November 13, 1996 - 10-Q: Quarterly report pursuant to Section 13 or 15(d) | Bank of America Corporation (BAC)

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, AS AMENDED

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, AS AMENDED

For the transition period from to

Commission file number 1-6523

NationsBank Corporation
(Exact name of registrant as specified in its charter)

North Carolina 56-0906609
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

NationsBank Corporate Center, Charlotte, North Carolina 28255
(Address of principal executive offices and zip code)

(704) 386-5000
(Registrant's telephone number, including area code)

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, as
amended, 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

On October 31, 1996, there were 287,440,645 shares of NationsBank Corporation
Common Stock outstanding.

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NATIONSBANK CORPORATION

SEPTEMBER 30, 1996 FORM 10-Q

INDEX

3

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NationsBank Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions Except Per-Share Information)

See accompanying notes to consolidated financial statements.

4

NationsBank Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)

See accompanying notes to consolidated financial statements.

5

NationsBank Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------

Loans transferred to other real estate owned amounted to $101 and $73 for the
nine months ended September 30, 1996 and 1995, respectively.

See accompanying notes to consolidated financial statements.

6

NationsBank Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(Dollars in Millions, Shares in Thousands)

See accompanying notes to consolidated financial statements.

7

NATIONSBANK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICIES

The consolidated financial statements include the accounts of
NationsBank Corporation and its subsidiaries (the Corporation). Significant
intercompany accounts and transactions have been eliminated in consolidation.
The information contained in the consolidated financial statements is
unaudited. In the opinion of management, all normal recurring adjustments
necessary for a fair presentation of the results of interim periods have been
made. Certain prior period amounts have been reclassified to conform to current
period classifications.
Accounting policies followed in the presentation of interim financial
results are presented on pages 51, 52 and 53 of the Corporation's 1995 Annual
Report to Shareholders, incorporated by reference into the Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995, as updated by the
following.
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
125), which provides accounting and disclosure guidance for certain asset
transfers and liabilities extinguishments, such as servicing of financial
assets, securitizations, repurchase agreements, factoring arrangements, loan
syndications and securities lending. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments occurring subsequent to
December 31, 1996. The Corporation does not expect the adoption of this standard
to have a material impact on its results of operations or financial condition.

NOTE 2 - MERGER-RELATED ACTIVITY

On August 13, 1996, the Corporation completed the acquisition of TAC
Bancshares, Inc. (TAC) and its subsidiary, Chase Federal Bank FSB (Chase
Federal), headquartered in Miami, Florida, for approximately $280 million, in
the aggregate, paid in cash. On the date of acquisition, TAC and Chase Federal
had total assets and total deposits of $2.8 billion and $2.0 billion,
respectively. These acquisitions were accounted for as purchases.
On August 31, 1996, the Corporation acquired aggregate
deposits of approximately $970 million from Bluebonnet Savings Bank, FSB
(Bluebonnet). The purchase price for this acquisition was approximately $46
million, paid in cash. This acquisition was accounted for as a purchase.
On August 29, 1996, the Corporation entered into an agreement to
acquire Boatmen's Bancshares, Inc. (Boatmen's), headquartered in St. Louis,
Missouri. Each outstanding share of Boatmen's common stock will be converted
into .6525 shares of Corporation common stock or, at the election of each holder
of Boatmen's common stock, an amount in cash as specified in the acquisition
agreement. At least 60 percent of the aggregate purchase price paid to Boatmen's
shareholders will be in shares of the Corporation's common stock and the balance
will be paid in cash. On September 30, 1996, Boatmen's had approximately 158
million shares of common stock outstanding. Boatmen's total assets and deposits
on September 30, 1996 were $40.7 billion and $30.6 billion, respectively.
Appropriate matters relating to this merger, which will be accounted for as a
purchase, are subject to approval by the Corporation's and Boatmen's
shareholders and various regulatory agencies. The acquisition is expected to
close during January 1997.
The Corporation currently intends to consummate the acquisition of
First Federal Savings Bank of Brunswick, Georgia (Brunswick) in the first half
of 1997 and will issue approximately 1.3 million shares of its common stock. On
September 30, 1996, Brunswick had total assets and deposits of $259 million and
$218 million, respectively.

8

NOTE 3 - TRADING ACCOUNT ASSETS AND LIABILITIES

The fair values of the components of trading account assets and
liabilities on September 30, 1996 and December 31, 1995 and the average fair
values for the nine months ended September 30, 1996 were (dollars in millions):

Derivatives-dealer positions presented in the table above represent the
fair values of interest rate, foreign exchange, equity and commodity-related
products, including financial futures, forward settlement and option contracts
and swap agreements associated with the Corporation's derivative trading
activities.

NOTE 4 - DEBT

In the third quarter of 1996, the Corporation issued $2.4 billion
in long term debt, including $1.4 billion of senior notes and $1.0 billion
of subordinated notes, with maturities ranging from 1999 to 2016. Of the $2.4
billion issued, $1.7 billion bear interest at fixed rates and $700 million bear
interest at floating rates.
Of debt issued in the three months ending September 30, 1996, $205
million of fixed rate debt was swapped to floating rates at spreads over LIBOR.
Under the bank note program jointly maintained by NationsBank, N.A.,
NationsBank, N.A. (South) and NationsBank of Texas, N.A., bank notes may be
offered from time to time up to $9.0 billion with fixed or floating rates and
maturities from 30 days to 15 years from date of issue.
On September 30, 1996, there were short-term bank notes outstanding of
$1.3 billion. In addition, NationsBank of Texas, N.A. and NationsBank, N.A.
together had outstanding bank notes of $3.1 billion on September 30, 1996 that
were classified as long-term debt. On September 30, 1996 and December 31, 1995,
the Corporation had unused commercial paper back-up lines of credit totaling
$1.5 billion which will expire in 1997. These lines were supported by fees paid
directly by the Corporation to unaffiliated banks. From October 1, 1996 through
November 8, 1996, the Corporation issued an additional $271 million in long term
debt, with maturities ranging from 1999 to 2011, of which $145 million bear
interest at floating rates and $126 million bear interest at fixed rates.

9

As of November 8, 1996, the Corporation had approximately $2.3
billion of capacity available under its existing shelf registration statements
and $3.2 billion available under the Euro medium-term note program.
On October 9, 1996, the Corporation filed a shelf registration
statement to offer up to an aggregate of $3 billion in senior or subordinated
debt or equity securities.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

The Corporation enters into commitments to extend credit, standby
letters of credit and commercial letters of credit to meet the financing needs
of its customers. The commitments shown below have been reduced by amounts
collateralized by cash and participated to other financial institutions. The
following summarizes commitments outstanding (dollars in millions):

SEPTEMBER 30 December 31
1996 1995
- --------------------------------------------------------------------------------
Commitments to extend credit
Credit card commitments ................... $23,501 $21,033
Other loan commitments .................... 78,379 66,638
Standby letters of credit and
financial guarantees ...................... 9,279 8,356
Commercial letters of credit ................... 885 986

On September 30, 1996 and December 31, 1995, indemnified securities
lending transactions totaled $7.9 billion and $2.6 billion, respectively.
Collateral, with a market value of $8.1 billion and $2.7 billion for the
respective periods, was obtained by the Corporation in support of these
transactions.
On September 30, 1996, the Corporation had commitments to purchase and
sell when-issued securities of $5.1 billion and $5.3 billion, respectively. This
compares to commitments to purchase and sell when-issued securities of $4.4
billion and $4.3 billion, respectively, on December 31, 1995.
See TABLES 12 and 13 and the accompanying discussion in Item 2
regarding the Corporation's derivatives used for risk management purposes. See
TABLE 14 and the accompanying discussion in Item 2 regarding the Corporation's
derivative trading activities.
In the ordinary course of business, the Corporation and its
subsidiaries are routinely defendants in or parties to a number of pending and
threatened legal actions and proceedings, including several actions brought on
behalf of various classes of claimants. In certain of these actions and
proceedings, substantial money damages are asserted against the Corporation and
its subsidiaries, and certain of these actions and proceedings are based on
alleged violations of consumer protection, securities, environmental, banking
and other laws. Management believes, based upon the advice of counsel, that the
actions and proceedings and losses, if any, resulting from the final outcome
thereof, will not be material in the aggregate to the Corporation's financial
position or results of operations.

10

NOTE 6 - LOANS, LEASES AND FACTORED ACCOUNTS RECEIVABLE

The composition of loans, leases and factored accounts receivable on
September 30, 1996 and December 31, 1995 was as follows (dollars in millions):

On September 30, 1996, the recorded investment in certain loans that
were considered to be impaired was $614 million, all of which was classified as
nonperforming. Impaired loans on September 30, 1996 were comprised of commercial
loans of $413 million, real estate commercial loans of $165 million and real
estate construction loans of $36 million. Of these impaired loans, $428 million
had a valuation allowance of $59 million and $186 million did not have a
valuation allowance primarily due to the application of interest payments
against book balances or write-downs previously made with respect to these
loans.
On September 30, 1996 and December 31, 1995, nonperforming loans,
including certain loans which are considered to be impaired, totaled $984
million and $706 million, respectively. Other real estate owned amounted to $151
million and $147 million on September 30, 1996 and December 31, 1995,
respectively.

11

NOTE 7 - MERGER-RELATED CHARGE

During the first quarter of 1996, primarily in connection with the
acquisition of Bank South Corporation, the Corporation recorded a pre-tax
merger-related charge of $118 million. The charge consisted of $34 million
of severance costs, $28 million for facilities consolidations and branch
closures, $11 million related to cancellations of contractual obligations,
and other merger-related expenses. Of the $118 million accrued charge,
approximately $55 million remained at September 30, 1996 and is expected to
be used within twelve months of the acquisition.
The following table summarizes the activity in the merger-related
reserve for the nine-month period ended September 30, 1996 (dollars in
millions):

Nine Months
Ended
September 30, 1996
------------------------
Balance at beginning of period .................. $-
Establishment of reserve ....................... 118
Cash payments .................................. (74)
Non-cash additions ............................. 11
-----
Balance on September 30, 1996 .................... $ 55
-----

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

EARNINGS REVIEW
A comparison of selected operating results for the three- and
nine-month periods ended September 30, 1996 and 1995 is presented in TABLE 1.
The Corporation experienced an 18-percent increase in net income to
$625 million in the third quarter of 1996 over the same quarter of 1995.
Earnings per common share were $2.12 and $1.95 for the third quarters of 1996
and 1995, respectively.
Operating net income totaled $1.8 billion in the first nine months of
1996, an increase of 26 percent over the same period of 1995. Earnings per
common share based on operating net income were $6.07 and $5.26 for the first
nine months of 1996 and 1995, respectively. Including a one-time merger-related
charge of $118 million ($77 million, net of tax), net income and earnings per
common share were $1.7 billion and $5.82, respectively, for the first nine
months of 1996.
Key performance highlights for the first nine months of 1996 were:

* Operating return on average common shareholders' equity rose to 18.36
percent in the first nine months of 1996 compared to 17.02 percent in
the first nine months of 1995. Including the merger-related charge, the
return on average common shareholders' equity was 17.58 percent.

* Taxable-equivalent net interest income increased 17 percent to $4.8
billion in the first nine months of 1996 over the same period in 1995
due to the impact of acquisitions, higher spreads in the securities
portfolio, growth in average consumer loans and an increase in
noninterest- bearing deposits.

* Noninterest income increased 20 percent to $2.7 billion in the first
nine months of 1996 over the first nine months of 1995, driven
primarily by higher deposit account service charges, investment banking
fees and mortgage servicing and mortgage-related fees.

* Revenue growth continued to outpace expense growth in the first nine
months of 1996, improving the efficiency ratio to 55.97 percent
compared to 60.14 percent in the first nine months of 1995.

* Excluding the impact of acquisitions, other noninterest expense
increased four percent during the first nine months of 1996 compared to
the first nine months of 1995. Including the impact of acquisitions,
other noninterest expense increased 10 percent.

* Provision for credit losses increased to $455 million for the first
nine months of 1996 compared to $240 million for the same period of
1995, reflecting growth in commercial and consumer lending as well as
the continuation of a return to more normalized levels of credit losses
following periods of unusually low credit losses. Nonperforming assets
increased to $1.1 billion on September 30, 1996 compared to $853
million at the end of 1995, due in part to acquisitions.

BUSINESS UNIT OPERATIONS
The Corporation provides a diversified range of banking and certain
nonbanking financial services and products through its various subsidiaries. The
Corporation manages its business activities through three major Business Units:
the GENERAL BANK, GLOBAL FINANCE and FINANCIAL SERVICES. The Business Units are
managed with a focus on numerous performance objectives including return on
equity, operating efficiency and net income. TABLE 2 summarizes key performance
measures for each of the Business Units.

13

TABLE 1
SELECTED OPERATING RESULTS
(Dollars in Millions Except Per-Share Information)

(1) Average common shareholders' equity does not include the effect of
market value adjustments to securities available for sale and
marketable equity securities.

- --------------------------------------------------------------------------------

14

The net interest income of the Business Units reflects a funds transfer
pricing process which derives net interest income by matching assets and
liabilities with similar interest rate sensitivity and maturity characteristics.
Equity capital is allocated to each Business Unit based on an assessment of its
inherent risk.

The GENERAL BANK includes the BANKING GROUP, which contains the retail
banking network and is the service provider for the consumer sector as well as
small and medium-size companies. Within the GENERAL BANK, specialized services,
such as the origination and servicing of home mortgage loans, the issuance and
servicing of credit cards, indirect lending, dealer finance and certain
insurance services, are provided throughout the Corporation's franchise, and on
a nationwide basis for certain products, through the FINANCIAL PRODUCTS GROUP.
The GENERAL BANK also contains the ASSET MANAGEMENT GROUP which includes
INVESTING AND INVESTMENT MANAGEMENT, which provides retirement services for
defined benefit and defined contribution plans, full-service and discount
brokerage services, and investment advisory services including advising the
Nations Fund family of mutual funds, and the PRIVATE CLIENT GROUP, which
offers banking, fiduciary and investment management services.
The GENERAL BANK earned $1.2 billion in the first nine months of 1996,
an increase of 41 percent over the same period in 1995. The BANKING GROUP'S
7-percent average loan growth net of acquisitions and the growth in deposit
service fee income accounted for most of the GENERAL BANK'S increased earnings
over the same period last year. The GENERAL BANK'S return on equity rose 373
basis points to 23 percent in the first nine months of 1996 compared to the
first nine months of 1995. Taxable-equivalent net interest income in the GENERAL
BANK increased $622 million reflecting the impact of acquisitions, broad-based
loan growth and deposit cost containment efforts. Acquisitions accounted for
over half of the net interest income growth. Excluding the impact of
acquisitions and securitizations, loan growth of $8 billion was primarily driven
by growth in consumer loans.
Noninterest income rose 25 percent in the first nine months of 1996 to
$1.9 billion led by increases in deposit service fee income, increased
mortgage-related activity and acquisition-related mortgage servicing fees, a
gain related to the change in control of Gartmore plc, the Corporation's partner
in the Gartmore Global Partners joint venture (formerly called NationsGartmore
Investment Management), and a gain on the sale of certain consumer loans.
Noninterest expense increased 11 percent, compared to the total revenue growth
of 23 percent. Acquisition-related and other increases in personnel and higher
general operating expense partly offset by reduced deposit insurance expense
accounted for most of the growth year over year. Excluding acquisitions,
noninterest expense increased only 3 percent. Strong revenue growth offset by a
moderate increase in operating expense led to the improvement in the efficiency
ratio, down to 58.1 percent compared to 64.6 percent in the same period in 1995.

GLOBAL FINANCE provides comprehensive corporate and investment banking,
as well as trading and distribution services to domestic and international
customers through its CORPORATE FINANCE, SPECIALIZED LENDING and CAPITAL MARKETS
units. The group serves as a principal lender and investor as well as an
advisor, arranger and underwriter and manages treasury and trade transactions
for clients and customers. Loan origination and syndication, asset-backed
lending, leasing, factoring, project finance and mergers and acquisitions are
representative of the services provided. The CAPITAL MARKETS group underwrites,
trades and distributes a wide range of securities (including bank-eligible
securities and, to a limited extent, bank-ineligible securities as authorized by
the Board of Governors of the Federal Reserve System). The group trades and
distributes financial futures, forward settlement contracts, option contracts,
swap agreements and other derivative products in certain interest rate, foreign
exchange, commodity and equity markets and spot and forward foreign exchange
contracts through two principal units, NATIONSBANC - CRT (CRT) and NATIONSBANC
CAPITAL MARKETS, INC. (NCMI).
GLOBAL FINANCE earned $449 million in the first nine months of 1996
compared to $472 million in the first nine months of 1995. Taxable-equivalent
net interest income for the first nine months of 1996 was $898 million compared
to $901 million in the first nine months of 1995 reflecting narrower commercial
loan spreads resulting from increased competitive pressure on commercial loan
pricing and the Corporation's efforts to reduce commercial real estate
outstandings.

15

Noninterest income in the first nine months increased 5 percent over
the same period last year driven by strong investment banking fees which
increased $105 million to $248 million and a gain on the sale of Panmure Gordon,
the Corporation's British brokerage firm. Noninterest expense for the period
rose 4 percent leading to a 54.1-percent efficiency ratio compared to 53.3
percent year-to-date 1995.

FINANCIAL SERVICES is primarily comprised of a holding company,
NATIONSCREDIT CORPORATION, which includes NATIONSCREDIT CONSUMER CORPORATION,
primarily a consumer finance operation, and NATIONSCREDIT COMMERCIAL
CORPORATION, primarily a commercial finance operation. NATIONSCREDIT CONSUMER
CORPORATION provides personal, mortgage and automobile loans to consumers and
retail finance programs to dealers. NATIONSCREDIT COMMERCIAL CORPORATION
consists of seven divisions that specialize in one or more of the following
commercial financing areas: equipment loans and leasing; loans for debt
restructuring, mergers and acquisitions and working capital; real estate,
golf/recreational and health care financing; and inventory financing to
manufacturers, distributors and dealers.
FINANCIAL SERVICES' earnings of $121 million in the first nine months
of 1996 increased 36 percent over the same period in 1995. Taxable-equivalent
net interest income increased $48 million resulting from 13 percent growth in
average loans and leases. The increase in provision for credit losses was driven
mainly by loan growth, but also by higher consumer loss rates. The net interest
yield of 7.22 percent decreased 3 basis points from 1995. Noninterest income
doubled to $91 million in the first nine months in 1996, reflecting increased
warrant gains and higher loan prepayment fees. Noninterest expense increased $49
million, or 27 percent, driven by office consolidation costs and higher
personnel expense associated with the expansion of consumer finance operations.
The return on equity was 14 percent in the first nine months of 1996.

TABLE 2
BUSINESS UNIT SUMMARY
For the Nine Months Ended September 30
(Dollars in Millions)

(1) Business Unit results are presented on a fully allocated basis but do not
include $45 million net expense for 1996 and $16 million net income for
1995, which represents earnings associated with unassigned capital, gains
on sales of securities, merger-related charges and other corporate
activities.

(2) Global Finance's net interest yield excludes the impact of trading-related
activities. Including trading related activities, the net interest yield
was 1.78 percent and 1.99 percent for the first nine months of 1996 and
1995, respectively.

(3) The sums of balance sheet amounts differ from consolidated amounts due to
activities between the Business Units.

(4) 1995 average and period end balances and net interest yield have been
restated to reflect current organizational structure.

16

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TABLE 3
QUARTERLY TAXABLE-EQUIVALENT DATA
(Dollars in Millions)

18

TABLE 4
NINE MONTH TAXABLE-EQUIVALENT DATA
(Dollars in Millions)

(1) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.

(2) Commercial loan interest income includes net interest rate swap revenues
related to swaps converting variable-rate commercial loans to fixed rate.
Interest rate swaps decreased interest income $5 and $175 in 1996 and 1995,
respectively.

(3) The average balance sheet amounts and yields on securities available for
sale are based on the average of historical amortized cost balances.

(4) The fair values of derivatives-dealer positions are reported in other
assets and liabilities, respectively.

(5) Interest income includes taxable-equivalent adjustments of $72 and $88 in
1996 and 1995, respectively.

(6) Securities sold under agreements to repurchase, other short-term borrowings
and consumer CDs interest expense includes net interest rate swap expense
related to swaps fixing the cost of certain of these liabilities. Interest
rate swaps increased interest expense $63 and $14 in 1996 and 1995,
respectively.

(7) Long-term debt interest expense includes net interest rate swap expense
related to swaps primarily converting the cost of certain fixed-rate debt
to variable rate. Interest rate swaps increased (decreased) interest
expense ($8) and $2 in 1996 and 1995, respectively.

19

RESULTS OF OPERATIONS

NET INTEREST INCOME
TABLES 3 and 4 present the Corporation's taxable-equivalent net
interest income and average balance sheet levels for the last five quarters and
the first nine months of 1996 and 1995, respectively.
Taxable-equivalent net interest income increased $196 million to $1.6
billion in the third quarter of 1996 compared to the third quarter of 1995 and
$689 million to $4.8 billion in the first nine months of 1996 compared to the
first nine months of 1995. The increase was attributable to acquisitions of
several banking operations, higher spreads in the securities portfolio, loan
growth and an increase in noninterest-bearing deposits. The increase was
partially offset by the impact of securitizations and the use of term debt.
Securitizations lowered net interest income by $86 million and $184 million in
the third quarter and first nine months of 1996, respectively. Securitizations
of loans do not significantly affect the Corporation's earnings. As the
Corporation's role changes from that of a lender to that of a servicer, net
credit income, including provision for credit losses, related to such loans is
reflected as noninterest income.
Of the $563-million increase in interest income for the first nine
months of 1996 compared to the same period in 1995, $779 million was due to
higher average earning assets, and was partially offset by a $216-million
decrease relating to lower yields on average earning assets, primarily loans and
leases, due to changes in the interest rate environment. Interest expense
decreased $126 million with $478 million resulting primarily from the impact of
lower rates on average interest-bearing liabilities partially offset by the
$352-million impact of higher levels of average interest-bearing liabilities.
Loan growth is expected to continue, but is dependent on economic
conditions as well as various discretionary factors, such as decisions to
securitize certain loan portfolios, the retention of residential mortgage loans
generated by the Corporation's mortgage subsidiary and the management of
borrower, industry, product and geographic concentrations.
The net interest yield was 3.69 percent in the third quarter of 1996
and 3.58 percent in the first nine months of 1996 compared to 3.35 percent and
3.31 percent in the comparable periods of 1995. The increase in the net interest
yield reflected the sale of treasury securities and the reinvestment of cash
from the sale of low-yielding securities into higher-spread products when
compared to 1995.

PROVISION FOR CREDIT LOSSES
The provision for credit losses was $145 million in the third quarter
of 1996 compared to $100 million in the third quarter of 1995, reflecting the
industry-wide trend towards higher losses compared to lower levels in prior
periods. Net charge-offs in the third quarter of 1996 increased to $135 million
from $99 million in the comparable 1995 period due to increases of $17 million
in total commercial net charge-offs, $16 million in other consumer net
charge-offs and $6 million in credit card net charge-offs.
The provision for credit losses of $455 million for the first nine
months of 1996 represented an increase of $215 million over the same period in
1995. The increase was attributed primarily to an increase in commercial and
real estate commercial net charge-offs of $62 million and $19 million,
respectively, as well as increases of $57 million in other consumer net
charge-offs and $36 million in credit card net charge-offs. Management expects
the higher level of charge-offs experienced in the first nine months of 1996 to
continue as the Corporation continues its efforts to shift the mix of the loan
portfolio to a higher consumer concentration and credit losses continue to
return to more normalized levels.
The allowance for credit losses was $2.3 billion on September 30, 1996
and $2.2 billion on December 31, 1995, or 1.90 and 1.85 percent of net loans,
leases and factored accounts receivable on September 30, 1996 and December 31,
1995, respectively. The allowance for credit losses was 236 percent of
nonperforming loans on September 30, 1996 compared to 306 percent on December
31, 1995. Future economic conditions will continue to impact credit quality and
may result in increased net charge-offs and higher provisions for credit losses.

20

GAINS ON SALES OF SECURITIES
Gains on the sales of securities were $26 million in the third quarter
of 1996 compared to $3 million in the third quarter of 1995, primarily
reflecting the Corporation's sales of U.S. Treasuries and mortgage-backed
securities. Gains on sales of securities for the first nine months of 1996 were
$34 million compared to $8 million in the comparable 1995 period.

NONINTEREST INCOME
As presented in TABLE 5, noninterest income increased $110 million and
$456 million to $886 million and $2.7 billion in the third quarter and the first
nine months of 1996, respectively, compared to the same periods of 1995
reflecting diverse fee generating activities as described below:
(Diamond) Service charges on deposit accounts increased $59 million and $175
million over the third quarter and first nine months of 1995,
respectively, attributable to growth in the number of households
served, in part due to acquisitions, and higher fees.
(Diamond) Mortgage servicing and other mortgage-related fees grew 43 percent
and 72 percent over the third quarter and first nine months of 1995,
respectively. The average portfolio of loans serviced increased 35
percent from $64.9 billion in the first nine months of 1995 to $87.8
billion in the first nine months of 1996. Mortgage loan originations
through the Corporation's mortgage banking subsidiary decreased $900
million to $3.1 billion in the third quarter of 1996 and increased
$1.2 billion to $9.3 billion in the first nine months of 1996
compared to the same periods one year earlier, primarily reflecting
changes in the interest rate environment. Origination volume in the
third quarter consisted of approximately $1.2 billion of retail loan
volume and $1.9 billion of correspondent and wholesale loan volume.
In conducting its mortgage banking activities, the Corporation is
exposed to fluctuations in interest rates. Loans originated for sale
to third parties expose the Corporation to interest rate risk for
the period between loan commitment date and subsequent delivery
date. Additionally, the value of the Corporation's mortgage
servicing rights is affected by changes in prepayment rates. To
manage risks associated with mortgage banking activities, the
Corporation enters into various financial instruments including
option contracts, forward delivery contracts and certain rate swaps.
The contract notional amount of these instruments approximated $6.8
billion on September 30, 1996. Net unrealized losses associated with
these contracts were $26 million on September 30, 1996.
(Diamond) Investment banking income totaled $85 million and $250 million in
the third quarter and first nine months of 1996, respectively,
increases of 70 percent and 74 percent over the comparable periods
of 1995, primarily reflecting gains on the sale of stock and
increased underwriting volume. The GLOBAL FINANCE syndication group
was agent or co-agent on 369 deals totaling $233 billion in the
first nine months of 1996, compared to 257 deals totaling $184
billion one year earlier.
(Diamond) Asset management and fiduciary service fees declined $5 million and
$16 million in the third quarter and first nine months of 1996,
respectively, reflecting the impact of the sale of Corporate Trust.
Corporate Trust, which dealt with bond servicing and administration,
was sold in December 1995. Excluding the impact of this sale, asset
management fees increased five percent in the nine months ended
September 30, 1996.
(Diamond) Credit card income increased $12 million and $33 million in the
third quarter and first nine months of 1996, respectively, primarily
due to increased purchase volume and interchange rates and
securitizations of credit card loans, which result in net interest
income from securitized credit card loans being removed from net
interest income and reflected in noninterest income. Credit card
securitizations increased noninterest income by $20 million and $47
million in the third quarter and first nine months of 1996,
respectively.
(Diamond) Trading account profits and fees, including foreign exchange income,
were $39 million and $189 million in the third quarter and first
nine months of 1996, respectively, decreases of $59 million and $54
million compared the same periods in 1995, a reflection of less
favorable market conditions during 1996.

21

An analysis of trading account profits and fees by major business
activity follows (in millions):

Three Months Ended Nine Months Ended

September 30 September 30
-------------------------------------
1996 1995 1996 1995
-------------------------------------
Securities trading ....... $ 31 $ 34 $ 77 $ 97
Interest rate contracts .. 22 53 112 94
Foreign exchange contracts (16) 10 (25) 16
Other .................... 2 1 25 36
---------------------------------

$ 39 $ 98 $ 189 $ 243
---------------------------------

In addition to trading account profits and fees, the CAPITAL MARKETS
group also generates investment banking income and brokerage income.

(Diamond) Miscellaneous income totaled $108 million and $330 million in the
third quarter and the first nine months of 1996, respectively,
increases of $44 million and $100 million over the third quarter and
first nine months of 1995, respectively. Miscellaneous income
includes certain prepayment fees and other fees such as net gains on
sales of miscellaneous investments, business activities, premises,
venture capital investments and other similar items.

TABLE 5
NONINTEREST INCOME
(Dollars in Millions)

N/M - NOT MEANINGFUL

22

NONINTEREST EXPENSE
As presented in TABLE 6, the Corporation's noninterest expense
increased 12 percent in the third quarter and 10 percent in the first nine
months of 1996 compared to the same periods of 1995 to $1.4 billion and $4.2
billion, respectively. Excluding acquisitions, noninterest expense increased
only six percent and four percent in the third quarter and the first nine months
of 1996, respectively, compared to the same 1995 periods.
Expenditures in selected areas to generate continued revenue growth,
such as enhancing customer sales and optimizing product delivery channels,
contributed to the year-over-year increase. These increases were partially
offset by lower deposit insurance and expense savings associated with
streamlining and consolidating the infrastructure of several GENERAL BANK
administrative and support areas as well as modifying certain business
activities.
A discussion of the significant components of noninterest expense for
the third quarter and first nine months of 1996 compared to the third quarter
and the first nine months of 1995 follows:
(Diamond) Personnel expense increased $61 million and $157 million in the
third quarter and first nine months of 1996, respectively, over the
comparable 1995 periods, primarily due to an increase in personnel
and contracted temporary services for the transition and
implementation of revenue enhancement projects.

(Diamond) Occupancy expense increased $13 million and $23 million in the third
quarter and the first nine months of 1996, respectively, primarily
due to the impact of acquisitions.

(Diamond) Equipment expense increased 11 percent and 12 percent in the third
quarter and first nine months of 1996, respectively, over the same
periods in 1995, reflecting acquisitions and enhancements to
computer resources and product delivery systems.

(Diamond) Marketing expense increased $30 million in the first nine months of
1996 compared to the same period of 1995, primarily attributable to
the Corporation's sponsorship of the 1996 Olympic Summer Games.

(Diamond) Professional fees increased $20 million and $53 million in the third
quarter and first nine months of 1996, respectively, compared to the
same periods in 1995. These increases were primarily due to an
increase in consulting and technical support fees for projects
to enhance revenue growth.

(Diamond) The Corporation's deposit insurance expense decreased $80 million in
the first nine months of 1996 compared to the same period of 1995,
primarily due to reductions in insurance rates charged by the FDIC
beginning June 1, 1995. The $8 million increase in the third quarter
of 1996 compared to the third quarter of 1995 reflects a refund
received last year.

(Diamond The Corporation's other general operating expenses increased $10
million and $99 million in the third quarter and first nine months
of 1996, respectively, compared to the third quarter and first nine
months of 1995. Included in the year-to-date expenses are $43
million of pre-tax charges reflecting the estimated losses
associated with certain customers' fraudulent commercial
transactions.

TABLE 6
NONINTEREST EXPENSE
(Dollars in Millions)

23

INCOME TAXES
The Corporation's income tax expense for the third quarter and first
nine months of 1996 was $331 million and $933 million, respectively, for an
effective rate of 35 percent of pretax income. Tax expense in the third quarter
and first nine months of 1995 was $288 million and $763 million, respectively,
for an effective rate of 35 percent for both periods.

BALANCE SHEET REVIEW AND LIQUIDITY RISK MANAGEMENT
The Corporation utilizes an integrated approach in managing its balance
sheet which includes management of interest rate sensitivity, credit risk,
liquidity risk and capital position.
Average market-based funds decreased $6.5 billion in the first nine
months of 1996 over the same period of 1995, and comprised a smaller portion of
total sources of funds, at 33 percent for the first nine months of 1996 compared
to 39 percent during the same period of 1995. Average long-term debt increased
$8.8 billion in the first nine months of 1996 over 1995 levels for the
comparable period and represented 10 percent of total sources of funds compared
to 6 percent during the same period of 1995.
Average customer-based funds increased $10.0 billion in the first nine
months of 1996 compared to the first nine months of 1995 primarily due to
deposits acquired in recent acquisitions. As a percentage of total sources,
average customer-based funds remained relatively constant at 46 percent in the
first nine months of 1996 compared to 45 percent in the first nine months of
1995.
Average loans and leases, the Corporation's primary use of funds,
increased $15.0 billion during the first nine months of 1996 compared to the
same period of 1995 due to the impact of acquisitions and comprised 61 percent
of total uses of funds compared to 58 percent during the same period of 1995.
The ratio of average loans and leases to average customer-based funds was 131
percent in the first nine months of 1996 compared to 129 percent in the first
nine months of 1995.
Cash and cash equivalents were $8.9 billion on September 30, 1996, an
increase of $418 million from December 31, 1995. During the first nine months of
1996, net cash provided by operating activities was $1.4 billion, net cash
provided by investing activities was $14.2 billion and net cash used in
financing activities was $15.2 billion. For further information on cash flows,
see the Consolidated Statement of Cash Flows in the consolidated financial
statements.
Liquidity is a measure of the Corporation's ability to fulfill its cash
requirements and is managed by the Corporation through its asset and liability
management process. The Corporation assesses the level of liquidity necessary to
meet its cash requirements by monitoring its assets and liabilities and
modifying these positions as liquidity requirements change. This process,
coupled with the Corporation's ability to raise capital and issue debt, is
designed to cover the liquidity needs of the Corporation. The following
discussion provides an overview of significant on- and off-balance sheet
components.

SECURITIES
The securities portfolio on September 30, 1996 consisted of securities
held for investment totaling $3.0 billion and securities available for sale
totaling $13.3 billion compared to $4.4 billion and $19.4 billion, respectively,
on December 31, 1995.
On September 30, 1996, the market value of the Corporation's portfolio
of securities held for investment reflected net unrealized depreciation of $10
million. On December 31, 1995, the market value of securities held for
investment equaled the book value of the portfolio.
The valuation reserve for securities available for sale and marketable
equity securities increased shareholders' equity by $20 million on September 30,
1996, reflecting pretax depreciation of $74 million on securities available for
sale and appreciation of $103 million on marketable equity securities. The
valuation reserve increased shareholders' equity by $323 million on December 31,
1995. The decrease in the valuation reserve was primarily attributable to
maturities and sales of securities and the general increase in interest rates
when comparing September 30, 1996 to December 31, 1995.
The estimated average maturities of the securities held for investment
and securities available for sale portfolios were 1.29 years and 6.38 years,
respectively, on September 30, 1996 compared with 1.65 years and 2.96 years,
respectively, on December 31, 1995, a reflection of mortgage-backed securities
obtained primarily through securitization of residential mortgages, acquisitions
and the investment activity which occurred during the first nine months of 1996.

24

NONPERFORMING ASSETS
As presented in TABLE 7, on September 30, 1996, nonperforming assets
were $1.1 billion, or .93 percent of net loans, leases, factored accounts
receivable and other real estate owned, compared to $853 million, or .73
percent, on December 31, 1995. Nonperforming loans increased to $984 million on
September 30, 1996 from $706 million on December 31, 1995. Approximately half of
the increase in nonperforming assets was related to acquisitions while the
remainder was attributable to the continuation of a return toward more normal
levels of credit quality. The allowance coverage of nonperforming loans was 236
percent on September 30, 1996 compared to 306 percent on December 31, 1995.

Table 7
Nonperforming Assets
(Dollars in Millions)

ALLOWANCE FOR CREDIT LOSSES
The Corporation's allowance for credit losses was $2.3 billion on
September 30, 1996 compared to $2.2 billion on December 31, 1995. TABLE 8
provides an analysis of the changes in the allowance for credit losses. The
provision for credit losses of $145 million in the third quarter of 1996 was $45
million higher than in the third quarter of 1995, primarily as a result of loan
growth and higher charge-offs in the commercial and consumer loan portfolios.
Total net charge-offs increased $36 million in the current quarter to $135
million, or .44 percent of average loans, leases and factored accounts
receivable, versus $99 million, or .35 percent, in the prior year's quarter. The
increases were primarily concentrated in total commercial, other consumer, and
credit card net charge-offs which increased $17 million, $16 million, and $6
million, respectively. The increase in credit card net charge-offs was partially
due to an 18-percent growth in average credit card loans over the third quarter
of 1995. Additionally, an increase in the rate of personal bankruptcies in 1996
contributed to higher net charge-offs in the other consumer and credit card
portfolios. The net charge-offs of $447 million for the first nine months of
1996 represented an increase of $182 million over the same period in 1995.
Management anticipates that the credit losses experienced in the first
nine months of 1996 reflect a move toward more typical loss levels than the
lower charges experienced in prior periods and that losses

25

Table 8
Allowance For Credit Losses
(Dollars in Millions)

26

at these or higher levels will continue for the near future. Furthermore,
future economic conditions also will impact credit quality and may result in
increased net charge-offs and higher provisions for credit losses.

Table 9
Real Estate Commercial and Construction
Loans, Other Real Estate Owned and
Other Real Estate Credit Exposures
September 30, 1996
(Dollars in Millions)

(1) On September 30, 1996, the Corporation had unfunded binding real estate
commercial and construction loan commitments.
(2) Other credit exposures include letters of credit and loans held for
sale.

CONCENTRATIONS OF CREDIT RISK
REAL ESTATE - Total nonresidential real estate commercial and
construction loans, the portion of such loans which are nonperforming, OREO and
other credit exposures are presented in TABLE 9. The exposures presented
represent credit extensions for real estate-related purposes to borrowers or
counterparties who are primarily in the real estate development or investment
business and for which the ultimate repayment of the credit is dependent on the
sale, lease, rental or refinancing of the real estate.
Total nonresidential real estate commercial and construction loans were
$8.6 billion and $9.2 billion on September 30, 1996 and December 31, 1995,
respectively, decreasing 70 basis points from 7.8 percent of net loans, leases
and factored accounts receivable on December 31, 1995 to 7.1 percent on
September 30, 1996. During the third quarters of 1996 and 1995, the Corporation
recorded real estate net recoveries of $1 million. During the first nine months
of 1996, the Corporation had real estate net charge-offs of $23 million, or .32
percent of average real estate loans, compared to $3 million, or .04 percent, in
the first nine months of 1995. A significant portion of the 1996 net charge-offs
were associated with the bulk sale of $110 million of loans in the second
quarter of 1996. Nonperforming real estate commercial

27

and construction loans totaled $201 million and $212 million on September 30,
1996 and December 31, 1995, respectively.
The exposures included in TABLE 9 do not include credit extensions
which were made on the general creditworthiness of the borrower, for which real
estate was obtained as security or as an abundance of caution, and for which the
ultimate repayment of the credit is not dependent on the sale, lease, rental or
refinancing of the real estate. Accordingly, the exposures presented do not
include commercial loans secured by owner-occupied real estate, except where the
borrower is a real estate developer. In addition to the amounts presented in the
table, on September 30, 1996, the Corporation had approximately $7.8 billion of
commercial loans which were not real estate dependent but for which the
Corporation had obtained real estate as secondary repayment security.

Table 10
Selected Industry Credit Exposures
September 30, 1996
(Dollars in Millions)

(1) Other credit exposures include loans held for sale, letters of credit,
bankers' acceptances and derivatives exposures in a gain position.

OTHER INDUSTRIES - TABLE 10 presents selected industry credit
exposures. Commercial loans, factored accounts receivable and lease financing
are included in the table. Other credit exposures as represented include loans
held for sale, letters of credit, bankers' acceptances and derivatives exposures
in a gain position. Commercial loan outstandings were 41 percent of net loans,
leases and factored accounts receivable on September 30, 1996 and December 31,
1995, and totaled $50.1 billion and $48.0 billion on September 30, 1996 and
December 31, 1995, respectively. Net charge-offs of commercial loans totaled $20
million, or .16 percent of average commercial loans, in the third quarter of
1996 compared to net charge-offs of $3 million, or .03 percent, in the third
quarter of 1995. For the first nine months of 1996, the Corporation had
commercial net charge-offs of $68 million, or .19 percent of average commercial
loans, compared to $6 million or .02 percent for the first nine months of 1995.
CONSUMER - Consumer loan outstandings as a percentage of net loans,
leases and factored accounts receivable remained relatively constant at 44.9
percent on September 30, 1996 compared to 45.2 percent on December 31, 1995 and
totaled $54.8 billion and $52.8 billion on September 30, 1996 and December 31,
1995, respectively. In addition to the credit card and other consumer loans
reported in the financial statements, the Corporation manages credit card and
consumer receivables which have been sold.

28

Total average credit card receivables managed by the CARD SERVICES
group were $8.4 billion in the third quarter of 1996 compared to $6.1 billion in
the third quarter of 1995. Net charge-off ratios for the managed credit card
portfolio were 4.67 percent and 4.36 percent for the third and second quarters
of 1996, respectively, and 4.06 percent for the third quarter of 1995.
Total average managed other consumer loans were $24.6 billion for the
third quarter of 1996 including the impact of the July 31, 1996 securitization
of $2.1 billion of indirect auto loans. The consumer managed portfolio, which
includes both on balance sheet receivables and indirect auto loan and consumer
finance securitizations, experienced net charge-offs as a percentage of average
managed consumer loans of 1.12 percent and .99 percent for the third and second
quarters of 1996, respectively, and .83 percent for the third quarter of 1995.
In the first nine months of 1996, net charge-offs as a percentage of
average managed consumer loans were 4.29 percent for credit card and 1.06
percent for other consumer loans. This compares to net charge-off ratios on a
managed basis of 3.88 percent for credit card loans and .80 percent for other
consumer loans for the first nine months of 1995.
See NOTE 6 to the consolidated financial statements for information
regarding the distribution of loans on September 30, 1996 and December 31, 1995.

MARKET RISK
In the normal course of conducting business activities, the Corporation
is exposed to market risk which includes both price and liquidity risk. Price
risk arises from fluctuations in interest rates, foreign exchange rates and
commodity and equity prices that may result in changes in the values of
financial instruments. Liquidity risk arises from the possibility that the
Corporation may not be able to satisfy current and future financial commitments
or that the Corporation may not be able to liquidate financial instruments at
market prices. Risk management procedures and policies have been established and
are utilized to manage the Corporation's exposure to market risk. The strategy
of the Corporation with respect to market risk is to maximize net income while
maintaining an acceptable level of risk to changes in market rates. While
achievement of this goal requires a balance between profitability, liquidity and
market price risk, there are opportunities to enhance revenues through
controlled risks. In implementing strategies to manage interest rate risk, the
primary tools used by the Corporation are the securities portfolio and interest
rate swaps, and management of the mix, yields or rates and maturities of assets
and of the wholesale and retail funding sources of the Corporation.
TABLE 11 represents the Corporation's interest rate gap position on
September 30, 1996. Based on contractual maturities or repricing dates (or
anticipated dates where no contractual maturity or repricing date exists),
interest-sensitive assets and liabilities are placed in maturity categories. The
Corporation's near-term cumulative interest rate gap position is a reflection of
the strength of the customer-deposit gathering franchise which provides the
Corporation with a relatively stable core deposit base. These funds have been
deployed in longer-term interest earning assets, primarily loans and securities.
A gap analysis is limited in its usefulness as it represents a one-day position,
which is continually changing and not necessarily indicative of the
Corporation's position at any other time. Additionally, the gap analysis does
not consider the many factors accompanying interest rate movements.
On September 30, 1996, the interest rate risk position of the
Corporation was relatively neutral as the impact of a gradual parallel
100-basis-point rise or fall in interest rates over the next 12 months was
estimated to be less than 1 percent of net income when compared to stable rates.
To estimate potential losses that could result from adverse market
movements, the Corporation uses a daily earnings at risk methodology. Earnings
at risk estimates are measured on a daily basis at the individual trading unit
level, by type of trading activity and for all trading activities in the
aggregate. Daily reports of estimates compared to respective limits are reviewed
by senior management, and trading strategies are adjusted accordingly. In
addition to these simulations, portfolios which have significant option
positions are stress tested continually to simulate the potential loss that
might occur due to unexpected market movements in each market.
Earnings at risk represents a one-day measurement of pre-tax earnings
at risk from movements in market prices using the assumption that positions
cannot be rehedged during the period of any prescribed price and volatility
change. A 99-percent confidence level is utilized, which indicates that actual
trading

29

profits and losses may deviate from expected levels and exceed estimates
approximately one day out of every 100 days of trading activity. Earnings at
risk is measured on both a gross and uncorrelated basis. The gross measure
assumes that adverse market movements occur simultaneously across all segments
of the trading portfolio, an unlikely assumption. On September 30, 1996, the
gross estimates for aggregate interest rate, foreign exchange and equity and
commodity trading activities were $53 million, $3 million and $4 million,
respectively. Alternatively, using a statistical measure which is more likely to
capture the effects of market movements, the estimate on September 30, 1996 for
aggregate trading activities was $24 million.
Average daily CAPITAL MARKETS-related revenues in the third quarter of
1996 approximated $1 million. During the third quarter of 1996, the
Corporation's CAPITAL MARKETS-related activities resulted in positive daily
revenues for approximately 75 percent of total trading days. In the third
quarter of 1996, the standard deviation of CAPITAL MARKETS-related revenues was
$3 million. Using this data, one can conclude that the aggregate Capital Markets
activities should not result in exposure of more than $6 million for any one
day, assuming 99-percent confidence. Daily earnings at risk will average
considerably more than this due to the assumption of no evasive actions as well
as the assumption that adverse market movements occur simultaneously across all
segments of the trading portfolio.

Table 11
Interest Rate Gap Analysis
September 30, 1996
(Dollars in Millions)

30

Table 12
Asset and Liability Management
Interest Rate Swaps Notional
Contracts
(Dollars in Millions)

OFF BALANCE SHEET

DERIVATIVES - ASSET AND LIABILITY MANAGEMENT POSITIONS

The Corporation utilizes interest rate contracts in its asset and
liability management (ALM) process. Interest rate contracts allow the
Corporation to adjust its interest rate risk position without exposure to risk
of loss of the underlying principal or funding requirements, as these contracts
do not involve the exchange of notional amounts, only payment or receipt of cash
flows. The periodic interest payments can be based on a fixed rate or a variable
index.
The Corporation uses non-leveraged generic, index amortizing,
collateralized mortgage obligation (CMO) and basis swaps. Generic swaps involve
the exchange of fixed rate and variable rate interest payments based on the
contractual underlying notional amounts. Index amortizing and CMO swaps also
involve the exchange of fixed rate and variable rate interest payments; however,
the notional amounts may decline and their maturities vary based on certain
interest rate indices in the case of index amortizing swaps and mortgage
prepayment rates in the case of CMO swaps. Basis swaps involve the exchange of
interest payments based on the contractual underlying notional amounts where
both the pay rate and the receive rate are floating rates based on different
indices.
In its ALM process, the Corporation also purchases interest rate caps
and floors. Interest rate caps and floors are agreements where, for a fee, the
purchaser obtains the right to receive interest payments when a variable
interest rate moves above or below a specified cap or floor rate.
As presented in the footnotes to TABLE 3, net interest receipts and
payments on these contracts have been included in interest income and expense on
the underlying instruments. On September 30, 1996, there were no realized
deferred gains or losses associated with terminated ALM contracts.
TABLE 12 summarizes the notional amount and the activity of ALM
interest rate swap contracts for the nine months ended September 30, 1996. As
reflected in the table, the gross notional amount of the Corporation's ALM swap
program on September 30, 1996 was $31.3 billion. Excluding basis swaps, the
Corporation was receiving fixed on $28.5 billion, primarily converting
variable-rate commercial loans to fixed-rate, and receiving variable on $1.5
billion, fixing the cost of certain variable-rate liabilities, primarily
market-based funds. On September 30, 1996, the net receive fixed position was
$27.0 billion, representing an increase from the net receive fixed position of
$3.9 billion on December 31, 1995. The net receive fixed position of ALM
interest rate swap contracts was increased from December 31, 1995 to modify the
interest rate characteristics of certain variable rate assets, in order to
maintain the Corporation's relatively neutral posture to changes in interest
rates after the sale and securitization of fixed rate assets during 1996.
The gross notional amount of option products, primarily caps and
floors, on September 30, 1996 was $4.9 billion. Such instruments primarily
relate to term debt, consumer loans and securities available for sale. On
September 30, 1996, the net unrealized appreciation of option products was $1.4
million.
TABLE 13 summarizes the maturities, average pay and receive rates and
the market value on September 30, 1996 of the Corporation's ALM contracts.
Floating rates represent the last repricing and will change in the future based
on movements in one-, three- and six-month LIBOR rates. Maturities for CMO and
amortizing swaps are based on interest rates implied by the forward yield curve
on September 30, 1996 and may differ from actual maturities depending on future
interest rate movements and resultant prepayment patterns.

31

Table 13
Asset and Liability Management Interest Rate Swaps
September 30, 1996
(Dollars in Millions, Average Maturity in Years)

On September 30, 1996, in addition to the above interest rate swaps, the
Corporation had approximately $1.3 billion notional of receive fixed generic
interest rate swaps associated primarily with a credit card securitization. On
September 30, 1996, these positions had an unrealized market value of negative
$28 million, a weighted average receive rate of 5.25 percent, a pay rate of 5.81
percent and an average maturity of 3.01 years.

32

The net unrealized depreciation of the ALM swap portfolio on September
30, 1996 was $176 million compared to $75 million on December 31, 1995,
reflecting an increase in interest rates when comparing September 30, 1996 to
December 31, 1995. The unrealized depreciation in the estimated value of the ALM
interest rate swap portfolio should be viewed in the context of the overall
balance sheet. The value of any single component of the balance sheet or
off-balance sheet positions should not be viewed in isolation.

DERIVATIVES - DEALER POSITIONS

Credit risk associated with derivative positions is measured as the net
replacement cost the Corporation could incur should counterparties with
contracts in a gain position completely fail to perform under the terms of those
contracts and any collateral underlying the contracts proves to be of no value
to the Corporation. In managing derivative credit risk, the Corporation
considers both the current exposure, which is the replacement cost of contracts
on the measurement date, as well as an estimate of the potential change in value
of contracts over their remaining lives.

Table 14
Derivatives - Dealer Positions
(Dollars in Millions)

(1)Represents the net replacement cost the Corporation could incur should
counterparties with contracts in a gain position to the Corporation
completely fail to perform under the terms of those contracts. Amounts
include accrued interest.

33

TABLE 14 presents the notional or contract amounts on September 30,
1996 and December 31, 1995 and the current credit risk amounts (the net
replacement cost of contracts in a gain position on September 30, 1996 and
December 31, 1995) of the Corporation's derivatives-dealer positions which are
primarily executed in the over-the-counter market. The notional or contract
amounts indicate the total volume of transactions and significantly exceed the
amount of the Corporation's credit or market risk associated with these
instruments. The credit risk amounts presented in TABLE 14 do not consider the
value of any collateral, but generally take into consideration the effects of
legally enforceable master netting agreements. On September 30, 1996, the credit
risk associated with the Corporation's asset and liability management positions
was not significant.
In managing credit risk associated with its derivatives activities, the
Corporation deals with creditworthy counterparties, primarily U.S. and foreign
commercial banks, broker-dealers and corporates.
A portion of the Corporation's derivatives-dealer activity involves
exchange-traded instruments. Because exchange-traded instruments conform to
standard terms and are subject to policies set by the exchange involved,
including counterparty approval, margin requirements and security deposit
requirements, the credit risk to the Corporation is minimal. Of the $4.0 billion
current credit risk amount reported in TABLE 14, $651 million relates to
exchange-traded instruments. This compares to a total credit risk amount of $3.8
billion on December 31, 1995, which included $791 million related to
exchange-traded instruments.
During the first nine months of 1996, there were no credit losses
associated with derivative transactions. In addition, on September 30, 1996,
there were no nonperforming derivative positions.

CAPITAL

Shareholders' equity totaled $13.3 billion on September 30, 1996
compared to $12.8 billion on December 31, 1995. Net earnings retention of $1.2
billion coupled with the acquisition of Bank South, which resulted in the
issuance of 26.3 million shares of common stock and an increase of $685 million
in shareholders' equity, were the primary reasons for the increase. The increase
was partially offset by the net depreciation of $306 million in the market value
of securities available for sale and marketable equity securities and repurchase
of 15.4 million shares of common stock for approximately $1.3 billion during
the first nine months of 1996. Such repurchases were authorized in July 1996 by
the Board of Directors for up to 20 million shares of common stock over a 36-
month period.
Presented below are the Corporation's regulatory capital ratios on
September 30, 1996 and December 31, 1995:

September 30 December 31
1996 1995
- ------------------------------------------------------------
Risk-Based Capital Ratios
Tier 1 Capital 7.05 % 7.24 %
Total Capital 12.05 11.58

Leverage Capital Ratio 6.30 6.27

The Corporation's regulatory capital ratios on September 30, 1996
compare favorably with the regulatory minimums of 4 percent for Tier 1, 8
percent for total risk-based capital and the leverage guidelines of 100 to 200
basis points above the minimum ratio of 3 percent.

34

Table 15
Selected Quarterly Operating Results
(Dollars in Millions Except Per-Share Information)

(1) Average common shareholders' equity does not include the effect of
market value adjustments to securities available for sale and
marketable equity securities.

35

Item 6. Exhibits and Reports on Form 8-K

a. Exhibits

Exhibit 11 - Earnings Per Common Share Computation

Exhibit 12(a) - Ratio of Earnings to Fixed Charges

Exhibit 12(b) - Ratio of Earnings to Fixed Charges and
Preferred Dividends

Exhibit 27 - Financial Data Schedule

b. Reports on Form 8-K

The following reports on Form 8-K were filed by the
Corporation during the quarter ended September 30, 1996:

Current Report on Form 8-K dated July 3, 1996, and filed July
5, 1996, Items 5 & 7.

Current Report on Form 8-K dated July 15, 1996, and filed July
31, 1996, Items 5 & 7.

Current Report on Form 8-K, dated August 29, 1996, and filed
September 6, 1996, as amended by a Form 8-K/A-1 filed on
September 11, 1996, Items 5 & 7. The following financial
statements of the business to be acquired (Boatmen's) were
filed as part of this Current Report on Form 8-K, as amended:
Consolidated Balance Sheets as of June 30, 1996 (unaudited)
and December 31, 1995 and 1994; Consolidated Statements of
Income for the six months ended June 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and
1994; Consolidated Statements of Changes in Shareholders'
Equity for the six months ended June 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and
1994; and Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 (unaudited) and for the
years ended December 31, 1995 and 1994. In addition, the
registrant filed the following unaudited pro forma financial
information as part of this Current Report on Form 8-K, as
amended: Pro Forma Condensed Balance Sheet as of June 30,
1996; Pro Forma Condensed Statement of Income for the six
months ended June 30, 1996; and Pro Forma Condensed Statement
of Income for the year ended December 31, 1995.

Current Report on Form 8-K, dated September 18, 1996, and
filed September 20, 1996, as amended by a Form 8-K/A-1 filed
on September 23, 1996, Items 5 & 7.

36

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

NationsBank Corporation
Registrant

Date: November 13, 1996 /s/ Marc D. Oken
--------------------- ------------------------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
(Duly Authorized Officer and
Principal Accounting Officer)

37

NationsBank Corporation
Form 10-Q
Index to Exhibits

Exhibit Description

11 Earnings Per Common Share Computation

12(a) Ratio of Earnings to Fixed Charges

12(b) Ratio of Earnings to Fixed Charges and Preferred
Dividends

27 Financial Data Schedule

38

Form: 10-Q

Documents

10-Q: Quarterly report pursuant to Section 13 or 15(d)