Bank of America
Annual Report 1998

Plain-text annual report

1998 Summary Annual Report Financial highlights BankAmerica Corporation and Subsidiaries (Dollars in millions except per-share information) For the year Operating results (1)(2) For the year Cash basis Financial data (1)(2)(3) At year end (2) Net income Earnings per common share Diluted earnings per common share Cash dividends paid per common share Return on average assets Return on average common shareholders’ equity Efficiency ratio Average common shares issued (in millions) 1998 1997 $ 6,490 3.73 3.64 1.59 1.11 % 14.54 61.2 1,732 $ 6,806 3.86 3.76 1.37 1.25 % 15.88 58.1 1,733 Earnings per common share Diluted earnings per common share Return on average tangible assets Return on average tangible common shareholders’ equity Efficiency ratio $ 4.25 4.15 1.30 % 25.24 58.2 $ 4.36 4.24 1.45 % 27.77 55.3 Total assets Total loans and leases Total deposits Total shareholders’ equity Common shareholders’ equity Per common share Market price per share of common stock Common shares issued (in millions) $617,679 357,328 357,260 45,938 45,866 26.60 60.1250 1,724 $570,983 342,140 346,297 44,584 43,907 25.49 60.8125 1,723 (1) Excludes merger and restructuring items. (2) Shares and per-share data reflect a 2-for-1 stock split on February 27, 1997. (3) Cash basis calculations exclude intangible assets and the related amortization expense. Contents Message to shareholders Discussion of earnings Building the bank of the future Products and services Consolidated financial statements Principal Officers and Board of Directors Corporate information 2 7 8 24 26 28 29 We want to be the people who make banking work for you in ways it never has before. 1 We achieve the dream of nationwide banking. To our shareholders: In 1998, your company became a nationwide bank. We took giant steps toward fulfilling our vision of providing a consistent and exceptional banking experience to all our clients and customers throughout the world. And we unveiled a new name and logo that will signify unequaled strength and leadership in the financial services industry in the century to come. In 1998, we became America’s bank. We became the new Bank of America. As I said at our announcement ceremony last April, the new Bank of America is unmatched in coast-to-coast market presence. But perhaps more important, we believe our franchise is unmatchable. Our company has the unprecedented ability to serve customers everywhere with the products and services they want, when they want, where they want and how they want. The creation of our new company was a turning point in the financial services industry — with the customer as the defining element. Apart, BankAmerica and NationsBank were the two finest franchises in North America. Together, we are America’s bank — at home and around the world. A new name, a new company. The question that looms over any merger — particularly a merger of this size — is: Why? Why combine two seemingly healthy, robust companies at the height of their respective powers, taking huge cultural and execution risks to create a new, unknown, untested entity? It’s a good question. The answer to that question over the past ten years has had to do with scale, breadth of product offerings and the slow deregulation of the financial services industry. Scale has always been important as a way to spread fixed costs over a larger customer base, but it has become even more important as the financial services industry has become increasingly technology-driven. Our annual budget for developing, installing and maintaining new technologies surpassed a billion dollars several years ago. Without scale, such investments in the future would be impossible. A broad range of products and services has become necessary as non-bank competitors have encroached further and further into a market that once was dominated by traditional banks. And changing regulations have enabled banks to expand not only into new products and services, but also geographically. Hugh L. McColl Jr., Chairman and Chief Executive Officer “Customer demands for greater convenience and broader product offerings created a need for the kind of company we’ve built.” 2 1998 Letter to Shareholders These forces have led to a mass consolidation in the industry between banks and other financial services firms. I have argued in the past that we were in an end-game that would leave a handful of large banks as players on the national stage. I would now argue that the merger between NationsBank and BankAmerica was, for those organizations, the culmination of an aggressive growth strategy that had as its rationale the end-game of consolidation. Customer demands for greater convenience and broader product offerings created a need for the kind of company we’ve built. With this merger, however, we have reached the watershed. We must now Dividends (Per share) 98 97 96 95 turn our attention to an even greater task. Your company now has more retail and commercial customers in the U.S. than any other bank. Our geographic reach is unparalleled. We offer a multitude of financial products and services, and we can provide those products and services Return on equity (operating basis) (Percent) through every existing delivery channel on the market. Our task is to put these pieces of our business together in a way that creates value for our clients and customers — value no other bank has ever offered. Technology, of course, is 98 97 96 95 helping us do this. Technology is enabling us to create a bank that is available to customers 24 hours a day every day of the year from any telephone or computer terminal in the world. Technology is enabling us to build connectivity and seamlessness for customers across product lines and company divisions. But at the end of the day, it’s not all about technology. It’s about putting the best people in our markets and giving them the best technology so they can go out and build the best bank in America. What will that bank look like? In sum, it will be a nationwide bank with a strong position in all the country’s best growth markets and the most com- prehensive corporate client base in the industry. It will have the power and reach to serve these corporate clients anywhere in the world. It will have the scale and the capital power to invest in systems and products that will make banking easier and better for all its customers. And it will be a valued financial partner to indi- 1.59 1.37 1.20 1.04 14.5 15.9 17.0 15.5 viduals, small business and large corporations, creating broad, deep relationships “Our task is to put these pieces of our business over customers’ lifetimes. This is the bank we’re building. Financial challenges. While the news of our merger generated great optimism, financial results for the year were disappointing, largely due to unforeseen turmoil in international markets during late summer and early fall. Profits also were hurt by the lending relationship with D.E. Shaw, a trading and together in a way that creates value for our clients and customers.” 3 Operating earnings per share (Dollars) 98 97 96 95 Operating net income (Dollars in billions) 98 97 96 95 3.73 3.86 3.58 3.03 6.49 6.81 6.06 5.15 investment firm that experienced mounting losses in late September and October. To address this problem, the D.E. Shaw relationship has been restructured. In addition, steps have been taken to minimize future losses. All of that said, our trading losses and the D.E. Shaw relationship obscured what otherwise would have been a good overall financial performance for the year. In fact, many of our core earnings drivers remain vibrant. For example, Consumer Banking earned $4 billion in 1998, a number that would have ranked this unit alone in the top six U.S. banking companies for net earnings. While we anticipate earnings challenges in 1999 from continuing pressure on spreads, we are confident that the corrective actions we’ve taken and the strategic advantages of the company we’re building will quickly return profits to healthy levels. One expression of this confidence is our decision to invest $750 million in 1999 on projects that will help make Bank of America the bank we all envision. We are certainly taking steps in 1999 to reduce expenses — but we are keenly aware that we cannot save our way into prosperity. We continue to believe our future is bright, and we will continue to invest in it. Bringing it all together. There were several key events over the course of the year that contributed to the creation of your new company. First, on January 9 we completed our acquisition of Barnett Banks, Inc. At the time this was the largest acquisition in banking history, and it created the premier banking franchise in Florida, one of our country’s fastest growing states. As expected, we completed the Barnett transition in the fall of 1998. The addition of the Barnett franchise ensures our leading position in one of the fastest-growing and most profitable banking markets in the country. Second, we completed the installation of the Model Bank throughout the former NationsBank franchise. The technological cornerstone of our vision for banking in the next century, the Model Bank provides associates complete information about customer relationships across product lines, business lines and state lines. Operating on one system also greatly eases product upgrades and rollouts, internal communications and service consistency and uniformity across the franchise. The system, installed over the past seven years, enables consumer bankers and relationship managers to serve customers with unprecedented efficiency, consistency and responsiveness. In the states where the Model Bank has been in use for more than a year, associates have demonstrated its power by increasing sales levels by more than 35 percent. Our current schedule for installing the system in our western states 4 1998 Letter to Shareholders calls for conversion in Texas and New Mexico in April, Arizona and Nevada in the third quarter, California in the second half of 2000 and the Northwest in the first half of 2001. Third, we achieved our long-time goal of consolidating all our former bank charters throughout the former NationsBank franchise into our national bank charter, NationsBank, N.A. This was an important step in our decades-old fight to overcome Depression-era restrictions on interstate banking. We plan to consolidate the charters in the western half of our franchise into our national charter as quickly as possible. The creation of a single, nationwide bank charter throughout our new company will enable us to serve customers without regard to state boundaries, and also will enable us to eliminate redundant and costly administrative functions. Finally, we achieved our dream of creating the first nationwide bank by bringing together the two greatest U.S. banking franchises — the former BankAmerica Corporation and the former NationsBank Corporation — to form the new Bank of America. The people who will make it happen. The real story behind your new company is the opportunity we have to fulfill our vision for the future of banking, the core values that will shape our decisions and our actions every day, and the promise of what we’ll become for our customers, our communities, our shareholders and ourselves. The Bank of America brand we are building will represent unprecedented value, convenience and financial confidence in the minds of our customers; a strong partner and an able leader for our communities; a wise investment decision for our shareholders; and the best place to work for our associates. Of course, it is Bank of America associates who will make all this happen. And, I am happy to report, my meetings with associates across your new company have made me more confident than ever in our future. In Dallas, we held our first senior management meeting in November, a meeting marked by camaraderie and straight talk about what we must do to achieve our goals. In San Francisco, Jacksonville and many places in between, “The Bank of America brand we are I’ve met with groups of enthusiastic associates at numerous events during the past year. In Seattle, I had the honor of speaking at the Annual Seafirst Diversity Dinner, an inspiring event that spoke volumes about our commitment to teamwork. And as part of our Day One celebration, I spoke via satellite to more than 20,000 of our associates in 36 cities around the world about our challenges and opportunities. building will represent unprecedented value, convenience and financial confidence in the minds of our customers.” 5 Revenue (Dollars in billions) 98 97 96 95 Shareholders’ equity (Dollars in billions) 98 97 96 95 In every instance, our associates have been enthusiastic and confident about the challenges and opportunities before us. At the end of the day, it is our people that make me so confident about the future of your new company. New teammates. In addition to welcoming all our associates to the new Bank of America, I would particularly like to welcome the 18 individuals who comprise the new board of directors. (A list of their names can be found on page 28.) This is an extraordinarily experienced, talented and diverse group of directors who will guide your company into the next century with courage and wisdom. I also would like to thank Andy Craig and Charlie Rice for their service as chairmen of the NationsBank board. Andy’s support and wise counsel over the past two years have earned him our gratitude; he’s been a good friend, and a good leader for our company. We wish him well in his retirement. I welcome Charlie to our new company in his new role as vice chairman for corporate development. Charlie is an outstanding banker who will continue to contribute greatly to our company. Finally, I thank all the members of the boards of our predecessor organizations for their service, their guidance and their vision. Each has my sincere gratitude. In closing, as always, I welcome your thoughts and suggestions. 30.6 30.3 26.7 24.0 45.9 44.6 37.8 36.3 Hugh L. McColl Jr. Chairman and Chief Executive Officer 6 Operating earnings reach $6.5 billion in 1998. BankAmerica’s operating earnings totaled $6.49 billion, or $3.73 per share, in 1998 compared to $6.81 billion, or $3.86 per share, in 1997. Solid gains in the company’s core consumer and commercial banking businesses were offset by the impact of higher provision expense and weaker trading revenues resulting from turbulence in financial markets. The provision for credit losses was $2.92 billion, up from $1.90 billion a year earlier due largely to losses associated with the company’s lending relationship to D.E. Shaw, a trading and investment firm. Net charge-offs rose to $2.47 billion, equal to an annualized .71 percent of average net loans and leases, from $1.85 billion, or .54 percent, a year earlier. Nonperforming assets were $2.76 billion, or .77 percent of net loans, leases and foreclosed properties on December 31, 1998, up from $2.42 billion, or .71 percent a year earlier. The allowance for credit losses totaled $7.12 billion on December 31, 1998, equal to 287 percent of nonper- forming loans and 1.99 percent of loans and leases. The allowance was $6.78 billion, or 1.98 percent of loans and leases, a year earlier. Total shareholders’ equity was $45.9 billion at December 31, 1998. This represented 7.44 percent of period-end assets, compared to 7.81 percent on December 31, 1997. Book value per common share rose 4 percent to $26.60 at December 31, 1998, from a year earlier. Total assets stood at $618 billion on December 31, 1998. Including charges related to mergers, net income in 1998 was $5.17 billion, or $2.97 per share, compared to $6.54 billion, or $3.71 per share, a year earlier. Taxable-equivalent net interest income declined less than 1 percent to $18.46 billion, as an 8 percent increase in managed loans was offset by a 31-basis-point reduction in the company’s net yield on earning assets. Noninterest income rose 4 percent to $12.19 billion. Investment banking, which includes results from NationsBanc Montgomery Securities and Robertson Stephens acquired late in 1997, credit card and brokerage registered significant year-over-year gains. These gains were partially offset by lower trading results. Noninterest expense increased 6 percent, reflecting the purchase of NationsBanc Montgomery Securities on October 1, 1997 and Robertson Stephens, acquired that same date but sold in the third quarter of 1998, and spending on transition projects. 7 1998 Bank of America Summary Annual Report Building the bank of the future. Consider the comfort of dealing with As a businessperson, consider the a local bank, where the staff members opportunity to work with a financial (who live in the same town you do) services organization which can meet all provide exceptional service, and where of your financial needs. One which products and prices are keenly com- offers tremendous resources to small- petitive. Where bankers hold broad and mid-sized businesses, corporations authority to make decisions without and government agencies across the calling headquarters. Where everyone nation and around the world. An accepts a responsibility (and has the organization that delivers capacity and power) to do the right thing for clients product breadth, global reach and and customers. A bank whose people superior execution to each client enthusiastically support the whole life through teams of talented profession- of your community: youth soccer, the als. One which is firmly positioned at arts, the underserved. A neighborhood the forefront of global finance, opening institution, therefore, with character doors into Asia and Europe, and and history. Now consider the even greater satis- faction that comes from knowing your bank also provides you with the choice, southward into Latin America, helping a majority of America’s leading corporations compete successfully in a burgeoning global economy. convenience and coast-to-coast access Finally, consider that all these of nationwide banking. That it is sup- accomplishments are just the beginning. ported by thousands of sister offices, The company we’re discussing — Bank ATMs and product and service facilities of America — is determined to be in 22 states (and the District of much more. Our goal is to build a Columbia) from Maryland to Florida company that makes banking work as it to California. That all this constitutes a never has before. A company reshaped banking company of such size and around those things that matter most to scope that it can (and does) spend our individual and business customers: almost $3 billion a year on technology convenience, simplicity, flexibility and alone, a visionary investment that, dependability. A company that under- among other things, lets you bank how stands and anticipates the needs of and when you want, even by phone and PC any place in the world. Bank of America helps make the dream of home ownership come true for a customer every 3 minutes around the clock. 8 Fay Darmawi of Community Development Banking and Maurice Miller of Asian Neighborhood Design in San Francisco. Fay Darmawi came to the Community Development Banking Group in 1994 after experience with a nonprofit housing development corporation in Hayward, California. She now works with nonprofit developers in the San Francisco area to customize financing for affordable housing projects. (cid:210)Affordable housing deals are so complex and unique that it takes all our expertise to come up with financial solutions. That(cid:213)s why it(cid:213)s so important that the people on our team come from such diverse backgrounds. We understand the needs of development firms, nonprofit organizations and other lenders, because we(cid:213)ve been there. The fact that we have all these people from different backgrounds helps us think out of the box. We have so many different points of view and we(cid:213)re constantly questioning each other and pushing each other to think of new ways to do things. (cid:210)It(cid:213)s so natural for us to be open to ideas from the developer community because we are part of the community. When we leave our offices at night, a lot of us go to nonprofit board meetings, city commissions, do volunteer work. We see how everything links together. Now that the bank is much larger, we touch even more areas, and therefore we can influence economies as well as public policy to improve the environment in which we(cid:213)re lending, and to increase our investment in communities.(cid:211) 9 1998 Bank of America Summary Annual Report each corporate client, responding with mobilize our capital resources and innovative solutions and consistently worldwide network to deliver unmatched delivering knowledge, creative ideas and market perspective, transaction experi- excellence in execution. In short, a ence and expertise. banking company with an outstanding global banking franchise and the best opportunity to create greater value for shareholders. l Middle-market companies realize similar benefits. Suppose you’re a medium-sized firm with $50 million in sales. You appreciate working with a Major sports teams count on Bank of America. We serve as agent, co-agent or sole provider for Last year’s historic merger gives us local client manager who fully under- an unmatched foundation on which to stands you and your business. But you build this highly responsive, customer- also appreciate access to full-service centered bank of the future. Size and banking in our 22 franchise states. And 17 National Football League fran- scale in key businesses allow us to offer you want access to capital markets. And chises, six Major League Baseball customers and clients a wide choice of transaction speed. What bank are you franchises, six National Hockey League franchises and six National Basketball Association franchises. products and delivery methods at the going to use? Or, how many banks must lowest possible cost. Combined you use? Finally, the answer is … one. resources will help us continue develop- Once all our systems are combined, we ing the kind of technology customers can provide you with consistent services demand. And we bring together the in each state, leading to unmatched skills of tens of thousands of the best simplicity and convenience. bankers in the United States and around the globe. l To our retail customers, an immediate benefit is coast-to-coast Bank of America offers many access to our ATMs and banking advantages our customers and clients centers. No competitor can touch us. just can’t get elsewhere. But an even greater advantage is our l Corporate clients benefit from our client teams consisting of seasoned industry experts, product specialists and determination to make all the rest of banking easier and better than anything our customers have ever experienced. investment bankers offering a compre- One of our most important initiatives, hensive range of products through and one that sets us apart from the offices in 38 countries. Client teams can 10 Redick Edwards (right) of Business Banking in Houston with Raymond G. Sewell in a restaurant just opened by Sewell(cid:213)s company. Redick Edwards is a native of Houston and has been with the bank for 26 years. (cid:210)The purpose of the new Bank of America is to help people realize their dreams. Customers tell me almost every day that we are helping to turn their dreams into realities. From lines of credit to treasury management services, we can, and should be, a one-stop shop for our customers. (cid:210)When I have a doctor who is keeping too high a balance in his checking account, I can call upon the resources of our investment team to help the customer make the most of their money. It(cid:213)s reassuring to know there are people, just like me, throughout the company to help meet the needs of all our customers. (cid:210)Service is what customers value in their banking relationship. I like to drop in on new businesses when they come to town to introduce myself and tell them about the ways that we can help grow their business. Some people may call this approach old-fashioned, but I call it common sense. We have the ability to deliver customer service like a small-town bank, but we can call upon the resources of a global company. I don(cid:213)t see how anyone can compete with that.(cid:211) 11 1998 Bank of America Summary Annual Report competition, is the development of When you sit down with your information systems that connect all banker, Model Banking’s computer the different parts of our company. system, named Merlin, provides on- The centerpiece of these systems is a screen calculators which help you and banking platform for our consumer your banker make good financial business called Model Banking. choices, find the lowest rates and deter- Here’s the advantage of Model In 1998, Bank of America provided Banking: It helps us provide a consis- more than $60 billion in commercial real estate financing. This included: l Homebuilder financing for 50,000 new homes l Construction financing for 145 million tent banking experience throughout our company, from office to office and state to state, no matter how a customer chooses to do business with us — at a banking center, by phone, by PC or ATM. square feet of new offices, shopping The computer network at the heart centers, apartments and industrial of Model Banking, now serving more buildings l Permanent mortgage financing for 678 commercial properties l Mortgage-backed securities totaling $2.6 billion than half of our retail customers, gives our bankers a picture of each customer’s relationship. As we extend this platform nationwide, the same information about your accounts with the bank will appear on a banking center computer in Los Angeles as on a mine the best deals. Another click and the PC helps our bankers determine what product you are likely to want next. Merlin also lets you apply for a loan at home or by telephone, then close that loan at any Bank of America office in our franchise. This technology has raised satisfac- tion levels among our customers by making their banking faster and more productive. It makes it easier to get things done however you want to — in person, by phone or electronically. It gives time back to our customers and makes life a little less complicated. And we are constantly making the whole process better. call center screen in Wichita. The same Customers want the same kind of procedures will be in place in Virginia service when they bank by telephone. as in Oregon. The best products will be Well-trained associates and our call available from Seattle to Key West. center technology, which we think is Every banker will have the same among the best in the world, help us extensive sales and service tools at the meet those expectations. The technology, touch of a mouse. 12 Jan Rosenlund (right), Consumer Banking, with teammate Carol Albo in Seattle. Jan Rosenlund is a self-professed career banker. She manages the King District in western Washington, where she is responsible for 35 banking centers. (cid:210)I(cid:213)ve spent my entire career working one on one with customers, serving customers. That(cid:213)s what it(cid:213)s all about. You wouldn(cid:213)t be in this business if you didn(cid:213)t feel very strongly about the clients. They(cid:213)re looking for individualized attention, professional service, someone who cares and someone who(cid:213)s really focused on them. (cid:210)It(cid:213)s really fun to provide fabulous service and I think we do that, although not always with the consistency that we expect. We will always need to work at that. Customer service isn(cid:213)t something you train for once. It(cid:213)s an ongoing, minute-by-minute, day-by-day investment. That, like our associates, is how we differentiate ourselves, how we earn the loyalty of our clients. (cid:210)Whatever national bank we compete against may have similar products and technology, but I hope they never have my associates. I truly believe we have the most talented group of professionals working for us. They(cid:213)re dedicated and they are absolutely driven to take care of their customers. They see themselves as advocates for their customers.(cid:211) 13 1998 Bank of America Summary Annual Report which links call centers to the Model two prominent examples. Banking platform, will be expanded nationwide as well. Listening is still another way we’ve responded. We are constantly asking Similar investments give us the customers to evaluate processes that ability to stay in the forefront of such affect their banking experience. Then fast-growing operations as Internet we act decisively on what they say. banking, electronic payments and many Customer input has led to a number of other key programs that provide cus- changes our customers appreciate. For tomers with greater speed, accuracy example, we cut decision time for some and options. The result, as we build out business loans from days to hours. Our telephone banking call centers expect to handle more than 500 this technology across the country, will be a nationwide, world-connected bank developed to the specifications of our clients, customers and associates. And we are making technology flexible, so million customer calls in 1999. we can change quickly as customer preferences and markets change. This saves dollars and time. Bank of America is redefining banking on many other fronts. A major example is how people today wish to manage their money. Increasingly, our customers and potential customers are moving away from deposits and toward investments, and we have responded by building one of the nation’s largest and most comprehensive asset management businesses. People also are becoming We also are preparing our associates for the challenges ahead. To help our bankers better understand our customers, our markets and the competition, we have undertaken a coast-to-coast education program involving nearly all of our associates. These kinds of efforts make a differ- ence to our customers and our share- holders. They directly affect the quality of customer and client relationships and the billions of transactions they do with us every year. They produce the actions and attitudes that determine whether our customers are satisfied . . . and how much business they choose to do with us. more and more pushed by time, so we The geographic reach and the have answered by expanding the ways resources of Bank of America may be people can do business with us. Telephone and Internet banking are 14 Sandy Copney (right), Telephone Banking, with Spanish consumer banker Gisel Cort(cid:142)s in Tampa. Sandy Copney is customer service manager at a 1,200-associate call center in Tampa. The center is equipped with one of the world(cid:213)s most advanced telephone and computer response systems. (cid:210)You can sell till you(cid:213)re blue in the face, but if you aren(cid:213)t backing up your sales with the highest quality service your company will fail. And the highest service is what the customer expects, not what we as a business think we ought to give them. (cid:210)Customers using telephones to do their banking don(cid:213)t have a lot of time to waste, want accurate information, want it quickly, and want it handled in a professional and polite manner. That(cid:213)s what we give them. (cid:210)The direct banking system we have here is a wonderful resource for customers and a wonderful tool for us. I can call and find out what my balances are, what my last deposits were, what my last withdrawals were. I can transfer money from one account to another. I can get copies of my statements. There(cid:213)s almost nothing I can(cid:213)t do over the phone other than get cash. As soon as an associate answers a call, she has the customer information in front of her, so right away she can start talking knowledgeably. Now, this makes me, Mrs. Customer, feel like this banker really knows me.(cid:211) 15 1998 Bank of America Summary Annual Report unmatchable. We hold leading positions our income. Finally, our private in the largest, fastest growing markets banking, trust, money management and throughout the United States, from principal investing businesses account California to Florida. This large and for more than 10 percent of our income. diverse franchise makes banking easier for businesses and individuals. To further diversify risk, Bank of America continues to diversify its Bank of America is a market leader revenue stream — complementing the in 9 of the 10 states expected to have deposit and lending base by increasing the highest population growth over the income from value-added fee-based next five years. These 10 states are services our customers want. expected to account for more than 70 percent of U.S. growth over the next five years. Ask anyone caught in an economic downturn about risk diversification and they’ll tell you: put your eggs in many As the statistics demonstrate, Bank baskets, not just in oil … or textiles … of America is one of the most diversi- or tourism … or mortgages … or just fied banking companies in the nation, one or two states or regions of the and diversification is one of the princi- world … because market cycles are At the end of 1998, more than one million of our customers were banking online via the Internet, America Online or personal financial management software, up 75 percent from year-end 1997. pal reasons that creating larger banks inevitable and they hurt if you aren’t makes sense. Bank of America has geo- diversified. graphic diversity, product diversity, and revenue and income diversity. These broad enterprises and markets enable us to achieve another important kind of diversity: diversity of risk. Bank of America, on the other hand, holds the promise of more stable revenue and earnings (benefiting customers, shareholders, communities) by spreading risk across many states, Our company operates a retail fran- many customers, many lines of business, chise that spans 22 states and the funding, credit portfolios and other District of Columbia. This franchise factors. accounts for about half of our income. We have commercial banking through- out the nation and corporate banking around the world. These businesses account for approximately 35 percent of The American appetite for invest- ment services continues to grow, and we are meeting customer demand 16 Jesse Cureton (right), mortgage banker, and Robert Farmer, Mulvaney Homes, in Charlotte. Jesse Cureton manages the University City Mortgage office in Charlotte. (cid:210)What you(cid:213)ll hear a lot of around here is customer experience and customer service. I can sit down with a customer and provide great mortgage products but the overall customer experience is what is ultimately important. And that starts with me. I can be efficient and positive on the front end but we have to constantly look for ways to make it better all along the line. (cid:210)What do I tell my people? Do what we say we(cid:213)re going to do. Set proper expectations. In this industry, that is the most important thing we can do. If we say we(cid:213)re going to do it Friday and we can deliver it on Wednesday, we(cid:213)ve gone over and above. But let(cid:213)s not say we are going to do it Friday and not deliver until the following Friday. Set proper expectations and then exceed them. (cid:210)I also tell them that all of the associates of the new Bank of America are sales people. Every one of us should be as committed to our customers as we are to watching our stock price on a daily basis. From that I mean that all two hundred thousand of us need to sell this company and the service that we provide. Can you imagine what would happen if we took all of us and we hit a switch and we all became sales people for this company.(cid:211) 17 1998 Bank of America Summary Annual Report through our comprehensive wealth We coordinate all aspects of our management business. No matter what clients’ finances. Products and services kind of investment expertise a customer are focused on building wealth through needs, we can provide it. We have been customized investment management, preparing for this market change for transferring wealth through estate plan- a number of years, building a strong ning and personal trust services, and mutual fund and brokerage operation leveraging wealth by providing credit to earn the right to serve our customer’s for asset purchases and liquidity needs. The U.S. Postal Service has been working to consolidate its banking investment needs. relationships nationwide for deposit collections and other cash Customers of all sizes invest in our standardized or personalized solutions. mutual funds, making our fund complex Many solutions are fully customized. Clients receive more than just management services. While both one of the largest bank-advised fund We routinely save clients and their Bank of America and NationsBank had significant relationships with the Postal Service before the merger, our company(cid:213)s broader families, with about $60 billion in assets. families millions of dollars by develop- Among all mutual fund complexes ours ing strategies that combine new ideas ranks among the top 25. Our retail about minimizing taxes with investing, brokerage business provides customers borrowing and trust services. Our with easy access to a full range of cutting-edge thinking has surprised ability to handle a significant investment expertise, whether they need and delighted clients, their law firms portion of the Postal Service(cid:213)s business nationwide makes us an even more efficient partner. financial advice and planning or conve- and their accountants. nient execution of an investment trade. Our wealth management business Our private bank serves clients serves more than just individuals. through more than 100 offices in the Through four wholly owned investment U.S. and a number of other countries. advisers we provide creative investment solutions for corporations, public entities, pension plans, endowments and foundations. Our clients’ investment needs are met through a wide selection of equity, fixed income and cash management services. Our success comes from offering clients solutions they do not get any- where else. We take time to understand each client’s entire financial picture and respond with new and creative ideas on a regular basis. It’s one of the reasons our average client has been with us more than a decade. Some families have been with us for generations. 18 Carolyn Tabb (right), Professional and Executive Banking, with attorney Carol Lynn Calomiri. Carolyn Tabb, Bethesda, Maryland, provides personal banking services for doctors, attorneys and corporate executives in Washington, D.C., and its suburbs. (cid:210)I probably get about 60 phone calls a day from my customers, and my customer service philosophy is simple. If I(cid:213)m not available when they call, I(cid:213)ll call back as soon as possible. My customers are very busy people who often don(cid:213)t have the time to manage their money closely. They trust me to provide them with the products and services that make sense for them. And they demand and deserve excellent customer service. (cid:210)In recent years there has been a dramatic change in the way people bank. Customers are more knowledgeable about managing their finances and earning more on their money. Our company has worked hard to stay out front with products and services that meet and often exceed customers(cid:213) expectations. This is my biggest challenge—keeping up with all of the new products and knowing which products make the most sense for my customers. Everyone I work with throughout the bank is committed to making banking easier for our customers. By being flexible and innovative there really isn(cid:213)t any product or service we can(cid:213)t provide.(cid:211) 19 1998 Bank of America Summary Annual Report Our predecessor corporate and invest- is a global reach that many corporations ment banking organizations could not require from their financial provider. be a more perfect fit for our clients. We not only offer these products and We do business with 80 percent of the services, we are a recognized market Fortune Global 500. Our global leader in delivering many of them. network includes countries representing more than 90 percent of the world’s gross domestic product. We serve clients in 190 countries. By many measures, we are the preferred financial provider to a majority of the corporate market. For example, as a result of the merger we are now number one in loan syndications based on dollar volume or number of deals. We are one of the world’s leading international treasury services banks with a global banking Our client managers are selected for system that is euro-ready. Our real their ability to identify and deliver estate finance business generates nearly creative financial solutions to financial $1 billion in revenues a year. We are a The combined capabilities of our predecessor organizations enabled Bank of America to arrange a $350-million financing for MacDermid, a New England chemi- opportunities. Each relationship has a leader in commercial mortgage-backed cal company, building a strong new dedicated client team whose mandate is securities and residential construction relationship with the company. to craft innovative ideas and solutions loans. We are one of the top-ranked to meet that client’s evolving needs. U.S. investment banks in equity Client managers are highly skilled, underwriting. experienced professionals who are trained to understand each client’s business and financial objectives in order to provide the most appropriate financial solution — from investment banking to traditional commercial lending products. Our combined capital base helps us be more flexible for our clients when market conditions change, as they did in mid-1998. With this enhanced capital strength we can continue to stand behind our clients, enabling them to move forward with projects until Our product breadth is another clear markets rebound. Few commercial or competitive advantage. We are one of investment banks can offer the global the few U.S.-based banks that can offer expertise, capital resources and client- clients a complete range of financial focused commitment we deliver. services from capital raising and capital markets, treasury and trade finance, to investment banking and financial advisory services. Complementing this 20 Andrew Dewing (right), Global Corporate & Investment Banking, with Richard James of Cookson Group, PLC, in London. Andrew Dewing heads the United Kingdom multinational group based in London. He is responsible for a team of five relationship managers who work directly with major multinational corporate clients headquartered in the United Kingdom. (cid:210)We succeed in corporate banking in Europe, as we do everywhere else, because of the depth of the banking relationships we establish with our clients. We work hard to understand our corporate clients(cid:213) needs to ensure we can effectively advise them on financial matters. Because we understand their business, we can bring product specialists from throughout the bank to our team to help solve our clients(cid:213) problems and achieve their business goals. (cid:210)In 1998, for example, we arranged and executed a multi-source financing plan for one of our UK companies to reduce their financing costs, extend the maturity of their debt, and cut expense and management time by dealing with one institution for their fund needs. In looking at their requirements over the next three to five years, we were able to show them that market conditions were ripe to refinance their existing loan agreement. We won this business because we developed a relationship with the client that is built on trust and the ability to deliver. A lot of banks can offer the same services, but there is no substitute for a strong personal relationship. I am a strong believer in client managers building and developing relationships over time.(cid:211) 21 1998 Bank of America Summary Annual Report No bank serves more mid-sized shareholder value and achieve their companies (annual revenues from personal goals. $10 million to $500 million) than we do: approximately 35,000 coast-to-coast, many concentrated in the large, fast- growing metropolitan areas where the new Bank of America is so active. Bank of America also has the resources to provide unmatched international services to middle market companies which, in today’s world, are more and more dependent on a world Our commercial banking organiza- economy… a textile company buying tion places more than 1,400 profession- knitting equipment from an Italian als in the market. Our associates (like manufacturer … a temporary services thousands of others throughout our company expanding into Latin America Our corporate bankers and invest- ment bankers worked together to advise Hercules, a Delaware specialty chemicals company, on a $3.65-billion financing during a company) live and work where their … a computer technology company difficult market to help the company complete its purchase of clients live and work. They have sub- selling a component to a European stantial authority to make decisions. manufacturer. We are there when BetzDearborn and fulfill its Lending and treasury management strategic objectives. As a result of its outstanding performance, Bank of America has become services have long been — and remain — the heartbeat of commercial banking. But today’s clients want much Indeed, that is our goal for all of our more. They also want access to capital customers, businesses and individuals: business needs us, and we are among a relatively few banks that can accom- modate all their needs. Hercules(cid:213) lead relationship bank. raising and all the special services we to be the most capable and most can make available through our responsive banking company this unparalleled breadth of capabilities. country has ever seen. In response, we have created a new We approach the 21st century with investment banking team dedicated the scale and reach that our clients and exclusively to commercial clients. We customers want. We bring with us the collaborate with our client to explore people and the technology to create new alternate capital sources and the possibilities and new solutions. And we hedging of interest rate risk. This new have the willpower and confidence to team underscores our commitment to make the journey. helping business owners maximize their 22 Nan Hillis, Commercial Banking, with Gary Byrd of Pratt Industries (U.S.A.), Inc., a recycled paper mill in Conyers, Georgia. Nan Hillis is manager of a Financial Strategies group for Commercial Banking in Atlanta. (cid:210)Leadership team members, including the client managers and me, concentrate on becoming partners with our clients. One of our major goals is to get close enough to become part of each client(cid:213)s financial solution team. (cid:210)Earlier this year, we restructured our group to include a specialist who is responsible for the underwriting, negotiation and administration of our core product, credit. This change allows our client managers to focus on other services our clients want, such as deposit services, treasury management, debt other than senior debt, and private banking. (cid:210)As an international city, we have a number of clients who have international needs. The new Bank of America has delighted many of our customers, who had split their financial services relationships to obtain West Coast presence and more international capacity. These clients are delighted they can work with one team for the services they need. (cid:210)Our relationship with NationsBanc Montgomery Securities is an exciting melding of abilities. We can now provide most services our clients need. This partnership should be difficult to beat.(cid:211) 23 Products and services we provide Consumers Products and services are delivered through 4,700 banking centers and 14,000 ATMs, which serve 30 million households in 22 states, the District of Columbia and Hong Kong, plus through telephone and personal computers. Deposit Products. Checking, money market, savings accounts, time deposits, IRAs. Small and middle-market businesses Services delivered to small businesses through 4,700 banking centers and 14,000 ATMs, which serve 2 million small businesses in 22 states and the District of Columbia; through telephone and personal computers; and through commercial banking offices which serve middle market businesses with sales of up to $500 million. Consumer Finance. Home equity, personal, auto and student loans and auto leasing. Deposit Products. Treasury and cash management services, checking, savings, money market deposit accounts, IRAs. Mortgage Banking. Home loans for one- to four-unit properties. Card Services. Consumer and commercial credit cards, check cards, ATM cards, smart cards (stored value cards). Community Investment. Affordable housing initiatives, economic development and related consumer lending activities in underserved communities. Private Banking. Investment manage- ment, personal trust, tax and estate plan- ning, customized lending and banking for high-net-worth customers. Brokerage. Full-services and discount brokerage services which provide access to a wide range of non-FDIC-insured investments, including stocks, bonds, fixed-income securities, and mutual funds. Insurance Products. Credit-related insurance products and access to personal life insurance. Military Banking. Financial products and services for U.S. military personnel worldwide. Credit Services. Commercial lending, inventory financing for auto, truck, boat, manufactured housing and RV dealers, asset-backed and cash flow lending, leasing and factoring. Commercial Finance. Equipment loans and leases, loans for debt restructuring, mergers, and working capital, real estate and health care financing and inventory financing to manufacturers, distributors, and dealers. Community Investment. Conventional and government-assisted loans, as well as investments in small business investment corporations, minority business venture capital funds and other products. Private Banking. Investment manage- ment, personal trust, tax and estate planning, customized lending and banking for private businesses. Brokerage. Full-services and discount brokerage services which provide access to a wide range of non-FDIC-insured investments, including stocks, bonds, fixed-income securities, and mutual funds. Domestic and international corporations, financial institutions, and government entities Clients supported through offices in 37 countries in four distinct geographic regions: the U.S. and Canada; Asia; Europe, Middle East and Africa; and Latin America. We deliver specialized industry expertise to the following sectors: aerospace and defense, apparel, automotive and trans- portation, business services, communications, construction and engineering, consumer products and services, entertainment and media, financial services, food and agribusi- ness, healthcare and pharmaceuticals, natural resources (chemicals, energy, paper and forest products, utilities), real estate, retail, sports, and technology. Equity and Advisory. Public and private equity, research, sales and trading, derivatives, institutional brokerage (including prime brokerage and correspondent clearing services), mergers and acquisitions advisory. Debt Products. Corporate lending, syndicated finance, crossover and investment-grade fixed-income products and services, commercial paper, global asset securitization, global project finance, leasing, private placements. Debt Sales and Trading. Sales, trading and research for high-grade and high-yield fixed income and floating-rate products, syndications, mortgage-backed securities, distressed debt. Global Markets. Global foreign exchange, global derivative products, municipal and government securities, emerging markets trading, global markets/financial research. Global Treasury. Global cash management (receipts, payments, and treasury management), U.S. interstate depository network, internet-based solutions and EDI, global trade services. Real Estate. Originating, structuring, and underwriting services for real estate companies, investors, funds, home builders. Principal Investing. Direct and indirect equity investments in a broad array of industries. Institutional Investment Management. Investment advisory and management services for institutional clients. 24 Report of independent accountants To the Board of Directors and Shareholders of BankAmerica Corporation We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of BankAmerica Corporation and its subsidiaries as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998 (which statements are not presented herein); and in our report dated January 15, 1999 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet at December 31, 1998 and 1997 and the related condensed consolidated statement of income for each of the three years in the period ended December 31, 1998, when read in conjunction with the consolidated financial statements from which it has been derived, is fairly stated in all material respects in relation thereto. Charlotte, North Carolina January 15, 1999 25 Consolidated statement of income BankAmerica Corporation and Subsidiaries (Dollars in millions except per-share information) Interest income Interest and fees on loans and leases Interest and dividends on securities Federal funds sold and securities purchased under agreements to resell Trading account securities Other interest income Total interest income Interest expense Deposits Borrowed funds Trading account liabilities Long-term debt Total interest expense Net interest income Provision for credit losses Net credit income Gains on sales of securities Noninterest income Service charges on deposit accounts Mortgage servicing and other mortgage-related income Investment banking income Trading account profits and fees Brokerage income Other nondeposit-related service fees Asset management and fiduciary service fees Credit card income Other income Total noninterest income Merger and restructuring items expense, net Other noninterest expense Personnel Occupancy, net Equipment Marketing Professional fees Amortization of intangibles Data processing Telecommunications Other general operating General administrative and miscellaneous Total other noninterest expense Income before income taxes Income tax expense Net income Net income available to common shareholders Per-share information (1) Earnings per common share Diluted earnings per common share Dividends per common share Average common shares issued (in thousands) (1) 1998 28,331 4,502 1,828 2,626 1,301 38,588 10,811 5,239 895 3,345 20,290 18,298 2,920 15,378 1,017 3,396 115 2,009 171 728 652 973 1,448 2,697 12,189 1,795 9,412 1,643 1,404 581 843 902 765 563 2,044 584 18,741 8,048 2,883 5,165 5,140 2.97 2.90 1.59 1,732,057 $ $ $ $ $ $ Year ended December 31 1997 $ $ $ $ $ $ 29,085 3,283 1,516 2,582 867 37,333 10,684 4,105 975 3,137 18,901 18,432 1,904 16,528 271 3,373 401 1,476 976 355 680 990 1,231 2,274 11,756 374 8,703 1,576 1,408 655 763 855 626 491 2,059 489 17,625 10,556 4,014 6,542 6,431 3.71 3.61 1.37 1,733,194 1996 26,439 2,797 1,371 2,229 800 33,636 9,600 3,699 880 2,503 16,682 16,954 1,645 15,309 147 2,822 340 1,028 885 259 520 744 899 2,107 9,604 398 7,501 1,476 1,229 589 634 544 551 413 1,998 416 15,351 9,311 3,498 5,813 5,611 3.42 3.36 1.20 1,638,382 $ $ $ $ $ $ (1) Share and per-share data reflect a 2-for-1 stock split on February 27, 1997. Refer to the BankAmerica 1998 Annual Report on Form 10-K for a complete set of consolidated financial statements. 26 Consolidated balance sheet BankAmerica Corporation and Subsidiaries (Dollars in millions) Assets Cash and cash equivalents Time deposits placed and other short-term investments Securities Held for investment, at cost (market value $1,853 and $4,905) Available for sale Total securities Federal funds sold and securities purchased under agreements to resell Trading account assets Loans and leases Allowance for credit losses Loans and leases, net of allowance for credit losses Premises and equipment, net Customers’ acceptance liability Interest receivable Unrealized gains on off-balance sheet instruments Mortgage servicing rights Goodwill Core deposits and other intangibles Other assets Total assets Liabilities Deposits in domestic offices Interest-bearing Noninterest-bearing Deposits in foreign offices Interest-bearing Noninterest-bearing Total deposits Federal funds purchased and securities sold under agreements to repurchase Trading account liabilities Commercial paper Other short-term borrowings Acceptances outstanding Unrealized losses on off-balance sheet instruments Accrued expenses and other liabilities Trust preferred securities Long-term debt Total liabilities Shareholders’ equity Preferred stock: authorized - 100,000,000 shares; issued and outstanding - 1,952,039 and 10,933,884 shares Common stock: authorized - 5,000,000,000 shares; issued and outstanding - 1,724,484,305 and 1,722,537,672 shares (1) Retained earnings Accumulated other comprehensive income Other Total shareholders’ equity Total liabilities and shareholders’ equity 1998 $ 28,277 6,750 1,997 78,590 80,587 27,146 39,602 357,328 (7,122) 350,206 7,289 2,671 3,734 16,400 2,376 12,695 2,013 37,933 $617,679 $203,644 92,623 59,280 1,713 357,260 67,543 14,170 6,749 24,742 2,671 16,835 30,929 4,954 45,888 571,741 December 31 1997 $ 28,466 8,363 4,822 62,209 67,031 20,200 35,937 342,140 (6,778) 335,362 8,123 4,891 3,584 14,824 2,040 13,551 2,203 26,408 $570,983 $202,082 85,815 56,719 1,681 346,297 61,414 17,300 5,925 12,120 4,893 13,639 17,346 4,578 42,887 526,399 83 708 14,837 30,998 152 (132) 45,938 $617,679 15,140 28,438 407 (109) 44,584 $570,983 (1) Shares reflect a 2-for-1 stock split on February 27, 1997. Refer to the BankAmerica 1998 Annual Report on Form 10-K for a complete set of consolidated financial statements. 27 Principal Officers Board of Directors Hugh L. McColl Jr. Chairman and Chief Executive Officer James H. Hance Jr. Vice Chairman and Chief Financial Officer Kenneth D. Lewis President, Consumer & Commercial Banking Michael J. Murray President, Global Corporate & Investment Banking Michael E. O’Neill President, Principal Investing & Wealth Management F. William Vandiver Jr. Corporate Risk Management Executive Richard M. Rosenberg Retired Chairman and Chief Executive Officer BankAmerica Corporation San Francisco, California O. Temple Sloan Jr. Chairman General Parts Inc. Raleigh, North Carolina Meredith R. Spangler Trustee and Board Member Charlotte, North Carolina A. Michael Spence Dean of the Graduate School of Business Stanford University Stanford, California Ronald Townsend Communications Consultant Jacksonville, Florida Solomon D. Trujillo President and Chief Executive Officer U S WEST Denver, Colorado Jackie M. Ward President and Chief Executive Officer Computer Generation Incorporated Atlanta, Georgia Virgil R. Williams Chairman and Chief Executive Officer Williams Group International, Inc. Stone Mountain, Georgia Shirley Young Vice President General Motors Corporation Detroit, Michigan Charles W. Coker Chairman Sonoco Products Company Hartsville, South Carolina Timm F. Crull Retired Chairman Nestle USA, Inc. Newport Beach, California Alan T. Dickson Chairman Ruddick Corporation Charlotte, North Carolina Kathleen Feldstein President Economic Studies Inc. Belmont, Massachusetts Paul Fulton Chairman and Chief Executive Officer Bassett Furniture Industries Inc. Winston-Salem, North Carolina Donald E. Guinn Chairman Emeritus Pacific Telesis Group San Francisco, California C. Ray Holman Chairman and Chief Executive Officer Mallinckrodt Inc. St. Louis, Missouri W. W. Johnson Chairman of the Executive Committee BankAmerica Corporation Charlotte, North Carolina Walter E. Massey President Morehouse College Atlanta, Georgia Hugh L. McColl Jr. Chairman and Chief Executive Officer BankAmerica Corporation Charlotte, North Carolina 28 Corporate information Shareholders The Corporation provides its share- Customers BankAmerica Corporation (the holders electronic direct deposit of divi- Customers seeking assistance with Corporation) common stock is listed on dends. Dividend payments may be sent NationsBank products and services the New York Stock Exchange and the electronically to a designated financial should call (800) 299-2265. Customers Pacific Stock Exchange under the sym- institution and credited to the share- seeking assistance with Bank of bol BAC. The Corporation’s common holder’s account on the dividend pay- America products and services should stock is also listed on the London Stock ment date. Shareholders interested in call (800) 521-2632. Exchange, and certain shares are listed additional information on this service Information on Bank of America’s on the Tokyo Stock Exchange. The should call Shareholder Services at products and services can be found on stock is typically listed as BankAm in (800) 642-9855. newspapers. The Corporation’s annual meeting of shareholders will be held at 11:00 a.m. on Wednesday, April 28, 1999, at the North Carolina Blumenthal Performing Arts Center, 130 North Tryon Street, Charlotte, North Carolina. Shareholders seeking general information regarding the Corporation’s stock should contact Jane Smith, manager of shareholder relations, at (800) 521-3984. The Corporation offers a stock pur- chase and dividend reinvestment plan. For information and a prospectus on this plan, please call our plan adminis- trator, ChaseMellon Shareholder Services, at (800) 642-9855. Bank of America’s web sites at www.bankofamerica.com and www.nationsbank.com. News media News media representatives seeking information should contact Richard Analysts, portfolio managers, and Stilley, director of public relations, at other investors seeking additional infor- (704) 386-8135. mation about the Corporation should News releases and other material contact Susan Carr, investor relations of particular value to the news media executive, at (704) 386-8059, or Kevin are available through Bank of Stitt, director of investor relations, America’s corporate web site at For shareholder inquiries concerning at (704) 386-5667. www.bankofamerica.com. dividend checks, dividend reinvestment, electronic deposit of dividends, tax information, transferring ownership, address changes or lost or stolen stock certificates, please contact ChaseMellon Shareholder Services L.L.C., P.O. Box 590, Ridgefield Park NJ 07660, phone (800) 642-9855. ChaseMellon’s web site is www.cmssonline.com. Starting in April 1999, visit Bank of America’s new corporate web site at www.bankofamerica.com for up-to-date investor information, news, and other material of interest to the Corporation’s shareholders. Printed on Recycled Paper 

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