and long-term exposure. /b/ Includes the following assets, primarily in U.S. dollars, with borrowers or customers in a foreign country: accrued interest receivable, acceptances, interest-bearing deposits with other banks, trading account assets, other interest-earning investments, and other monetary assets. /c/ Excludes local currency outstandings that were funded by local currency borrowings as follows: $46 million for Mexico, $54 million for Brazil, $280 million for India, $82 million for Chile, $11 million for Argentina, $99 million for Indonesia, $56 million for the Philippines, and $9 million for Venezuela. /d/ Includes a $30 million loan that is collateralized by zero-coupon U.S. Treasury securities. /e/ No other country individually exceeded 2 percent of total emerging market exposure. /f/ Total loans include nonaccrual loans of $46 million. /g/ Total available-for-sale securities includes $6 million of nonaccrual debt- restructuring bonds. /h/ Total fair value of held-to-maturity securities was approximately $1.1 billion. 34 ================================================================================ Allowance For The allowance for credit losses at September 30, 1996 was Credit Losses $3,511 million, or 2.17 percent of loans outstanding, compared with $3,554 million, or 2.29 percent, at December 31, 1995. The ratio of the allowance for credit losses to total nonaccrual assets was 314 percent at September 30, 1996, up from 188 percent at December 31, 1995. Management develops the allowance for credit losses using a "building block approach" for various portfolio segments. Significant loans, particularly those considered to be impaired, are individually analyzed, while other loans are analyzed by portfolio segment. In establishing the allowance for the portfolio segments, credit officers include results obtained from statistical models using historical loan performance data. While management has allocated the allowance to various portfolio segments, it is general in nature and is available for the loan portfolio in its entirety.
====================================================================================================================== COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 ---------------------------------------- ---------------------- (IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - ---------------------------------------------------------------------------------------------------------------------- Special mention and classified: Historical loss experience component $ 393 $ 406 $ 471 $ 506 $ 483 Credit management allocated component 375 398 380 377 439 - ---------------------------------------------------------------------------------------------------------------------- Total special mention and classified 768 804 851 883 922 Other: Domestic consumer 1,366 1,333 1,288 1,247 1,189 Domestic commercial 255 240 237 229 231 Foreign 288 283 283 300 317 - ---------------------------------------------------------------------------------------------------------------------- Total allocated 2,677 2,660 2,659 2,659 2,659 Unallocated 834 835 837 895 996 - ---------------------------------------------------------------------------------------------------------------------- $3,511 $3,495 $3,496 $3,554 $3,655 - -------------------------------------------------=====================================================================
Net credit losses for the third quarter and first nine months of 1996 were $226 million and $711 million, up $75 million and $353 million, respectively, from the same periods a year ago. These increases were largely in the domestic commercial and consumer portfolios. Domestic commercial net credit losses for the third quarter and first nine months of 1996 increased $54 million and $164 million, respectively, from the comparable periods in 1995, primarily in the construction and development, commercial and industrial, and financial institutions portfolios. The increase in net charge-offs of construction and development loans was due to lower credit recoveries in 1996. Higher charge-offs on loans to large corporate borrowers accounted for the rise in the commercial and industrial sector. Increased charge-offs on loans to financial institutions resulted primarily from a decline in the collateral value of a loan to a particular borrower. Domestic consumer net credit losses for the third quarter and first nine months of 1996 increased $36 million and $140 million, respectively, from the amounts reported in the same periods a year ago. This increase was primarily in the consumer installment and credit card categories. Higher charge-offs of consumer installment loans were driven by growth in the manufactured housing portfolio. Loan growth coupled with higher levels of personal bankruptcy filings contributed to increased charge-offs in the credit card portfolio. Foreign net credit losses in the third quarter of 1996 decreased $15 million from the comparable period in 1995. Net credit recoveries for the nine months ended September 30, 1996 were lower by $49 million compared to the same period a year ago as a result of significant recoveries on loans to borrowers in Brazil and Equador in 1995. 35
==================================================================================================================================== QUARTERLY CREDIT LOSS EXPERIENCE - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 NINE MONTHS ENDED -------------------------------------- ------------------------ SEPTEMBER 30 THIRD SECOND FIRST FOURTH THIRD ------------------ (DOLLAR AMOUNTS IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Allowance for Credit Losses Balance, beginning of period $3,495 $3,496 $3,554 $3,655 $3,695 $3,554 $3,690 Credit losses Domestic consumer: Residential first mortgages 12 12 11 12 12 35 37 Residential junior mortgages 17 16 20 19 19 53 55 Credit card 119 117 113 100 101 349 286 Other 114 104 98 83 61 316 169 Domestic commercial: Commercial and industrial 20 50 40 82 19 110 57 Loans secured by real estate 5 2 12 10 7 19 40 Construction and development loans secured by real estate 17 16 26 6 8 59 30 Financial institutions - 23 23 - 1 46 1 Lease financing 1 - - 1 - 1 - Agricultural - 1 - - - 1 3 Loans for purchasing or carrying securities - - - 5 - - - Foreign 18 2 4 13 27 24 2 - ------------------------------------------------------------------------------------------------------------------------------------ Total credit losses 323 343 347 331 255 1,013 680 Credit loss recoveries Domestic consumer: Residential first mortgages 1 - - - - 1 1 Residential junior mortgages 4 4 4 4 3 12 12 Credit card 8 9 10 7 10 27 34 Other 51 41 37 28 18 129 56 Domestic commercial: Commercial and industrial 11 21 28 22 13 60 61 Loans secured by real estate 3 2 4 6 3 9 10 Construction and development loans secured by real estate 1 3 6 3 41 10 63 Financial institutions - - 2 1 2 2 4 Lease financing 1 1 1 - 1 3 4 Agricultural - 3 - 2 2 3 5 Loans for purchasing or carrying securities - 1 - - - 1 - Foreign 17 12 16 27 11 45 72 - ------------------------------------------------------------------------------------------------------------------------------------ Total credit loss recoveries 97 97 108 100 104 302 322 - ------------------------------------------------------------------------------------------------------------------------------------ Total net credit losses 226 246 239 231 151 711 358 Provision for credit losses 235 250 180 130 110 665 310 Allowance related to mergers and acquisitions - - - - - - 3/a/ Other net additions (deductions) 7 (5) 1 - 1 3 10 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, End of Period $3,511 $3,495 $3,496 $3,554 $3,655 $3,511 $3,655 - ----------------------------------================================================================================================== Annualized Ratio of Net Credit Losses (Recoveries) to Average Loan Outstandings Domestic consumer: Residential first mortgages 0.12% 0.13% 0.11% 0.13% 0.13% 0.12% 0.14% Residential junior mortgages 0.35 0.33 0.48 0.41 0.45 0.38 0.42 Credit card 4.95 4.76 4.62 4.20 4.28 4.78 4.18 Other 1.44 1.48 1.49 1.40 1.20 1.47 1.11 Domestic commercial: Commercial and industrial 0.11 0.34 0.15 0.76 0.07 0.20 (0.02) Loans secured by real estate 0.07 - 0.29 0.13 0.16 0.12 0.38 Construction and development loans secured by real estate 2.34 1.80 2.46 0.40 (3.97) 2.20 (1.30) Financial institutions - 2.93 3.08 (0.10) (0.26) 2.08 (0.20) Lease financing - (0.18) (0.16) 0.03 (0.17) (0.12) (0.23) Agricultural - (0.19) - (0.31) (0.42) (0.18) (0.20) Loans for purchasing or carrying securities - (0.27) - 1.50 - (0.12) - Total domestic 0.66 0.77 0.76 0.75 0.42 0.73 0.46 Foreign 0.01 (0.17) (0.21) (0.26) 0.29 (0.12) (0.43) Total 0.56 0.63 0.62 0.60 0.40 0.60 0.33 Ratio of Allowance to Loans at Quarter End 2.17 2.18 2.24 2.29 2.42 2.17 2.42 Earnings Coverage of Net Credit Losses/b/ 6.15x 6.03x 5.89x 5.77x 8.75x 6.02x 10.27x - ------------------------------------------------------------------------------------------------------------------------------------
/a/ Represents the addition of consummation date allowance for credit losses of Arbor National Holdings, Inc. /b/ Earnings coverage of net credit losses is calculated as income before income taxes plus the provision for credit losses as a multiple of net credit losses. 36 ================================================================================ Nonperforming Total nonaccrual assets decreased $772 million, or 41 Assets percent, between year-end 1995 and September 30, 1996. This decrease reflected improvements in most segments of the loan portfolio, particularly in construction and development loans and in commercial and industrial loans. These improvements resulted primarily from full or partial payments on nonaccrual loans. Other significant factors that contributed to the decrease were charge-offs and the restoration of nonaccrual loans to accrual status in most loan categories, including a large construction and development real estate loan. The decrease in nonaccruals also reflects low levels of loans being placed on nonaccrual status. The improvement in BAC's credit quality during the first nine months of 1996 was also reflected in BAC's nonperforming asset ratios. At September 30, 1996, the ratio of nonaccrual loans to total loans was 0.69 percent, down from 1.22 percent at December 31, 1995. In addition, the ratio of nonperforming assets (comprised of nonaccrual assets and other real estate owned) to total assets declined 41 basis points from year-end 1995 to 0.62 percent at September 30, 1996. For further information concerning nonaccrual assets, refer to the tables below and on pages 38 and 39. ================================================================================
ANALYSIS OF CHANGE IN NONACCRUAL ASSETS - -------------------------------------------------------------------------------------------------------------------------- 1996 1995 ----------------------------------------- ------------------------ THIRD SECOND FIRST FOURTH THIRD (IN MILLIONS) QUARTER QUARTER QUARTER QUARTER QUARTER - -------------------------------------------------------------------------------------------------------------------------- Balance, beginning of quarter $1,488 $1,697 $1,891 $1,855 $1,962 Additions: Loans placed on nonaccrual status 66 129 191 532 392 Leases acquired 34 - - - - Deductions: Sales (4) (26) (67) (21) (8) Restored to accrual status (229) (37) (60) (70) (151) Foreclosures (5) (6) (11) (32) (55) Charge-offs (51) (77) (90) (92) (35) Other, primarily payments (180) (192) (157) (281) (250) - -------------------------------------------------------------------------------------------------------------------------- Balance, End of Quarter $1,119 $1,488 $1,697 $1,891 $1,855 -----------------------------------------================================================================================
37 ================================================================================
NONACCRUAL ASSETS, RESTRUCTURED LOANS, AND LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING INTEREST - ----------------------------------------------------------------------------------------------------------------------------- 1996 1995 ------------------------------------------ -------------------------- (IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - ----------------------------------------------------------------------------------------------------------------------------- Nonaccrual Assets Domestic consumer loans: Residential first mortgages $ 233 $ 272 $ 301 $ 311 $ 314 Residential junior mortgages 55 66 69 72 67 Other consumer 3 4 3 2 3 Domestic commercial loans: Commercial and industrial 323 381 457 511 612 Loans secured by real estate 229 245 251 280 329 Construction and development loans secured by real estate 119 346 417 495 304 Financial institutions 5 4 25 46 2 Lease financing 1 3 - - 1 Agricultural 28 34 33 29 35 - ----------------------------------------------------------------------------------------------------------------------------- 996 1,355 1,556 1,746 1,667 Foreign loans, primarily commercial 122 130 138 142 185 Other interest-bearing assets 1 3 3 3 3 - ------------------------------------------------------------------------------------------------------------------------------ $1,119/a/ 1,488/a/ 1,697/a/ 1,891/a/ 1,855/a/ - -------------------------------------------------============================================================================= Restructured Loans Domestic commercial: Commercial and industrial $ 21 $ 29 $ 29 $ 78 $ 78 Loans secured by real estate 236 55 60 18 19 Construction and development loans secured by real estate 16 15 1 15 3 Agricultural - - - 1 1 - ------------------------------------------------------------------------------------------------------------------------------ 273 99 90 112 101 Foreign/b/ 1 4 1 1 1 - ------------------------------------------------------------------------------------------------------------------------------ $ 274 $ 103 $ 91 $ 113 $ 102 - -------------------------------------------------============================================================================= Loans Past Due 90 Days or More and Still Accruing Interest Domestic consumer: Residential first mortgages $ 145 $ 133 $ 163 $ 180 $ 181 Residential junior mortgages 8 5 8 12 19 Other consumer 179 173 165 162 141 Domestic commercial: Commercial and industrial 11 31 10 20 30 Loans secured by real estate 9 5 8 1 62 Construction and development loans secured by real estate 4 21 - - 4 Financial institutions - 21 1 16 1 Lease financing - - 1 1 - Agricultural 4 - - - - - ------------------------------------------------------------------------------------------------------------------------------ 360 389 356 392 438 Foreign 3 - 4 19 1 - ------------------------------------------------------------------------------------------------------------------------------ $ 363 $ 389 $ 360 $ 411 $ 439 - -------------------------------------------------=============================================================================
/a/ Excludes certain nonaccrual debt-restructuring par bonds and other instruments that were included in available-for-sale and held-to-maturity securities of $62 million at September 30, 1996, $6 million at June 30, 1996, $5 million at March 31, 1996, $62 million at December 31, 1995, and $189 million at September 30, 1995. /b/ Excludes debt restructurings with countries that have experienced liquidity problems of $1.6 billion at September 30, 1996, $1.6 billion at June 30, 1996, $1.6 billion at March 31, 1996, $1.6 billion at December 31, 1995, and $1.9 billion at September 30, 1995. The majority of these instruments were classified as either available-for-sale or held-to-maturity securities. 38
================================================================================ INTEREST INCOME FOREGONE ON NONACCRUAL ASSETS - -------------------------------------------------------------------------------- NINE MONTHS ENDED (IN MILLIONS) SEPTEMBER 30, 1996 - -------------------------------------------------------------------------------- DOMESTIC Interest income that would have been recognized had the assets performed in accordance with their original terms $187 Less: Interest income included in the results of operations 53 - -------------------------------------------------------------------------------- Domestic interest income foregone 134 FOREIGN Interest income that would have been recognized had the assets performed in accordance with their original terms 19 Less: Interest income included in the results of operations 9 - -------------------------------------------------------------------------------- Foreign interest income foregone 10 - -------------------------------------------------------------------------------- $144 - ----------------------------------------------------------------------------====
============================================================================================================================== CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE/a/ - ------------------------------------------------------------------------------------------------------------------------------ SEPTEMBER 30, 1996 ------------------------------------------------------------------------------ CUMULATIVE BOOK AS A CONTRACTUAL INTEREST NONACCRUAL PERCENTAGE PRINCIPAL CUMULATIVE APPLIED BOOK OF (DOLLAR AMOUNTS IN MILLIONS) BALANCE CHARGE-OFFS TO PRINCIPAL BALANCE CONTRACTUAL - ------------------------------------------------------------------------------------------------------------------------------ DOMESTIC Consumer: Residential first mortgages $ 236 $ 2 $ 1 $ 233 99% Residential junior mortgages 55 - - 55 100 Other consumer 10 6 1 3 31 Commercial: Commercial and industrial 649 249 77 323 50 Loans secured by real estate 359 107 23 229 64 Construction and development loans secured by real estate 267 131 17 119 44 Financial institutions 56 50 1 5 8 Lease financing 1 - - 1 100 Agricultural 45 11 6 28 62 - ------------------------------------------------------------------------------------------------------------------------------ 1,678 556 126 996 59 FOREIGN, PRIMARILY COMMERCIAL 247 100 24 123 50 - ------------------------------------------------------------------------------------------------------------------------------ $1,925 $656 $150 $1,119 58% - -----------------------------------------------------========================================================================= CASH YIELD ON AVERAGE TOTAL NONACCRUAL BOOK BALANCE - ------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1996 --------------------------------------------------- CASH INTEREST AVERAGE PAYMENTS APPLIED NONACCRUAL ----------------------------------- BOOK AS INTEREST (DOLLAR AMOUNTS IN MILLIONS) BALANCE INCOME OTHER/b/ TOTAL - -------------------------------------------------------------------------------------------------------- DOMESTIC Consumer: Residential first mortgages $ 278 $ 9 $ 1 $ 10 Residential junior mortgages 66 4 - 4 Other consumer 2 - 1 1 Commercial: Commercial and industrial 417 17 17 34 Loans secured by real estate 250 9 5 14 Construction and development loans secured by real estate 325 11 10 21 Financial institutions 18 - - - Lease financing 1 - - - Agricultural 32 3 1 4 - -------------------------------------------------------------------------------------------------------- 1,389 53 35 88 FOREIGN, PRIMARILY COMMERCIAL 131 9 13 22 - -------------------------------------------------------------------------------------------------------- $1,520 $62 $48 $110 - ---------------------------------------------------------=============================================== CASH YIELD ON AVERAGE TOTAL NONACCRUAL BOOK BALANCE 9.68% - --------------------------------------------------------------------------------------------------------
/a/ Includes information related to all nonaccrual loans including those that are fully charged off or otherwise have a book balance of zero. /b/ Primarily represents cash interest payments applied to principal. Also includes cash interest payments accounted for as credit loss recoveries, which are recorded as increases to the allowance for credit losses. 39 FOREIGN EXCHANGE AND DERIVATIVES CONTRACTS ================================================================================ BAC uses foreign exchange and derivatives contracts in both its trading and its asset and liability management activities. Foreign exchange and derivatives contracts include swaps, futures, forwards, and option contracts, all of which derive their value from underlying interest rates, foreign exchange rates, commodity values, or equity instruments. Certain transactions involve standardized contracts executed on organized exchanges, while others are negotiated over the counter, with the terms tailored to meet the needs of BAC and its customers. BAC executes transactions to aid its customers in managing exposures to interest rates, foreign exchange rates, prices of securities, and financial or commodity indices. Counterparties to BAC's foreign exchange and derivative transactions generally include U.S. and foreign banks, nonbank financial institutions, corporations, domestic and foreign governments, and asset managers. BAC generates trading revenue by executing transactions to support customers' risk management needs, by efficiently managing the positions that result from these transactions, and by making markets in a wide variety of products. As an end user, BAC employs foreign exchange contracts to hedge foreign exchange risk and derivatives contracts to hedge interest rate risk and foreign exchange risk in connection with its own asset and liability management activities. More specifically, BAC primarily uses interest rate derivatives instruments to manage the interest rate risk associated with its assets and liabilities, including residential loans, long-term debt, and deposits. Similar to on-balance-sheet financial instruments such as loans and investment securities, off-balance-sheet financial instruments subject BAC to various types of risks. These risks include credit risk (the risk that a loss may occur from the failure of a customer to perform according to the terms of the contract), market risk (the sensitivity of future earnings to price or rate changes), liquidity risk (the risk of BAC being unable to meet its funding requirements or execute a transaction at a reasonable price), and operational risk (the risk that inadequate internal controls, procedures, human error, system failure, or fraud may result in unexpected losses). For a detailed discussion of these risks and how they are managed, refer to pages 27-29, and 38-42 of BAC's 1995 Annual Report to Shareholders. For additional information concerning foreign exchange and derivatives contracts, including their respective notional, credit risk, credit exposure, and fair value amounts, refer to Note 7 of the Notes to Consolidated Financial Statements on pages 8-13. 40 INTEREST RATE RISK MANAGEMENT ================================================================================ BAC's governing objective in interest rate risk management is to minimize the potential for significant loss as a result of changes in interest rates. Risk is measured in terms of potential impact on both its economic value and reported earnings. Economic value calculations measure changes in the present value of future net cash flows from all assets and liabilities until maturity. Those changes can result from interest rate movements or from altered expectations of future market conditions. BAC measures earnings variability by estimating the potential effect of changes in interest rates on projected net income over a three-year period. BAC measures and manages interest rate risk by type of risk. To minimize exposures to declines in economic value due to gap mismatches, BAC's policy is that assets and liabilities must have approximately equal total duration. This policy protects against losses of economic value in the event of major upward and downward interest rate movements. BAC uses an internally developed model to translate the mismatch in each repricing period (i.e., the "gap") into a one-year mismatch with the same economic risk. [GRAPH OF NET INTEREST RATE RISK POSITION APPEARS HERE]
Net Interest Rate Risk Position (IN BILLIONS OF DOLLARS) 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 9/30/96 Net Interest Rate Risk Position $(8.1) $(6.9) $ 1.0 $(2.8) $0.0 $(1.7)
Graph indicates the composite net asset (+) or net liability (-) repricing position measured across the entire maturity mismatch profile and expressed as a one-year mismatch position bearing the same aggregate level of risk. For example, a six-month gap of $200 million is treated as having approximately the same economic risk as a one-year gap of $100 million. As shown in the graph above, BAC's net one-year position has been essentially balanced throughout the last five years. Gap mismatches result from timing differences in the repricing of assets, liabilities, and off-balance-sheet financial instruments. Expected interest rate sensitivity of individual categories of U.S. dollar-denominated assets and liabilities as of September 30, 1996 is shown in the table on page 42. 41
=========================================================================================================================== U.S. Dollar Denominated Interest Rate Sensitivity by Repricing or Maturity Dates - --------------------------------------------------------------------------------------------------------------------------- September 30, 1996 ----------------------------------------------------------------------- (Greater than) (Greater than) OVER (IN BILLIONS) 0-6 MONTHS 6-12 MONTHS 1-5 YEARS 5 YEARS TOTAL - ---------------------------------------------------------------------------------------------------------------------------- Domestic Assets Federal funds sold and securities purchased under resale agreements $ 1.5 $ - $ - $ - $ 1.5 Trading account securities 1.6 - - - 1.6 Loans: Prime indexed 16.9 - - - 16.9 Adjustable rate residential first mortgages 9.0 5.3 5.9 4.3 24.5 Other loans, net 45.7 7.7 18.7 13.0 85.1 Other assets 12.3 0.9 13.9 8.8 35.9 -------------------------------------------------------------------------------------------------------------------------- Domestic Assets 87.0 13.9 38.5 26.1 165.5 -------------------------------------------------------------------------------------------------------------------------- Domestic Liabilities and Stockholders' Equity Domestic deposits (64.6) (9.8) (22.7) (18.4) (115.5) Other short-term borrowings (11.5) (1.5) (0.2) - (13.2) Long-term debt and subordinated capital notes (11.2) (0.4) (3.1) (4.8) (19.5) Other liabilities and stockholders' equity (4.0) (0.8) (9.0) (16.3) (30.1) - ---------------------------------------------------------------------------------------------------------------------------- Domestic Liabilities and Stockholders' Equity (91.3) (12.5) (35.0) (39.5) (178.3) Offshore Funding Books, net (1.8) 0.4 0.3 1.1 - - ---------------------------------------------------------------------------------------------------------------------------- Core Gap Before Risk Management Positions (6.1) 1.8 3.8 (12.3) (12.8) - ---------------------------------------------------------------------------------------------------------------------------- Interest Rate Risk Management Positions Investment securities/a/ 1.9 1.5 4.0 5.4 12.8 Off-balance-sheet financial instruments/b/ 3.7 (4.1) (6.2) 6.6 - - ---------------------------------------------------------------------------------------------------------------------------- Total Interest Rate Risk Management Positions 5.6 (2.6) (2.2) 12.0 12.8 - ---------------------------------------------------------------------------------------------------------------------------- Net Gap (0.5) (0.8) 1.6 (0.3) - - ---------------------------------------------------------------------------------------------------------------------------- Cumulative Gap $(0.5) $ (1.3) $ 0.3 $ - $ - - ----------------------------------------------------------------------------------------------------------------------------
/a/ Available-for-sale and held-to-maturity securities. /b/ Represents the repricing effect of off-balance-sheet positions, which include interest rate swaps, futures contracts, and similar agreements. At September 30, 1996, BAC had a "core" imbalance before risk management positions as liabilities and equity exceeded assets by approximately $13 billion. BAC's risk management activities eliminated this imbalance while containing the size of net gap mismatches in individual repricing periods. Investment securities and "received fixed" swaps essentially neutralized core gaps beyond five years. 42 FUNDING AND CAPITAL ================================================================================ LIQUIDITY BAC's liquid assets consist of cash and due from banks, REVIEW interest-bearing deposits in banks, federal funds sold, securities purchased under resale agreements, trading account assets, and available-for-sale securities. Liquid assets totaled $51.8 billion at September 30, 1996, up $4.4 billion, or 9 percent, from year-end 1995. The growth in liquid assets was primarily attributable to increases in trading account assets and securities purchased under resale agreements. - -------------------------------------------------------------------------------- CAPITAL At September 30, 1996, total stockholders' equity totaled MANAGEMENT $20.5 billion, an increase of $0.3 billion from year-end 1995 primarily due to an increase of $0.7 billion in common equity partially offset by a $0.4 billion decline in preferred stock. Common equity rose $0.7 billion during the first nine months of 1996 primarily due to earnings net of common and preferred stock dividends of $1.4 billion and shares issued in connection with restricted stock bonus plans and other employee benefit related plans of $0.2 billion. Partially offsetting these increases was a reduction of $0.9 billion due to repurchases of common stock. During the first nine months of 1996, BAC repurchased 12.3 million shares of its common stock at an average price per share of $73.25, reflecting the corporation's ongoing efforts to return excess capital to its shareholders. This included the repurchase of 2.5 million shares during the third of 1996 at an average price per share of $78.48, which reduced third-quarter common equity by $0.2 billion. The shares were repurchased on the open market over 31 trading days and represented approximately seven percent of the total volume of BAC common stock traded on those days. For additional information regarding the stock repurchase program, refer to Note 4 of the Notes to Consolidated Financial Statements on page 7. The decline in BAC's preferred stock of $0.4 billion resulted from the redemptions of all 400,000 outstanding shares of its 11% Preferred Stock, Series J, on March 31, 1996 and all 7,250,000 outstanding shares of its 9 5/8% Cumulative Preferred Stock, Series F, on April 16, 1996. For additional information regarding preferred stock, refer to Note 4 of the Notes to Consolidated Financial Statements on Page 7. BAC's risk-based capital ratios continued to exceed regulatory guidelines for "well-capitalized" status. BAC's total risk- based capital ratio and Tier 1 risk-based capital ratio decreased 13 basis points and 5 basis points, respectively, between December 31, 1995 and September 30, 1996. This decrease primarily resulted from an increase in total risk- weighted assets, in particular, loans, trading account assets, and standby letters of credit. During the redemption and repurchase period associated with the common and preferred stock buyback programs, BAC's targeted Tier 1 risk-based capital ratio is approximately 7.3 percent. However, the achievement of this objective is necessarily uncertain and there is a risk that actual results may differ materially due to a variety of factors. BAC's Tier 1 leverage ratio was 6.90 percent at September 30, 1996, compared with 6.92 percent at December 31, 1995. 43
================================================================================================================================= RISK-BASED CAPITAL, RISK-WEIGHTED ASSETS, AND RISK-BASED CAPITAL RATIOS - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 --------------------------------------- ----------------------- (DOLLAR AMOUNTS IN MILLIONS) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 - --------------------------------------------------------------------------------------------------------------------------------- RISK-BASED CAPITAL Common stockholders' equity $ 18,297 $ 17,945 $ 17,800 $ 17,598 $ 17,289 Qualified perpetual preferred stock 2,242 2,242 2,242 2,623 2,623 Less: Goodwill, nongrandfathered core deposit and other identifiable intangibles, and other deductions/a/ (5,007) (5,068) (5,114) (5,230) (5,352) - --------------------------------------------------------------------------------------------------------------------------------- Tier 1 capital 15,532 15,119 14,928 14,991 14,560 Eligible portion of the allowance for credit losses 2,673 2,651 2,571 2,566 2,526 Hybrid capital instruments 142 142 214 214 214 Subordinated notes and debentures 6,001 6,072 5,934 5,798 5,865 Less: Other deductions (174) (164) (135) (153) (148) - --------------------------------------------------------------------------------------------------------------------------------- Tier 2 capital 8,642 8,701 8,584 8,425 8,457 - --------------------------------------------------------------------------------------------------------------------------------- Total 24,174 23,820 23,512 23,416 23,017 Less: Investments in unconsolidated banking and finance subsidiaries/b/ (49) (48) (47) - - - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RISK-BASED CAPITAL $ 24,125 $ 23,772 $ 23,465 $ 23,416 $ 23,017 - --------------------------------------------------------------------------------------------------------------------------------- RISK-WEIGHTED ASSETS Balance sheet assets: Trading account assets $ 5,257 $ 5,289 $ 3,771 $ 3,506 $ 3,457 Available-for-sale and held-to-maturity securities 4,812 4,769 5,029 5,007 5,238 Loans 137,360 135,403 132,256 132,504 128,826 Other assets 17,435 16,314 17,667 16,725 17,026 - --------------------------------------------------------------------------------------------------------------------------------- Total balance sheet assets 164,864 161,775 158,723 157,742 154,547 - --------------------------------------------------------------------------------------------------------------------------------- Off-balance-sheet items: Unused commitments 26,721 26,485 24,991 26,268 25,269 Standby letters of credit 14,518 15,832 13,675 12,888 13,138 Foreign exchange and derivatives contracts 4,535 4,425 4,617 4,530 4,927 Other 1,990 2,390 2,474 2,567 2,783 - --------------------------------------------------------------------------------------------------------------------------------- Total off-balance-sheet items 47,764 49,132 45,757 46,253 46,117 - --------------------------------------------------------------------------------------------------------------------------------- TOTAL RISK-WEIGHTED ASSETS $212,628 $210,907 $204,480 $203,995 $200,664 - --------------------------------------------------------------------------------------------------------------------------------- RISK-BASED CAPITAL RATIOS TIER 1 CAPITAL RATIO 7.30% 7.17% 7.30% 7.35% 7.26% TOTAL CAPITAL RATIO 11.35 11.27 11.48 11.48 11.47 TIER 1 LEVERAGE RATIO 6.90 6.75 6.77 6.92 6.80 - ---------------------------------------------------------------------------------------------------------------------------------
/a/ Includes nongrandfathered CDI and other identifiable intangibles acquired after February 19, 1992 of $795 million and $69 million, respectively, at September 30, 1996, $814 million and $72 million, respectively, at June 30, 1996, $830 million and $75 million, respectively, at March 31, 1996, $856 million and $78 million, respectively, at December 31, 1995, and $877 million and $90 million, respectively, at September 30, 1995. Also includes $9 million, $1 million, and $24 million, at March 31, 1996, December 31, 1995, and September 30, 1995, respectively, of the excess of the net book value over 90 percent of the fair value of mortgage servicing rights and credit card intangibles. There was no such excess amount subsequent to March 31, 1996. /b/ Effective in the first quarter of 1996, the Federal Reserve Board adopted the Office of the Comptroller of the Currency's treatment of deducting investments in unconsolidated banking and finance subsidiaries from total capital. Prior to March 31, 1996, this amount was included in "other deductions," with half of the investment deducted from Tier 1 and the other half deducted from Tier 2 capital. 44 OTHER INFORMATION ============================================================================ ITEM 6. (a) Exhibits: EXHIBITS AND REPORTS ON Exhibit FORM 8-K Number Exhibit ------ ------- 10 BankAmerica Corporation 1992 Management Stock Plan, as amended* 27 Financial Data Schedule - ---------------------------------------------------------------------------- *Management contract or compensatory plan, contract, or arrangement. (b) Reports on Form 8-K: During the third quarter of 1996, the Parent filed a report on Form 8-K dated July 17, 1996. The July 17, 1996 report filed, pursuant to Items 5 and 7 of the report, a copy of the Parent's press release titled "BankAmerica Second Quarter Earnings." After the third quarter of 1996, the Parent filed a report on Form 8-K dated October 16, 1996. The October 16, 1996 report filed, pursuant to Items 5 and 7 of the report, a copy of the Parent's press release titled "BankAmerica Third Quarter Earnings." 45 SIGNATURES ================================================================================ Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BANKAMERICA CORPORATION Registrant By Principal Financial Officer and Duly Authorized Signatory: /s/ MICHAEL E. O'NEILL ------------------------------- Michael E. O'Neill Vice Chairman and Chief Financial Officer November 13, 1996 By Chief Accounting Officer and Duly Authorized Signatory: /s/ JOHN J. HIGGINS ------------------------------- John J. Higgins Executive Vice President and Controller November 13, 1996 46 [Bank America Logo goes here] BankAmerica Corporation Other information about BankAmerica Corporation may be found in its Annual Report to Shareholders. This report, as well as additional copies of this Analytical Review and Form 10-Q, may be obtained from: Bank of America Corporate Public Relations #13124 P.O. Box 37000 San Francisco, CA 94137 Information Online - To keep current online via the Internet, visit BankAmerica Corporation's home page on the World Wide Web (http://www.bankamerica.com) to view the latest information about the corporation and its products and services, or apply for a loan or credit card. Corporate disclosure documents filed with the Securities and Exchange Commission by BankAmerica Corporation and other companies can be obtained from the Securities and Exchange Commission's home page on the World Wide Web (http://www.sec.gov). [Recycled Paper Recycled logo goes here] Paper GRAPHICS APPENDIX INDEX
BankAmerica Corporation Third Quarter 1996 10-Q page reference Description of omitted graphic - -------------------------- ------------------------------ 41 Net Interest Rate Risk Position (Plot point graph in non-EDGAR version)
EXHIBIT INDEX Exhibit Reference Description - --------- ----------- 10 BankAmerica Corporation 1992 Management Stock Plan, as amended* 27 Financial Data Schedule - --------- * Management contract or compensatory plan, contract, or arrangement. EX-10 2 BAC 1992 MANAGEMENT STOCK PLAN, AS AMENDED Exhibit 10 [LOGO OF BANKAMERICA CORPORATION APPEARS HERE] BankAmerica Corporation 1992 MANAGEMENT STOCK PLAN As adopted March 2, 1992 and amended through February 5, 1996 BANKAMERICA CORPORATION 1992 MANAGEMENT STOCK PLAN TABLE OF CONTENTS
Page ---- ARTICLE I GENERAL................................................................ 1 1.1 Background of Plan............................................... 1 1.2 Purpose of the Plan.............................................. 1 1.3 Definitions...................................................... 1 1.4 Administration of Plan........................................... 5 1.5 Eligibility to Receive Grants and Awards......................... 6 1.6 Types of Grants and Awards Under Plan............................ 6 1.7 Limitation on Available Shares................................... 6 1.8 Effective Date and Term of Plan.................................. 7 1.9 Limitation on Options and SARS Awardable to Any Single Participant............................................... 8 ARTICLE II INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS................ 8 2.1 Grant of Stock Options........................................... 8 2.2 Award Agreements................................................. 8 2.3 Option Price..................................................... 9 2.4 Option Period.................................................... 9 2.5 Limitation on ISOs............................................... 9 2.6 Manner of Paying Option Price.................................... 10 2.7 Exercise of Option............................................... 10 2.8 Cancellation of SARs............................................. 10 2.9 Cancellation and Regrant of Options.............................. 10 ARTICLE III STOCK APPRECIATION RIGHTS.............................................. 10 3.1 Grant of Stock Appreciation Rights............................... 10 3.2 Form and Timing of Payment....................................... 11 3.3 Cancellation of Related Options.................................. 11 ARTICLE IV RESTRICTED STOCK AND RESTRICTED STOCK UNITS............................ 12 4.1 Introduction..................................................... 12 4.2 Award of Restricted Stock and Restricted Stock Units............................................................ 12 4.3 Minimum Restrictions on Disposition.............................. 12 4.4 Optional Restrictions............................................ 13 4.5 Termination of Employment of Restricted Stockholder for Gross Misconduct............................................. 13
i 4015376.05
Page ---- 4.6 Termination of Employment of Restricted Stockholder not Involving Gross Misconduct................................... 13 4.7 Registration and Escrow.......................................... 14 4.8 Payment in Respect of Restricted Stock Units..................... 14 4.9 Dividends on Restricted Stock.................................... 15 4.10 Voting Rights.................................................... 15 ARTICLE V OTHER STOCK-BASED AWARDS............................................... 15 5.1 Other Stock-Based Awards......................................... 15 ARTICLE VI MISCELLANEOUS.......................................................... 15 6.1 Notices.......................................................... 15 6.2 Amendments of Plan............................................... 16 6.3 Leaves of Absence................................................ 16 6.4 Dilution and Other Adjustments................................... 16 6.5 General Restriction.............................................. 17 6.6 Change in Control................................................ 17 6.7 Withholding Taxes................................................ 18 6.8 Non-Assignability................................................ 18 6.9 No Right to Employment........................................... 19 6.10 Rights as Shareholder............................................ 19 6.11 Entire Plan...................................................... 20 6.12 Governing Law.................................................... 20 6.13 Delegation....................................................... 20 6.14 Foreign Employees................................................ 20
ii 4015376.05 BANKAMERICA CORPORATION 1992 MANAGEMENT STOCK PLAN ARTICLE I GENERAL 1.1 Background of Plan. BankAmerica Corporation hereby establishes the BankAmerica Corporation 1992 Management Stock Plan (the "Plan"). The Plan provides for the grant of stock options on BankAmerica Corporation Common Stock, and for the grant of restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards. The Plan is the successor to the BankAmerica Corporation 1987 Management Stock Plan. 1.2 Purpose of the Plan. The purpose of the Plan is to provide contingent financial incentive to key executive officers of BankAmerica Corporation and its present and future Subsidiaries (as defined below) and other employees whose participation in the Plan is deemed to be in the best interests of BankAmerica Corporation. The Plan will offer competitive levels of incentive compensation related to long-term corporate financial performance to those key officers and other employees of the Company who, by virtue of their position and efforts, contribute to or substantially influence the financial success of BankAmerica Corporation over multiple-year periods. The Plan is also intended as a means of increasing officer shareholdings, thereby strengthening the commonality of interest between BankAmerica shareholders and key officers and other employees in the Company's management, and as an aid in attracting, retaining and motivating key officers and other employees of outstanding abilities and specialized skills. 1.3 Definitions. As used in the Plan and the related Award Agreements, the following terms, when written with initial capital letters, will have the meanings stated below: (a) Award means any grant or award of an Option, Restricted Stock, Restricted Stock Unit, SAR or Other Stock-Based Award under the Plan. (b) Award Agreement means any written agreement between BankAmerica and an employee of the Company pursuant to which a grant or award is made under the Plan. The Committee shall determine the provisions of each Award Agreement subject to the provisions hereof. (c) BankAmerica means BankAmerica Corporation, a Delaware corporation. (d) Board means Board of Directors of BankAmerica. 1 4015376.05 (e) Change in Control means that one of the following events has occurred: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of BankAmerica (the "Outstanding BankAmerica Common Stock") or (ii) the combined voting power of the then outstanding voting securities of BankAmerica entitled to vote generally in the election of directors (the "Outstanding BankAmerica Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from BankAmerica, (B) any acquisition by BankAmerica, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) below. (ii) Individuals who, as of August 7, 1995, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to August 7, 1995 whose election, or nomination for election by BankAmerica's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of BankAmerica or any of its subsidiaries (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding BankAmerica Common Stock and Outstanding BankAmerica Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 70% (80% in the case of any Award 2 4015376.05 made prior to February 5, 1996) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns BankAmerica or all or substantially all of BankAmerica's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding BankAmerica Common Stock and Outstanding BankAmerica Voting Securities, as the case may be, (provided, however, that, for the purposes of this clause (A), any shares of common stock or voting securities of such resulting corporation received by such beneficial owners in such Business Combination other than as the result of such beneficial owners' ownership of Outstanding BankAmerica Common Stock or Outstanding BankAmerica Voting Securities immediately prior to such Business Combination shall not be considered to be owned by such beneficial owners for the purposes of calculating their percentage of ownership of the outstanding common stock and voting power of the resulting corporation), (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation unless such Person owned 20% or more of the Outstanding BankAmerica Common Stock or Outstanding BankAmerica Voting Securities immediately prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. (iv) Approval by the shareholders of BankAmerica of a complete liquidation or dissolution of BankAmerica. (f) Committee means the Executive Personnel and Compensation Committee of the Board. (g) Common Stock means shares of BankAmerica's common stock, $1.5625 par value per share. 3 4015376.05 (h) Company means BankAmerica and its Subsidiaries, collectively. (i) The Fair Market Value of a share of Common Stock on any date means the average of the high and low sales prices of a share of Common Stock as reflected in the report of consolidated trading of New York Stock Exchange listed securities for that day (or, if no shares were publicly traded on that day, the immediately preceding day that shares were so traded) published in The Wall Street Journal or in any other publication selected by the Committee; provided, however, that if shares of Common Stock shall not have been publicly traded for more than ten days immediately preceding such date, then the fair market value of a share of Common Stock shall be determined by the Committee in such manner as it may deem appropriate. (j) Major Combination means a merger, acquisition or other business combination in which the number of shares of Common Stock outstanding as of the close of business on the effective date of the combination is at least 10% greater than the number of shares of Common Stock outstanding prior to the effective date of the combination. (k) 1987 Plan means the plan adopted by the Board of Directors of BankAmerica Corporation on April 6, 1987, as amended, pursuant to which BankAmerica Corporation has issued non-qualified stock options, incentive stock options, performance stock options, and restricted stock to key officers and other employees of BankAmerica and to other individuals whose participation in the 1987 Plan was deemed to be in the best interests of BankAmerica. (l) Option means an option to purchase shares of the Common Stock, and shall be one of two kinds: (i) Incentive Stock Options ("ISOs") and (ii) Non-Qualified Stock Option ("NQSOs"). The Company intends the ISOs shall meet the requirements of Section 422A of the Internal Revenue Code and the regulations thereunder applicable to incentive stock options, and that NQSOs shall not meet such requirements. (m) Optionee means the holder of an Option. (n) Other Stock-Based Award means an Award granted pursuant to Section 5.1 of the Plan. (o) Participant means an officer or employee designated to receive a grant or award under the Plan. 4 4015376.05 (p) Restricted Stock means Common Stock issued or delivered pursuant to Article IV with the restrictions set forth therein. (q) Restricted Stock Unit means any right granted pursuant to Article IV that is denominated in shares of Common Stock. (r) Retirement means, with respect to grants and awards made on or after August 2, 1993, the last day of employment with BankAmerica or one of its subsidiaries prior to the employee's retirement at normal retirement age under a retirement program of BankAmerica or one of its Subsidiaries; and, with respect to grants and awards made before August 2, 1993, the last day of employment with BankAmerica or one of its subsidiaries prior to the employee's retirement under a retirement program of BankAmerica or one of its subsidiaries. (s) Stock Appreciation Right ("SAR") has the meaning set forth in Section 3.1. (t) Subsidiary means any corporation of which BankAmerica owns, directly or indirectly, twenty percent or more of the voting stock. (u) Window Period means the time period described in Section 3.2 hereof. 1.4 Administration of Plan. (a) The Plan shall be administered by the Committee. The Committee shall consist of at least three members of the Board, none of whom shall be, while serving on the Committee, eligible to receive a grant or award under the Plan or under any other plan of the Company or its affiliates under which the participants are entitled to acquire Common Stock, stock options, restricted stock, restricted stock units, and related rights, stock appreciation rights or other stock-based awards of the Company or any of its affiliates. Members of the Committee shall serve at the pleasure of the Board. Notwithstanding the foregoing, all grants and awards under the Plan to the Chief Executive Officer of BAC shall be approved or ratified by the Board. (b) Subject to the provisions of the Plan, the Committee shall have sole, final, and conclusive authority to determine: (i) the employees to whom Awards shall be made; (ii) the number of shares of Common Stock to be optioned, granted or awarded to each such employee; (iii) whether and to what extent an Optionee may use already-owned shares of Common Stock to exercise Options; 5 4015376.05 (iv) the restrictions to be imposed on each share of Restricted Stock and on Restricted Stock Units awarded pursuant to Article IV of this Plan, which shall not be less than the minimum restrictions set forth therein; (v) which Options granted shall be Incentive Stock Options, and which shall be Non-Qualified Stock Options; (vi) the price to be paid for the shares upon the exercise of each Option, which shall be not less than 100% of the Fair Market Value per share, as determined by the Committee, of the Common Stock at the time of granting the Option; (vii) the period within which each Option shall be exercised; (viii) the terms and conditions of each Award Agreement between BankAmerica and an employee to whom the Committee has made an Award, which, however, shall be in accordance with the provisions of the Plan; and (ix) subject to the provisions of Section 6.13, the Committee shall have the power, authority, and sole discretion to construe, interpret and administer the Plan. The Committee's decisions construing, interpreting and administering the Plan shall be conclusive and binding on all parties. 1.5 Eligibility to Receive Grants and Awards. Employees of BankAmerica or of any of its Subsidiaries who shall, in the judgment of the Committee be qualified by position, training or ability to contribute substantially to the progress of BankAmerica, shall be eligible to receive grants and awards under the Plan. 1.6 Types of Grants and Awards Under Plan. Grants and awards under the Plan may be in the form of any one or more of the following: (i) Incentive Stock Options, (ii) Non-Qualified Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock Units, (v) Restricted Stock or (vi) Other Stock- Based Awards. 1.7 Limitation on Available Shares. For each calendar year from and including 1995 a number of shares of Common Stock in an amount of up to one and one-half percent (1.5%) of the number of shares of Common Stock outstanding as reported in the annual report to shareholders of BankAmerica for the preceding year shall become available for delivery with respect to Awards under the Plan, provided, however, that as of the effective date of any Major Combination (as - -------- ------- defined in Section 1.3) the number of shares available for delivery in that year with respect to Awards under the Plan shall be increased to one and one-half percent (1.5%) of the number of shares of Common Stock outstanding as of the close of 6 4015376.05 business on the effective date of that Major Combination. Shares of Common Stock delivered under the Plan may be original issue shares, shares purchased in the open market or otherwise or other treasury stock. In addition, (a) any shares of Common Stock which as of the effective date of the Plan are reserved for delivery under the 1987 Plan and which are not thereafter delivered, and (b) any shares of Common Stock available for delivery under the Plan in previous years but not actually delivered, shall be added to the aggregate number of shares of Common Stock available for delivery in that calendar year under the Plan; provided, however, that no more than 30 percent -------- ------- (30%) of the shares of Common Stock available for delivery under the Plan in any calendar year shall be delivered in respect of Restricted Stock or Restricted Stock Units. Notwithstanding the foregoing, but subject to adjustment as provided in Section 6.4, no more than 5,000,000 shares shall be cumulatively available under the Plan for delivery upon the exercise of ISOs. The Committee shall have no obligation to grant or award all or any portion of the shares available for delivery in any year. The Board may, by resolution, limit the number of shares that may be available for delivery with respect to Awards under the Plan in any calendar year to a number of shares lower than would otherwise be available for delivery hereunder. Shares of Common Stock subject to Awards under the Plan that for any reason are cancelled or terminated, or expire, shall again be available for delivery under the Plan. Shares of Restricted Stock and Restricted Stock Units that for any reason are reacquired by BankAmerica pursuant hereto shall again be available for delivery under the Plan; provided, however, that shares of Restricted Stock or -------- ------- Restricted Stock Units as to which dividends or payments equivalent to dividends have been paid to or reinvested for the account of the Restricted Stockholder prior to reacquisition by BankAmerica shall not again be available for delivery under the Plan after such reacquisition. Notwithstanding the foregoing, neither (i) shares of Common Stock transferred or relinquished to the Company upon the exercise of an Option or in satisfaction of any withholding obligation, nor (ii) shares of Common Stock subject to an Award denominated in shares of Common Stock but settled by the payment of cash in accordance with the Plan, shall again be available for delivery under the Plan. 1.8 Effective Date and Term of Plan. (a) The Plan shall become effective on March 2, 1992 and the Committee may, in its discretion, make grants and awards to eligible key officers and other employees of the Company as of that date, subject, however, to the approval of the Plan by the shareholders of BankAmerica at the 1992 annual meeting of shareholders. In the event the Plan is 7 4015376.05 not approved at such meeting, the Plan and all grants and awards hereunder shall be void, and the Company shall have no obligation to any recipients of such grants and awards. (b) The Committee may make grants and awards under the Plan beginning March 2, 1992 and during each subsequent year until such time as the Plan may be terminated by the Board in its sole discretion, or as hereinafter provided. (c) Unless the shareholders of BankAmerica shall approve an extension or renewal of the Plan for such new or additional term as they may determine, no grants and awards shall be made after March 2, 2002. However, all grants and awards made under the Plan prior to such date shall remain in effect until such grants and awards shall have been satisfied, terminated, or paid out, or expire, in accordance with the Plan and the terms of such grants and awards. 1.9 Limitation on Options and SARs Awardable to Any Single Participant. The maximum number of shares of Common Stock underlying Options and SARs that may be awarded under the Plan to any single Participant during the period from March 2, 1992, the effective date of the Plan, through March 2, 2002, is 10,000,000. The minimum price at which each Option is exercisable and the minimum grant price of each SAR are specified in Sections 2.3 and 3.1, respectively, of the Plan. ARTICLE II INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS 2.1 Grant of Stock Options. The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, grant to any eligible employee Incentive Stock Options ("ISOs" or "Options") and/or Non-Qualified Stock Options ("NQSOs" or "Options") (as these terms are defined in Section 1.3) to purchase, for cash and/or for already-owned shares of Common Stock, such number of shares of Common Stock as the Committee shall determine. 2.2 Award Agreements. The grant of an ISO or NQSO shall be evidenced by a written Award Agreement in such form as the Committee may from time to time determine in accordance with the provisions of the Plan, executed by BankAmerica. Each Award Agreement pursuant to which Options are granted shall state the number of shares of Common Stock subject to the Option, the Option price, the Option Period, and any limitations on the Option, the restrictions on assigning and transferring the Option described in Section 6.8, the manner of payment for shares of Common Stock, and such other terms as the Committee shall determine. 8 4015376.05 2.3 Option Price. The purchase price per share of Common Stock which the Optionee must deliver upon the exercise of an ISO or NQSO shall be fixed by the Committee, but shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted. 2.4 Option Period. (a) Each Option granted as an ISO or NQSO shall become exercisable in part or in full at such time or times as the Committee may determine and specify in each Award Agreement; provided, however, that no Option -------- ------- will be exercisable before the date six months after the date the Option was granted and no ISO shall be exercisable after the expiration of 10 years from the date the ISO was granted. (b) Each Award Agreement shall set forth the extent to which the Optionee shall have the right to exercise the Option following the Optionee's retirement, death or termination of the Optionee's employment with the Company (including termination that, pursuant to the Award Agreement, may be deemed to occur upon a change in ownership of the Optionee's employer such that the Optionee's employer ceases to be BankAmerica or one of its Subsidiaries). Such provisions shall be determined in the sole discretion of the Committee and need not be uniform among all Options issued pursuant to the Plan. (c) The Committee may determine in its sole discretion from time to time to permit the Optionee to purchase all shares of Common Stock covered by the Optionee's Options, upon or after the Optionee's death, retirement, or termination of employment with the Company (including termination that, in the sole discretion of the Committee, may be deemed to occur upon a change in ownership of the Optionee's employer such that the Optionee's employer ceases to be BankAmerica or one of its Subsidiaries), without regard to whether the Options were fully exercisable upon death, retirement or termination of employment under the terms of the Award Agreements with respect to such Options. 2.5 Limitation on ISOs. Notwithstanding any other provisions in the Plan or in any ISO agreement, to the extent the aggregate Fair Market Value (determined at the time the option is granted) of stock with respect to which ISOs granted after December 31, 1986 are exercisable for the first time by an Optionee during any calendar year under all plans of BankAmerica and its subsidiaries exceeds $100,000, such options shall be treated as NQSOs. This rule shall be applied by taking options into account in the order in which they were granted so that options with the earliest grant date will receive ISO treatment. No ISO shall be granted to any person who at the time owns more than ten percent of total combined voting power of all classes of stock of BankAmerica or of any Subsidiaries. 9 4015376.05 2.6 Manner of Paying Option Price. On exercise of each ISO or NQSO, the Option Price shall be paid as follows: (a) in cash, (b) in already-owned shares of Common Stock, or (c) in some combination of cash and shares, as specified in the Award Agreement or as otherwise permitted by the Committee. Already-owned shares of Common Stock must have been owned by the Optionee at the time of exercise for at least the period of time specified in the Award Agreement, and shall be valued at their Fair Market Value on the date of exercise. 2.7 Exercise of Option. The Committee shall establish, and shall set forth in each Award Agreement, the procedures governing the exercise of an ISO or NQSO. In general, subject to such specific provisions, an ISO or NQSO shall be exercised as follows: (a) the Optionee shall deliver written notice that he or she intends to exercise the Option to the Company department or officer designated in the Award Agreement; (b) the Optionee shall pay the full Option Price at the time of exercise, according to Section 2.6 above; and (c) as soon as practicable after receipt of such notice and payment, the Company shall direct BankAmerica's transfer agent to register the shares of Common Stock in the name of the Optionee. 2.8 Cancellation of SARs. Each Award Agreement shall specify whether the exercise of an ISO or NQSO with respect to a share of Common Stock shall cancel any SAR related to such share. 2.9 Cancellation and Regrant of Options. The Committee may cancel particular NQSOs and regrant to the same Optionee NQSOs to purchase the same or a different number of shares of Common Stock, only (i) with the consent of the Optionee, and (ii) if the Option Price for the NQSOs so regranted is no less than the higher of (A) the Option Price for the NQSOs so cancelled, or (B) the Fair Market Value of the Common Stock on the date of regrant. ARTICLE III STOCK APPRECIATION RIGHTS 3.1 Grant of Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights ("SARs") to Participants. The terms and conditions of the SARs shall be as provided in the Award Agreement with respect to such SARs. Each Award Agreement shall specify the grant price, term, methods of exercise, methods of settlement, disposition of the SARs on retirement, death or termination of employment of the holder of the SARs, and such other terms and conditions of the SARs as shall be determined by the Committee. The Committee may impose such 10 4015376.05 conditions or restrictions on the exercise of any SAR as it may deem appropriate. SARs may be granted either alone or in tandem with grants of Options under the Plan. SARs granted in tandem with Options are referred to herein as "Tandem SARs". The Committee shall not grant an SAR in tandem with an ISO unless, pursuant to applicable law and rules and regulations of the Internal Revenue Service, the SAR may be attached to the ISO without causing the ISO to fail to meet the requirements of Section 422A of the Internal Revenue Code. Subject to the terms of the Plan and the applicable Award Agreement, an SAR shall confer on the holder thereof a right to receive payment (the "SAR Value"), upon exercise thereof, equal to the excess of (i) the Fair Market Value of one share of Common Stock on the date of exercise over (ii) the grant price of the SAR as specified by the Committee, which shall be not less than the Fair Market Value of one share of Common Stock on the date of grant of the SAR. 3.2 Form and Timing of Payment. (a) Exercise of Tandem SARs for Cash or Common Stock. Tandem SARs exercised during the Window Period described below shall be payable only in cash, and Tandem SARs exercised outside the Window Period shall be payable only in shares of Common Stock. A "Window Period" is a period (i) beginning on the third business day following the date of public release of BankAmerica's quarterly or annual summary statements of revenues and earnings and (ii) ending on the twelfth business day following such date. (b) Amount of Cash Payable on Exercise of Tandem SARs. When Tandem SARs are exercised during the Window Period, the Optionee shall receive a cash amount equal to (i) the number of Tandem SARs exercised multiplied by (ii) the difference between (A) the highest Fair Market Value of one share of Common Stock as of any day during the Window Period, and (B) the Option Price specified for the related Option. (c) Number of Shares Issuable or Deliverable on Exercise of Tandem SARs. When Tandem SARs are exercised outside the Window Period, the Optionee shall receive the number of whole shares of Common Stock equal to (i) the aggregate SAR Value (as defined in Section 3.1) of the Tandem SARs exercised divided by (ii) the Fair Market Value (as defined in Section 1.3) on the date of exercise. The Company shall deliver cash in lieu of fractional shares. 3.3 Cancellation of Related Options. Each Award Agreement shall specify whether the exercise of an SAR shall cancel any NQSO to which it relates, to the extent of the exercise. Any exercise of an SAR with respect to an ISO must be made in accordance with Section 3.1. 11 4015376.05 ARTICLE IV RESTRICTED STOCK AND RESTRICTED STOCK UNITS 4.1 Introduction. BankAmerica has outstanding shares of restricted stock granted under the 1987 Plan, the BankAmerica Corporation Restricted Stock Bonus Plan (the "Bonus Plan") and the BankAmerica Corporation Management Incentive Stock Plan ("MISP"). Restricted stock already granted under the 1987 Plan, the Bonus Plan and the MISP will continue to be held under the terms of those plans, except as provided in Section 1.7 of this Plan. Only grants of Restricted Stock and Restricted Stock Units made on or after the effective date of this new Plan shall be governed by the terms of this Article IV. 4.2 Award of Restricted Stock and Restricted Stock Units. The Committee may, from time to time and subject to the provisions of the Plan and such other terms and conditions as the Committee may prescribe, award shares of Common Stock or Restricted Stock Units to be held under the restrictions set forth in this Article to any eligible employee (the "Restricted Stockholder"). If an eligible employee has been employed less than six months, any award of Restricted Stock shall only be made from Common Stock which is held as treasury stock by BankAmerica. 4.3 Minimum Restrictions on Disposition. A Restricted Stockholder may not, under any circumstances, voluntarily dispose of any of the Restricted Stock or Restricted Stock Units prior to the first to occur of the following events: (a) the date on which the Restricted Stockholder completes the period of continuous service, which shall not be less than one year, with the Company following the award date specified by the Committee for such award; (b) delivery of the Restricted Stock to the Restricted Stockholder following a Committee determination pursuant to Section 6.6 hereof in connection with a Change in Control; (c) the Restricted Stockholder's retirement or death; or (d) delivery of the Restricted Stock to the Restricted Stockholder following his or her termination of employment prior to retirement or death pursuant to a determination by the Committee under Section 4.6. The limitations in this Section 4.3 will hereinafter be referred to as the "minimum restrictions." 12 4015376.05 4.4 Optional Restrictions. In addition to the minimum restrictions, the Committee may impose additional restrictions ("optional restrictions") upon the Restricted Stockholder's voluntary disposition of the Restricted Stock or Restricted Stock Units, either at the time the Committee makes an award of such Restricted Stock or Restricted Stock Units or at any subsequent time before the minimum restrictions expire. The Committee may impose optional restrictions (such as, without limitation, permitting such disposition and release only in installments over a period of years) as it may deem in the best interests of the Restricted Stockholder, or in the case of the Restricted Stockholder's death, of the heirs or legatees who become entitled to such Restricted Stock or Restricted Stock Units by the applicable laws of inheritance or under the terms of the Restricted Stockholder's will. 4.5 Termination of Employment of Restricted Stockholder for Gross Misconduct. If a Restricted Stockholder's services are terminated for cause for gross misconduct, all shares of Restricted Stock and Restricted Stock Units awarded to any Restricted Stockholder under this Plan shall be forfeited, and the Committee shall direct such shares of Restricted Stock and Restricted Stock Units to be transferred and delivered to BankAmerica. Gross misconduct includes, but is not limited to, acts of dishonesty, such as theft, embezzlement, and falsification of the Company's records with intent to deceive; breach of trust; knowing violation of rules established by the Company; and any crime determined by the Company to result in termination of employment. 4.6 Termination of Employment of Restricted Stockholder not Involving Gross Misconduct. (a) Should a Restricted Stockholder who was employed by the Company at the date of grant terminate his or her employment with the Company prior to (i) the date on which he or she completes the period of continuous service for the Company following the award date specified by the Committee for such award, or (ii) his or her death or retirement, or (b) should the Company terminate his or her employment for any reason other than for a cause set forth in Section 4.5 above, BankAmerica shall reacquire all the Restricted Stock and Restricted Stock Units without the payment of consideration in any form to such Restricted Stockholder and the Restricted Stockholder shall unconditionally forfeit any right, title or interest to such Restricted Stock and Restricted Stock Units, unless the Committee, up to 90 days after such termination, determines in its sole discretion to permit the Restricted Stockholder to (i) retain all or any part of the Restricted Stock, and/or (ii) to waive in whole or in part any or all remaining restrictions on Restricted Stock 13 4015376.05 Units, and to deliver shares of Common Stock to the Restricted Stockholder in respect of such Restricted Stock Units. Upon direction of the Committee, all forfeited Restricted Stock and Restricted Stock Units shall be transferred and delivered to BankAmerica. Termination of a Restricted Stockholder's employment with the Company shall be deemed to include a change in ownership of the Restricted Stockholder's employer such that the Restricted Stockholder's employer ceases to be BankAmerica or one of its Subsidiaries. 4.7 Registration and Escrow. Any Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event that any stock certificate is issued in respect of shares of Restricted Stock granted under the Plan, such certificate shall be registered in the name of the Restricted Stockholder and shall either bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, or, at the direction of the Committee, be held by Bank of America National Trust and Savings Association (the "Bank") (or another escrow agent appointed by the Committee) in escrow subject to delivery to the Restricted Stockholder or to BankAmerica at such times and in such amounts as the Committee shall direct under the terms of the Plan. When an employee accepts an award of Restricted Stock pursuant to the Plan, he or she thereby grants an irrevocable power of attorney to the Bank or any other escrow agent appointed by the Committee to cause the transfer and delivery to BankAmerica of any such Restricted Stock which the Committee shall direct to be so transferred and delivered pursuant hereto. 4.8 Payment in Respect of Restricted Stock Units. (a) Each Restricted Stock Unit shall represent one share of Common Stock, and shall, at the time and to the extent it becomes vested, be payable by the delivery of one share of Common Stock. The Committee is authorized to grant Restricted Stock Units under which the Restricted Stockholder shall be entitled to receive payments equivalent to dividends with respect to a number of shares of Common Stock determined by the Committee, and the Committee may determine that such amounts (if any) shall be paid to the Restricted Stockholder in cash from time to time, or be deemed to have been reinvested in additional shares of Common Stock or additional Restricted Stock Units, or otherwise reinvested. Restricted Stock Units shall have no voting rights. (b) The Committee may, in its discretion, provide that payment to the Restricted Stockholder in respect of Restricted Stock Units shall be deferred until such date or dates, not later than the Restricted Stockholder's death, retirement or other termination of employment with the Company, as the Restricted Stockholder may elect. Any such election shall be filed in writing 14 4015376.05 with the Committee in accordance with such rules and regulations, including any time periods within which such election shall be made, as the Committee may specify. 4.9 Dividends on Restricted Stock. Even while the Restricted Stock is held in escrow, the Committee may determine that all dividends BankAmerica pays on the Restricted Stock shall be delivered directly to the Restricted Stockholder, not the escrow account. 4.10 Voting Rights. Even while the Restricted Stock is held in escrow, the Committee may determine that the Restricted Stockholder shall have the same voting rights with respect to the Restricted Stock as those provided to other shareholders of Common Stock. ARTICLE V OTHER STOCK-BASED AWARDS 5.1 Other Stock-Based Awards. The Committee is hereby authorized to grant to Participants such awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock (including, without limitation, securities convertible into shares of Common Stock) as are deemed by the Committee to be consistent with the purposes of the Plan; provided, however, that such grants must comply with Rule -------- ------- 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and applicable law, except that Options may be transferable to the extent permitted by, and in accordance with the provisions of, Section 6.8 of the Plan. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such awards. Shares of Common Stock or other securities delivered pursuant to a purchase right granted under this Section 5.1 shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, shares of Common Stock, other securities, other awards, or other property, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than the Fair Market Value of such shares of Common Stock or other securities as of the date such purchase right is granted. ARTICLE VI MISCELLANEOUS 6.1 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by 15 4015376.05 registered or certified mail, postage prepaid, or otherwise delivered by hand or messenger, addressed (a) if to the Company, at BankAmerica Corporation 1 South Van Ness Avenue, 7th Floor San Francisco, CA 94103 Attn: c/o Bank of America NT&SA Executive Resources #3005 (b) if to the Participant, at the last address shown on the Company's personnel records, or (c) to such address as either the Company or the Participant shall later designate by notice to the other. 6.2 Amendments of Plan. BankAmerica may, at any time and from time to time, modify, amend, suspend or terminate the Plan in any respect by action of the Board or by written amendment executed by a duly authorized officer of BankAmerica. Notwithstanding the above, however, any modification, amendment, suspension or termination of the Plan shall not affect a Participant's rights to a grant or award previously made, except as provided in Section 1.8(a), or except with his or her consent. 6.3 Leaves of Absence. The Committee shall be entitled to make such rules, regulations and determinations as it deems appropriate under the Plan in respect of any leave of absence from the Company taken by the recipient of any grant or award under the Plan. Without limiting the generality of the foregoing, the Committee shall be entitled to determine (a) whether or not any such leave of absence shall be treated as a termination of employment with the Company within the meaning of the Plan and (b) the impact, if any, of any such leave of absence on grants and awards under the Plan. 6.4 Dilution and Other Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares of Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split- up, spin-off, combination, repurchase, or exchange of shares of Common Stock or other securities of BankAmerica, issuance of warrants or other rights to purchase shares of Common Stock or other securities of BankAmerica, or other similar corporate transaction or event, affects the Common Stock, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it shall deem 16 4015376.05 equitable, adjust any or all of (i) the number and type of shares of Common Stock which thereafter may be made the subject of Awards, (ii) the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and (iii) the grant, purchase or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, however, in each case, that with -------- ------- respect to Awards of ISOs no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422A of the Internal Revenue Code or any successor provision thereto; and provided further that the -------- ------- number of shares of Common Stock subject to any Award denominated in shares of Common Stock shall always be a whole number. 6.5 General Restriction. Each grant and award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that (a) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, (b) the consent or approval of any government regulatory body, or (c) an agreement by the recipient of a grant or award with respect to the disposition of shares of Common Stock, is necessary or desirable as a condition of, or in connection with, the making of a grant or award or the issue, delivery or purchase of shares of Common Stock thereunder, then such grant or award shall not be consummated in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained free of any conditions not acceptable to the Committee. 6.6 Change in Control. If BankAmerica undergoes a Change in Control (as defined in Section 1.3(e)), the following shall apply: (a) Except as provided in subsection (b) below, (i) all outstanding Options and SARs shall be immediately exercisable in full and (ii) all Restricted Stock, Restricted Stock Units, and Other Stock-Based Awards shall be immediately released free from all restrictions and shall be delivered or paid, as the case may be, to the Participant as soon as practicable following the Change in Control. (b)(i) The Performance Share Units awarded on November 7, 1994 (and any subsequent awards of Performance Share Units) under the BankAmerica Corporation 1992 MSP Performance Share Program shall vest in the time or times specified in Section 4.1 of the Performance Share Program whether or not the Participant continues in employment with the Company. However, following a Change in Control, the Committee shall no longer have discretion to not vest Performance Share Units after the end of the term of the Award if BAC ranks 1 or 2 in total shareholder return relative to its peer banks for the term of the Award. 17 4015376.05 (b)(ii) In the event (i) any Award has been made to a person who, at the time of a Change in Control is an officer or director of BankAmerica, as such terms are defined in Section 16 of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder, and (ii) such Award has not satisfied the applicable minimum vesting provisions of the Plan, this Section 6.6 shall apply to such Award immediately after the satisfaction of any such applicable minimum vesting period, whether or not the person remains an employee of the Company at that time. (c) Except as provided in the following sentence (and, if applicable, the expiration of the minimum vesting period in (b)), in the event a Participant terminates employment with the Company following a Change in Control, his or her Options and SARs shall remain exercisable for a period of three years following termination of employment, not to exceed the original term of the Option or SAR. The preceding sentence shall not apply to an incentive stock option unless the option agreement gives the Committee discretion to permit the incentive stock option to remain exercisable following termination of the optionholder's employment, in which case the incentive stock option shall be exercisable for three months following termination of employment without further Committee action. (d) Section 6.7 of the Plan regarding payment of withholding taxes shall remain applicable. 6.7 Withholding Taxes. The Company shall have the right to deduct from any settlement of an Award made under the Plan, including the delivery or vesting of shares, an amount sufficient to cover withholding required by law for any federal, state or local taxes or to take such other action as may be necessary to satisfy any such withholding obligations. The Committee may permit shares to be used to satisfy required tax withholding and such shares shall be valued at the Fair Market Value as of the settlement date of the applicable award. 6.8 Non-Assignability. Except as provided below, no Participant shall have the right to alienate, assign, encumber, hypothecate or pledge his or her interest in any Award under the Plan, voluntarily or involuntarily, and any attempt to so dispose of any such interest prior to payment thereof shall be void. Any Participant who is an Executive Officer (as defined below) shall have the right, subject to the conditions specified in the following paragraph, to irrevocably transfer to Immediate Family Members (as defined below) Options granted at any time under the Plan to any such Participant ("Executive Officer Participant"). As used in the Plan and the related Award Agreements, the following 18 4015376.05 terms, when written with initial capital letters, shall have the meanings stated below: (a) The term Executive Officer means an Executive Officer designated by the Board for federal securities law purposes, provided such officer is also a member of the Managing Committee of Bank of America NT&SA. (b) The term Immediate Family Members means (i) the children, grandchildren or spouse of an Executive Officer Participant or (ii) a trust for the benefit of such family members. As conditions to such transferability of any Options, (i) the Executive Officer Participant may not receive any consideration for the transfer; (ii) the Award Agreements pursuant to which such Options are granted, or amendments to the Award Agreements with respect to previously granted Options, in each case approved by the Committee, must specify the actual extent to which such Options may be transferred, all in accordance with the terms of the Plan; and (iii) the Options so transferred must continue to be subject to the same terms and conditions that were applicable to such Options prior to their transfer. The transferee of any Options transferred in accordance with the terms and conditions of the Plan shall have the right to exercise such Options and to have the shares of Common Stock covered by such Options registered in the name of such transferee, as though such transferee were the Optionee for purposes of Section 2.7 of the Plan. Notwithstanding anything contained in this Section 6.8, the Company shall have the right to offset from any unpaid or deferred Award any amounts due and owing from the Participant to the extent permitted by law; provided, however, -------- ------- that with respect to any Options that are transferred in accordance with the terms and conditions of the Plan, such right shall cease upon the transfer. 6.9 No Right to Employment. Nothing in the Plan nor in any agreement entered into pursuant to the Plan shall confer upon any Participant the right to continue in the employment of the Company, nor affect any right which the Company may have to terminate the employment of such person. 6.10 Rights as Shareholder. No Participant shall have rights as a shareholder with respect to shares of Common Stock awarded to him or her unless and until the certificates for such shares are delivered to him or her. The Committee may determine that 19 4015376.05 Restricted Stockholders have full voting rights with respect to Restricted Stock, as provided in Section 4.9 hereof. 6.11 Entire Plan. This document is a complete statement of the Plan. As of its effective date this document supersedes all prior plans, representations and proposals, written or oral, relating to its subject matter, except as otherwise provided in Section 1.7 hereof. The Company shall not be bound by or liable to any person for any representation, promise or inducement made by any employee or agent of it which is not embodied in this document. 6.12 Governing Law. The Plan shall be construed and enforced in accordance with California law. 6.13 Delegation. The Committee may delegate to one or more officers of the Company or any of its Subsidiaries, or to a committee of such officers, the authority, subject to such terms and limitations as the Committee shall determine, to make grants and awards to, or to cancel, modify, waive rights with respect to, alter, discontinue, suspend, or terminate grants or awards held by, officers or employees of the Company, who are not officers or directors of the Company for purposes of Section 16 of the Securities Exchange Act of 1934, as amended. 6.14 Foreign Employees. In order to facilitate the making of any grant or award under the Plan, the Committee may provide for such special terms for grants and awards to participants who are foreign nationals or who are employed by the Company or any Subsidiary outside of the United States of America as the Committee may consider necessary or appropriate to accommodate differences in local law, policy or custom. Moreover, the Committee may approve such supplements to or amendments, restatements, or alternative versions of the Plan including supplements, amendments or alternative versions providing for Other Stock-Based Awards as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of the Plan as in effect for any other purpose. No such special terms, supplements, amendments or restatements, however, shall include any provisions that are inconsistent with the terms of the Plan as then in effect unless the Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of BankAmerica. The resolution amending Sections 1.3(e) and 6.6 provided that no modification, suspension, amendment or termination of the Plan may be made which would adversely affect the rights of any employee or former employee under the amendment with respect to any stock option, stock appreciation right, restricted stock unit or other 20 4015376.05 stock based award granted under the Plan prior to the date of such modification, suspension, amendment or termination. 21 4015376.05 EX-27 3 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 THIS FINANCIAL DATA SCHEDULE ON FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS, AVERAGE BALANCES, INTEREST, AND AVERAGE RATES, NONPERFORMANCE ASSETS, QUARTERLY CREDIT LOSS EXPERIENCE, AND COMPOSITION OF ALLOWANCE FOR CREDIT LOSSES, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FILING. Any item provided in the schedule, in accordance with the rules governing the schedule, will not be subject to liability under the federal securities laws, except to the extent that the financial statements and other information from which the data were extracted violate the federal securities laws. Also, pursuant to item 601(c)(1)(iv) of Regulation S-K promulgated by the Securities and Exchange Commission (SEC), the schedule shall not be deemed filed for purposes of Section 11 of the Securities Act of 1933, Section 18 of the Exchange Act of 1934 and Section 323 of the Trust Indenture Act, or otherwise be subject to the liabilities of such sections, nor shall it be deemed a part of any registration statement to which it relates. 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 13,619 5,829 6,593 14,000 11,717 4,200 3,892 161,833 3,511 242,953 164,901 25,845 16,241 15,454 0 2,242 605 17,665 242,953 9,975 876 1,570 12,421 3,953 5,964 6,457 665 41 6,091 3,614 3,614 0 0 2,126 5.38 5.38 4.26 1,119 363 274 0 3,554 1,013 302 3,511 0 0 834 Includes subordinated capital notes of $355 million Includes interest income on trading account assets of $731 million. These amounts are not reported in our interim filing.
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