August 14, 1998 - 10-Q: Quarterly report pursuant to Section 13 or 15(d) | Bank of America Corporation (BAC)

UNITED STATES
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 June 30, 1998

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 July 31, 1998, there were 962,551,094 shares of NationsBank Corporation
Common Stock outstanding.
NationsBank Corporation

June 30, 1998 Form 10-Q

Index Page

Part I. Financial Information
Item 1. Financial Statements

Consolidated Statement of Income for the Three Months and Six Months
Ended June 30, 1998 and 1997 ............................................. 3

Consolidated Balance Sheet on June 30, 1998 and December 31, 1997 ........ 4

Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 ................................................... 5

Consolidated Statement of Changes in Shareholders' Equity for
the Six Months Ended June 30, 1998 and 1997 .............................. 6

Notes to Consolidated Financial Statements ............................... 7

Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition ............................... 15

Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 39

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders............... 39

Item 5. Other Information ................................................ 41

Item 6. Exhibits and Reports on Form 8-K ................................. 41

Signature ................................................................ 43

Index to Exhibits ........................................................ 44

2
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.

3
NationsBank Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in Millions)

See accompanying notes to consolidated financial statements.

4
NationsBank Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in Millions)

Loans transferred to foreclosed properties amounted to $131 and $113 for the six
months ended June 30, 1998 and 1997, respectively.

Loans securitized and retained in the securities portfolio amounted to $1,520
and $505 for the six months ended June 30, 1998 and 1997, respectively.

See accompanying notes to consolidated financial statements.

5
NationsBank Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in Millions, Shares in Thousands)

(1) Accumulated Other Comprehensive Income includes after tax net unrealized
gains (losses) on securities available for sale and marketable equity
securities, and foreign currency translation adjustments.

See accompanying notes to consolidated financial statements.

6
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 majority-owned subsidiaries (the Corporation).
All significant intercompany accounts and transactions have been eliminated.

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 interim period results 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 42 to 47 of the Corporation's Current Report on
Form 8-K filed April 16, 1998, which restated the Corporation's historical
consolidated financial statements to reflect the merger with Barnett Banks, Inc.
(Barnett) which was completed on January 9, 1998 as updated in the Corporation's
quarterly report on Form 10-Q for March 31, 1998.

During the second quarter of 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires the Corporation to recognize all derivatives as either assets or
liabilities in its financial statements and measure such instruments at their
fair values. Hedging activities must be redesignated and documented pursuant to
the provisions of the statement. This statement becomes effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. At this time, the
Corporation is still assessing the impact of SFAS 133 on its financial condition
and results of operations.

Note 2 - Merger-Related Activity

On April 10, 1998, the Corporation entered into an agreement and plan
of reorganization (the Merger Agreement) with BankAmerica Corporation
(BankAmerica). Under the Merger Agreement, the Corporation will create a new
subsidiary (NationsBank (DE)), and will merge into NationsBank (DE) (the
Reincorporation Merger), with NationsBank (DE) as the surviving corporation.
BankAmerica will then merge into NationsBank (DE), which will be the surviving
corporation (the BankAmerica Merger, and together with the Reincorporation
Merger, the Reorganization). In connection with the Reorganization, NationsBank
(DE), as the surviving corporation, will be renamed BankAmerica Corporation (the
Successor Registrant). Each share of the Corporation's common stock will be
automatically converted into one share of common stock of NationsBank (DE) and
each share of the Corporation's preferred stock will be converted into the right
to receive one share of NationsBank (DE) preferred stock on substantially
identical terms. Each share of BankAmerica's common stock will be converted into
the right to receive 1.1316 shares (the exchange ratio) of NationsBank (DE)
common stock and, unless earlier redeemed, each share of BankAmerica's preferred
stock will be converted into the right to receive one share of NationsBank (DE)
preferred stock on substantially identical terms. In addition, all rights with
respect to common stock options of both the Corporation and BankAmerica will be
converted into and become options of NationsBank (DE) with substantially similar
terms, adjusted to reflect the exchange ratio, in the case of BankAmerica
options. The Reorganization, which will be accounted for as a
pooling of interests, is expected to close on September 30, 1998 and is subject
to regulatory and shareholder approval. On June 30, 1998, BankAmerica's total
assets, deposits and shareholders' equity were $263.9 billion, $178.1 billion
and $20.0 billion, respectively. In connection with the Reorganization, the
combined company expects to incur pre-tax merger and restructuring items of
approximately $1.3 billion ($800 million after tax).

On January 9, 1998, the Corporation completed its merger with Barnett,
a multi-bank holding company headquartered in Jacksonville, Florida (the Barnett
merger). Barnett's total assets, total deposits and total shareholders' equity
on the date of the merger were approximately $46.0 billion, $35.4 billion and

7
$3.4 billion, respectively. Each outstanding share of Barnett common stock was
converted into 1.1875 shares of the Corporation's common stock, resulting in the
net issuance of approximately 233 million common shares to the former Barnett
shareholders. In addition, approximately 11 million options to purchase the
Corporation's common stock were issued to convert stock options previously
granted to certain Barnett employees. This transaction was accounted for as a
pooling of interests and the recorded assets, liabilities, shareholders' equity,
income and expenses of the Corporation and Barnett have been combined and
reflected at their historical amounts.

In connection with the Barnett merger, the Corporation incurred pretax
merger and restructuring items during the first quarter of 1998 of approximately
$900 million ($642 million after-tax), which consisted of approximately $375
million primarily in severance and change in control payments, $300 million of
conversion and related costs and occupancy and equipment expenses (primarily
lease exit costs and the elimination of duplicate facilities and other
capitalized assets), $125 million of exit costs related to contract terminations
and $100 million of other Barnett merger costs (including legal and investment
banking fees).

The following table summarizes the activity in the merger and
restructuring reserve for the six months ended June 30, 1998 (dollars in
millions):
Six Months Ended
June 30, 1998
-------------
Balance on January 1, 1998 $ --
Establishment of reserve... 900
Cash payments ............. (405)
Non-cash items ............ (110)
-----
Balance on June 30, 1998 .... $ 385
=====

During the second quarter of 1998, the Corporation divested 67 Florida
branches with aggregate loans and deposits of $1.4 billion and $2.4 billion,
respectively, in accordance with the Federal Reserve Board, the Department of
Justice and certain Florida authorities approvals of the Barnett merger. These
regulatory-required divestitures resulted in a pretax gain of approximately $430
million ($277 million after tax) which has been reflected in Merger and
Restructuring Items on the Consolidated Statement of Income.

On June 1, 1997, the branching provisions of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 took effect, allowing banking
companies to consolidate their subsidiary bank operations across state lines. On
May 6, 1998, the Corporation merged NationsBank of Texas, N.A. into NationsBank,
N.A. As of June 30, 1998, the Corporation operated its banking activities
primarily under three charters: NationsBank, N.A., Barnett Bank, N.A. and
NationsBank of Delaware, N.A., which operates the Corporation's credit card
business. The Corporation plans to continue the consolidation of other banking
subsidiaries (other than NationsBank of Delaware, N.A.) throughout 1998.

8
Note 3 - Trading Account Assets and Liabilities

The fair values of the components of trading account assets and
liabilities on June 30, 1998 and December 31, 1997 and the average fair values
for the six months ended June 30, 1998 were (dollars in millions):

Interest rate and securities trading activities generated most of the
Corporation's trading account profits and fees.

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.
9
Note 4 - Loans, Leases, and Factored Accounts Receivable

The distribution of net loans, leases, and factored accounts receivable
on June 30, 1998 and December 31, 1997 was as follows (dollars in millions):

On June 30, 1998 the recorded investment in certain loans that were
considered to be impaired was $665 million, all of which loans were classified
as nonperforming. Impaired loans on June 30, 1998 were comprised of commercial
loans of $450 million, real estate commercial loans of $183 million and real
estate construction loans of $32 million.

On June 30, 1998 and December 31, 1997, nonperforming loans, including
certain loans which are considered to be impaired, totaled $1.3 billion and $1.2
billion, respectively. Foreclosed properties amounted to $148 million and $147
million on June 30, 1998 and December 31, 1997, respectively.

Note 5 - Debt

In the second quarter of 1998, the Corporation issued $946 million in
long-term debt, comprised of approximately $596 million of senior notes and $350
million of subordinated notes, with maturities ranging from 2004 to 2023. Of the
$946 million issued, $871 million was converted to floating rates through
interest rate swaps at spreads ranging from 5 to 40 basis points over
three-month LIBOR. The remaining $75 million of debt issued bears interest at
spreads ranging from 10.0 to 12.5 basis points over three-month LIBOR and equal
to 21 basis points over six-month LIBOR. The Corporation has issued $1.5 billion
of debt from July 1, 1998 to August 12, 1998.

NationsBank, N.A. has established a program to offer up to $25.0
billion of bank notes from time to time with fixed or floating rates and
maturities from seven days or more from date of issue. During the second quarter
of 1998, $1.2 billion of bank notes classified as long-term debt was issued
under this program and $427 million of bank notes classified as long term debt
was issued under a prior program. On June 30, 1998, there were short-term bank
notes outstanding of $1.9 billion. In addition, there were bank notes
outstanding on June 30, 1998 totaling $6.6 billion which were classified as
long-term debt.

10
Since October 1996, the Corporation (or its predecessors) formed seven
wholly owned grantor trusts (NationsBank Capital Trusts I, II, III and IV and
Barnett Capital I, II and III) to issue preferred securities and to invest the
proceeds of such preferred securities into notes of the Corporation. Certain of
the preferred securities were issued at a discount. Such preferred securities
may be redeemed prior to maturity at the option of the Corporation. The sole
assets of each of the grantor trusts are the Junior Subordinated Deferrable
Interest Notes of the Corporation (the Notes) held by such grantor trusts. The
terms of the preferred securities as of June 30, 1998 are summarized as follows
(dollars in millions):

On June 30, 1998, the Corporation had unused commercial paper back-up
lines of credit totaling $1.5 billion of which $1.0 billion expires in October
1998 and $500 million expires in October 2002. These lines were supported by
fees paid directly by the Corporation to unaffiliated banks.

As of August 12, 1998, the Corporation had the authority to issue
approximately $10.2 billion of corporate debt and other securities under
existing shelf registration statements.

The Corporation and NationsBank, N.A. may offer up to an aggregate of
$8.5 billion of senior or, in the case of the Corporation, subordinated notes
exclusively to non-United States residents under a joint Euro medium-term note
program. As of August 12, 1998, the Corporation and NationsBank, N.A. had the
authority to issue approximately $3.2 billion and $2.0 billion, respectively, of
corporate debt securities under this program.

Note 6 - Commitments and Contingencies

Credit Extension Commitments
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):

June 30 December 31
1998 1997
- ----------------------------------------------------------------------------
Commitments to extend credit
Credit card commitments ......................... $ 31,148 $ 33,377
Other loan commitments .......................... 116,797 112,002
Standby letters of credit and financial guarantees .... 12,672 12,427
Commercial letters of credit .......................... 1,145 1,403

On June 30, 1998, the Corporation had commitments to purchase and sell
when-issued securities of $2.4 billion and $1.9 billion, respectively. This
compares to commitments to purchase and sell when-issued securities of $6.5
billion and $5.7 billion on December 31, 1997, respectively.

11
Derivatives
The following table outlines the Corporation's asset and liability
management (ALM) contracts on June 30, 1998 (dollars in millions):

Weighted
Weighted Average
Notional Average Receive Unrealized
Amount Pay Rate Rate Gain/(Loss)
-------------------------------------------------
Generic receive fixed ... $ 31,180 5.72% 6.37% $ 403
Generic pay fixed ....... 3,507 6.28 5.75 (18)
Basis swaps ............. 6,594 5.66 5.79 -
Option products ......... 16,552 (22)
------------ ------
Total .............. $ 57,833 $ 363
============ ======

The following table presents the notional or contract amounts on June
30, 1998 and December 31, 1997 and the current credit risk amounts (the net
replacement cost of contracts in a gain position on June 30, 1998 and December
31, 1997) of the Corporation's derivatives-dealer positions which are primarily
executed in the over-the-counter market for trading purposes. 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 the following table do
not consider the value of any collateral, but generally take into consideration
the effects of legally enforceable master netting agreements.

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.

Credit risk associated with ALM and trading derivatives is measured as
the net replacement cost should the counterparties with contracts in a gain
position completely fail to perform under the terms

12
of those contracts and any collateral underlying the contracts proves to be of
no value. In managing derivatives credit risk, 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, are considered. 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. On June 30,
1998, credit risk associated with ALM activities was not significant.

During the first six months of 1998, there were no credit losses
associated with ALM or trading derivatives transactions that were material to
the Corporation. In addition, on June 30, 1998 there were no nonperforming
derivatives positions that were material to the Corporation. To minimize credit
risk, the Corporation enters into legally enforceable master netting agreements,
which reduce risk by permitting the close out and netting of transactions with
the same counterparty upon the occurrence of certain events.

A portion of the 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
is minimal.

As of June 30, 1998, the Corporation had a notional value of $12.7
billion in credit derivatives, primarily credit default swaps.

Litigation

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
these actions and proceedings and the 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.

Note 7 - Business Segment Information

On January 1, 1998, the Corporation adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." Management reports the
results of operations of the Corporation through four business segments:
Consumer Banking, which includes the retail network and consumer finance;
Commercial Banking (formerly called Middle Market), which provides
commercial banking services to companies with revenues between $10 million and
$250 million annually; Asset Management, which provides full service and
discount brokerage and investment advisory services and includes the Private
Client Group; and Corporate Finance, which provides banking and investment
banking products and services primarily to large domestic and international
corporations and institutions.

The following table includes revenues and net income for the six months
ended June 30, 1998 and assets as of June 30, 1998 for each business segment
(dollars in millions):
Net
Revenues Income Assets
-------- -------- --------
Consumer Banking ........... $ 5,086 $ 962 $151,965
Commercial Banking ......... 929 352 44,561
Asset Management ........... 622 158 10,263
Corporate Finance .......... 1,897 490 86,242
-------- -------- --------
Total ................. $ 8,534 $ 1,962 $293,031
======== ======== ========

There were no material intersegment revenues between the four business segments.

13
A reconciliation of the total of the segments' net income to
consolidated net income follows (dollars in millions):
Six months ended
June 30, 1998
-------------
Segments' net income ......................... $ 1,962
Adjustments:
Gains on sales of securities, net of taxes ... 163
Gain on sale of partial ownership interest
of a mortgage company, net of taxes ........ 72
Merger and restructuring items, net of taxes (365)
Earnings associated with unassigned capital,
net of taxes................................ 73
-------
Consolidated net income ...................... $ 1,905
=======
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition

On January 9, 1998, Barnett Banks, Inc. (Barnett) was merged with the
Corporation , (the Barnett merger). The Barnett merger was accounted for as a
pooling of interests and accordingly all financial information has been restated
for all periods presented.

This report on Form 10-Q contains certain forward-looking statements
which are subject to risks and uncertainties that could cause actual results to
differ materially from those reflected in such forward-looking statements, which
are representative only on the date hereof. Readers of the Corporation's Form
10-Q should not rely solely on the forward-looking statements and should
consider all uncertainties and risks discussed throughout this report as well as
those discussed in the Corporation's most recent Annual Report on Form 10-K, as
well as its Current Report on Form 8-K filed April 16, 1998 which includes the
Corporation's financial statements restated for the Barnett merger. The
Corporation undertakes no obligation to update any forward-looking statements
made.

Earnings Review

Table One presents a comparison of selected operating results for the
three months and six months ended June 30, 1998 and 1997. Significant changes in
the Corporation's results of operations and financial position are discussed in
the sections that follow.

Operating net income (net income excluding merger and restructuring
items) for the second quarter of 1998 increased 23 percent to $1.13 billion from
$919 million in the second quarter of 1997. Operating earnings per common share
and diluted operating earnings per common share were $1.18 and $1.15,
respectively, for the second quarter of 1998 compared to $.97 and $.94 in the
comparable prior year period. Including the gain on branch divestitures of $430
million ($277 million, net of tax), net income for the second quarter of 1998
was $1.41 billion, or $1.47 per common share.

Operating net income for the first six months of 1998 increased 28
percent to $2.27 billion from $1.77 billion for the first six months of 1997.
Operating earnings per common share and diluted operating earnings per common
share were $2.38 and $2.32, respectively, for the first six months of 1998
compared to $1.87 and $1.81 in the comparable prior year period. Including net
merger and restructuring items for the first six months of 1998 of $470 million
($365 million, net of tax), net income was $1.91 billion, or $1.99 per common
share.

Key performance highlights for the first six months of 1998 were:

o Taxable-equivalent net interest income increased approximately 4
percent to $5.1 billion in the first six months of 1998. The net
interest yield decreased to 3.81 percent compared to 4.05 percent in
the first six months of 1997 due to higher levels of investment
securities and a decrease in the spreads between loans and deposits.

o The provision for credit losses totaled $530 million for the first
six months of 1998 compared to $447 million for the same period in
1997. Net charge-offs as a percentage of average loans, leases and
factored accounts receivable increased to .62 percent for the first
six months of 1998 compared to .49 percent for the same period in
1997. Net charge-offs totaled $553 million for the six months ended
June 30, 1998 compared to $435 million for the same period in 1997.
Nonperforming assets on June 30, 1998 remained relatively flat at $1.4
billion compared to December 31, 1997.

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

(1) Ratios for 1997 have not been restated to reflect the impact of the
Barnett merger.

(2) Cash basis calculations exclude intangible assets and the related
amortization expense.

16
o Noninterest income increased 32 percent to $3.6 billion in the first
six months of 1998. This growth was attributable to higher levels of
income from almost all categories, including investment banking income
and brokerage income, and the sale of a partial ownership interest of a
mortgage company in the first quarter of 1998. Noninterest income
increased approximately 13 percent excluding the acquisitions of
Montgomery Securities (Montgomery) in the fourth quarter of 1997 and
Oxford Resources Corp. (Oxford), a consumer finance subsidiary that was
acquired on April 1, 1997.

o Other noninterest expense increased 11 percent to $5.0 billion during
the first six months of 1998, but remained essentially unchanged
excluding the effect of acquisitions and related transition expenses.

o Operating cash basis ratios, which measure operating performance
excluding merger and restructuring items, intangible assets and the
related amortization expense, improved with operating cash basis
diluted earnings per common share rising 26 percent to $2.60 for the
six months ended June 30, 1998 compared to $2.06 for the same period a
year ago. For the six months ended June 30, 1998, return on average
tangible common shareholders' equity, excluding merger and
restructuring items, increased to 36.29 percent compared to 28.30
percent for the same period in 1997. The cash basis efficiency ratio
was 53.45 percent in the first six months of 1998, an improvement of
160 basis points from the first half of 1997 due to successful
acquisition integration and expense management efforts.

Business Segment Operations

The Corporation provides a diversified range of banking and certain
nonbanking financial services and products through its various subsidiaries.
Management reports the results of the Corporation's operations through four
business segments: Consumer Banking, Commercial Banking, Asset Management, and
Corporate Finance.

The business segments summarized in Table Two are primarily managed
with a focus on various performance objectives including net income, return on
average equity and operating efficiency. These performance objectives are also
presented on a cash basis, which excludes the impact of goodwill and other
intangibles and related amortization expense. The net interest income of the
business segments reflects the results of 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 segment based on an assessment of its inherent risk.

Consumer Banking

The Consumer Banking segment provides comprehensive retail banking
services through multiple delivery channels including approximately 3,000
banking centers and 7,000 automated teller machines providing fully-automated,
24 hour cash dispensing and deposit services. These delivery channels are
located throughout the Corporation's franchise and serve 18 million households
in 16 states and the District of Columbia. In addition, this segment provides
specialized services such as the origination and servicing of residential
mortgage loans, issuance and service of credit cards, direct banking via
telephone and personal computer, student lending and certain insurance services.
The consumer finance component provides personal, mortgage, home equity and
automobile loans to consumers, retail finance programs to dealers and lease
financing to purchasers of new and used cars. Consumer Banking also provides
commercial banking services to companies and other commercial entities with
annual revenues of less than $10 million.

Consumer Banking's earnings increased 4 percent to $962 million in the
first six months of 1998. Taxable-equivalent net interest income of $3.4 billion
remained essentially flat from the first six months of 1997, primarily
reflecting lower interest income on loans attributable to the impact of
increased securitization activity, partially offset by reduced funding costs
reflecting continued deposit expense management. As the Corporation continues to
securitize loans, its role becomes that of a servicer and the income related to
securitized loans is reflected in noninterest income. The net interest yield
increased 13 basis points in the first six months of 1998, reflecting higher
yields from the loan and lease portfolio and deposit expense management efforts.
Excluding the impact of securitizations, acquisitions, and divestitures, average
total loans and leases increased approximately 5 percent over average levels in
the first six months
17
of 1997. Average total deposits for the first six months of
1998 decreased to $131.6 billion from $137.2 billion in 1997, the result of
deposit declines in the former Boatmen's franchise including the impact of sales
of selected banking centers.

Noninterest income in Consumer Banking rose 9 percent to $1.7 billion
due to mortgage servicing and other mortgage-related income, a gain from the
sale of unsecured consumer finance receivables, service charges on deposit
accounts and miscellaneous income. Mortgage servicing and other mortgage-related
income increased as a result of changes in the interest rate environment as well
as the Corporation's efforts to maintain the servicing portfolio at target
levels. Higher deposit account service charges resulted from changes in deposit
pricing throughout the NationsBank franchise during the third quarter of 1997.
Noninterest expense remained essentially flat at $3.1 billion. This reflects the
efficiencies obtained from the successful integration of the former Boatmen's
franchise and expense management efforts. The cash basis efficiency ratio was
57.6 percent, an improvement of approximately 80 basis points compared to the
ratio for the first six months of 1997. The return on risk-adjusted tangible
equity increased to 29 percent for the first six months of 1998 compared to 27
percent for the same period in 1997, primarily the result of higher revenues.

Table Two
Business Segment Summary
For the Six Months Ended June 30
(Dollars in Millions)

(1) Business Segment results are presented on a fully allocated basis but do
not include $58 million net expense for the first six months of 1998 and
$112 million net income for the first six months of 1997 which represent
earnings associated with unassigned capital, gains on sales of certain
securities, gains on business divestitures, merger and restructuring items
as well as other corporate activities.

(2) Excludes intangible assets and related amortization expense.

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

(4) Corporate Finance's net interest yield excludes the impact of
trading-related activities. Including trading-related activities, the net
interest yield was 1.97% and 1.66% for the first six months of 1998 and
1997, respectively.
18
Commercial Banking

The Commercial Banking segment provides a broad array of commercial
banking services for companies and other commercial entities with revenues
between $10 million and $250 million annually including: commercial lending,
treasury and cash management services, asset-backed lending, leasing and
factoring. Also included is NationsCredit Commercial Corporation, which provides
commercial financing activities including: 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.

Commercial Banking's earnings rose 12 percent to $352 million in the
first six months of 1998. Taxable equivalent net interest income increased $17
million primarily reflecting higher loan levels. Commercial Banking's average
loan and lease portfolio during the first six months of 1998 increased to $34.1
billion compared to $32.1 billion in the same period of 1997.

Noninterest income rose 22 percent to $234 million over the first six
months of 1997. Noninterest expense for the period increased 4 percent to $368
million, primarily in data processing and personnel. The cash basis efficiency
ratio improved approximately 110 basis points to 36.1 percent. The return on
risk-adjusted tangible equity increased to 28 percent, due to revenue growth
outpacing expense growth.

Asset Management

The Asset Management segment includes businesses that provide full
service and discount brokerage, investment advisory, investment management and
advisory services for the Nations Funds family of mutual funds. Within the Asset
Management segment, the Private Client Group provides asset management, banking
and trust services for high net worth individuals, business owners and corporate
executives and the private foundations established by them.

Asset Management earned $158 million in the first six months of 1998
compared to $115 million in the first six months of 1997. The result of strong
growth in the core businesses following the sales of certain corporate and
institutional trust businesses during the third quarter of 1997 has favorably
impacted the segment's results. Taxable-equivalent net interest income for the
first six months of 1998 was $161 million compared to $127 million in the same
period a year ago, reflecting income from increased loan levels. The average
loan and lease portfolio in the first six months of 1998 increased to $8.4
billion compared to $6.2 billion in the first six months of 1997 as a result of
core loan growth. Assets under management were $120 billion on June 30, 1998, an
increase of $4 billion from the balance on December 31, 1997.

Noninterest income declined 5 percent in the first six months of 1998
as core revenue growth was more than offset by the sales of certain corporate
and institutional trust businesses which occurred in the third quarter of 1997.
Noninterest expense decreased 14 percent due primarily to the sales mentioned
previously. The cash basis efficiency ratio improved to 57.7 percent in the
first six months of 1998 compared to 68.9 percent for the first six months of
1997. The return on risk-adjusted tangible equity increased to 45 percent.

Corporate Finance

Corporate Finance provides a broad array of banking and investment
banking products and services to domestic and international corporations,
institutions and other customers through its Corporate Finance - Capital
Markets, Real Estate and Transaction Products units. The Corporate Finance
segment serves as a principal lender and investor, as well as an advisor, and
manages treasury and trade transactions for clients and customers. Loan
origination and syndication, asset-backed lending, project finance and mergers
and acquisitions consulting are representative of the services provided. These
services are provided through various domestic and international offices.
Through its Section 20 subsidiary, NationsBanc Montgomery Securities LLC,
Corporate Finance is a primary dealer of U.S. Government Securities and
underwrites, distributes and makes markets in high-grade and high-yield debt
securities and equity securities. Additionally, Corporate Finance is a market
maker in derivative products which include swap agreements, option contracts,
forward settlement contracts, financial futures and other derivative products in
certain interest rate, foreign exchange, commodity and equity markets. In
support of these activities, Corporate Finance takes positions to support client
demands and its own account. Major centers for the above activities are
Charlotte, Chicago, London, New York, San Francisco, Singapore and Tokyo.

19
Corporate Finance earned $490 million in the first six months of 1998
compared to $312 million in the same period of 1997, the result of higher levels
of noninterest income and net interest income, which more than offset higher
noninterest expenses. Taxable-equivalent net interest income for the first six
months of 1998 was $741 million compared to $577 million in the first six months
of 1997, reflecting higher yields on increased loan volumes. The higher net
interest yield in the first six months of 1998 was due mainly to lower rates on
funding sources. Excluding the impact of a $4.2 billion securitization completed
in the third quarter of 1997, the Corporate Finance average loan and lease
portfolio increased approximately 12 percent over the first six months of 1997.

Noninterest income rose to $1.2 billion, an increase of 119 percent
over the first six months of 1997, reflecting higher investment banking fees,
brokerage income, and trading account profits and fees due to the acquisition of
Montgomery in the fourth quarter of 1997 as well as continued strong internal
growth. Noninterest expense rose to $1.1 billion due primarily to higher
personnel expenses associated with the Montgomery acquisition, and amortization
expense also increased in the first six months of 1998 due to the Montgomery
acquisition. The cash basis efficiency ratio increased approximately 410 basis
points to 55.9 percent due primarily to the higher expense ratio at Montgomery.
The return on risk-adjusted tangible equity increased to 25 percent for the
first six months of 1998 from 18 percent for the same period in 1997.

See Note Seven of the Notes to the Consolidated Financial Statements
for additional business segment information.

Results of Operations

Net Interest Income

An analysis of the Corporation's taxable-equivalent net interest income
and average balance sheet levels for the last five quarters and first six months
of 1998 and 1997 is presented in Tables Three and Four, respectively.

Taxable-equivalent net interest income increased approximately 4
percent to $2.6 billion in the second quarter of 1998 and amounted to $5.1
billion in the first six months of 1998 compared to $2.5 billion and $4.9
billion for the same respective 1997 periods. This increase was mainly the
result of the improved contribution of the discretionary portfolios as well as
core loan growth. While securitizations lowered net interest income by
approximately $128 million and $255 million in the second quarter and first half
of 1998, respectively, they did not significantly affect the Corporation's
earnings. As the Corporation continues to securitize loans, its role becomes
that of a servicer and the income related to securitized loans is reflected in
noninterest income.

Of the $323-million increase in interest income for the second quarter
of 1998, $498 million was due to higher average earning assets, partially offset
by a $175-million decrease resulting from lower yields received on average
earning assets. The $814-million increase in interest income for the first six
months of 1998 was the result of a $1-billion increase due to higher average
earning assets, partially offset by a $193-million decrease resulting from lower
yields received on average earning assets. Interest expense increased $232
million for the second quarter of 1998, resulting from higher levels of average
interest-bearing liabilities. The $603-million increase in interest expense for
the first six months of 1998 was the result of a $520-million increase from
higher levels of average interest-bearing liabilities and $83 million was due to
the impact of higher rates paid on average interest-bearing liabilities.

The net interest yield decreased 24 basis points to 3.81 percent in the
second quarter and first six months of 1998, compared to the same periods of
1997, due primarily to higher levels of investment securities and a decrease in
the spreads between loans and deposits.

Loan growth 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.
20
Table Three
Quarterly Taxable-Equivalent Data
(Dollars in Millions)

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

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

(4) Interest income includes taxable-equivalent adjustments of $70 and $64 in
1998 and 1997, respectively. Interest income also includes the impact of
risk management interest rate contracts, which increased interest income on
the underlying linked assets $87 and $94 in 1998 and 1997, respectively.

(5) Long-term debt includes trust preferred securities.

(6) Interest expense includes the impact of risk management interest rate
contracts, which decreased interest expense on the underlying linked
liabilities $31 and $21 in 1998 and 1997, respectively.

23
Provision for Credit Losses

The provision for credit losses totaled $265 million and $530 million
for the second quarter and first six months of 1998, respectively, compared to
$225 million and $447 million for the same periods in 1997. The increase in
provision expense was due to increased net charge-offs which totaled $276
million and $553 million for the three and six months ended June 30, 1998,
respectively, compared to $220 million and $435 million for the same year-ago
periods. For additional information on the allowance for credit losses, certain
credit quality ratios and credit quality information on specific loan
categories, see the "Allowance for Credit Losses" and "Concentrations of Credit
Risk" sections.

Gains on Sales of Securities

Gains on sales of securities were $108 million and $260 million in the
second quarter and first six months of 1998 compared to $29 million and $72
million in the same year-ago periods. Securities gains were higher as a result
of increased sales activity due to favorable market opportunities.

Noninterest Income

As presented in Table Five, noninterest income increased 31 percent to
$1.9 billion and 32 percent to $3.6 billion in the second quarter and first six
months of 1998, respectively, reflecting higher levels of income from almost all
categories, including investment banking income, brokerage income, and a gain on
the sale of a partial ownership interest in a mortgage company in the first
quarter of 1998. Excluding acquisitions, noninterest income increased
approximately 15 percent and 13 percent for the second quarter and first six
months of 1998.

Table Five
Noninterest Income
(Dollars in Millions)

o Mortgage servicing and other mortgage-related income increased 3
percent to $70 million and 4 percent to $145 million in the second
quarter and first six months of 1998, respectively. The average
portfolio of loans serviced increased 6 percent from $118.5 billion in
the first six months of 1997 to $125.7 billion in the first six months
of 1998. Mortgage loan originations through the Corporation's mortgage
subsidiary increased from $6.4 billion in the first six months of 1997
to $14.8 billion for the same period of 1998, primarily reflecting
changes in the interest rate environment as well as the Corporation's
efforts to maintain the mortgage servicing portfolio at target levels.
Origination volume in the first six months of 1998 was approximately
$8.3 billion of correspondent and wholesale loan volume and $6.5
billion of retail loan volume.

In conducting its mortgage production activities, the Corporation is
exposed to interest rate risk for the period between loan commitment
date and subsequent delivery date. To manage this risk, the Corporation
enters into various financial instruments including forward delivery
and option contracts. The notional amount of such contracts was
approximately $4.8 billion on June 30, 1998 with associated net
unrealized gains of $14 million. These contracts generally have an
average expected
24
maturity of less than 90 days. To manage risk associated with changes
in prepayment rates and the impact on mortgage servicing rights, the
Corporation uses various financial instruments including options and
certain interest rate swaps. The notional amount of such contracts on
June 30, 1998 was $14.8 billion with an associated net unrealized gain
of $37 million.

o Investment banking income increased 146 percent to $377 million and 182
percent to $687 million in the second quarter and first six months of
1998, respectively, reflecting increased levels of fees across all
categories. Excluding the acquisition of Montgomery, investment banking
income would have increased approximately 57 percent and 83 percent for
the second quarter and first six months of 1998, respectively.
Securities underwriting fees increased $139 million to $193 million for
the second quarter of 1998 as a result of the Montgomery acquisition
and continued strong internal growth. Higher syndication fees were the
result of 128 agent-only deals totaling $62.4 billion in the second
quarter of 1998 compared to 125 agent-only deals totaling $53.4 billion
in the same year-ago period. Gains on principal investing activities
(investing in equity or equity-related transactions) increased $28
million in the second quarter of 1998 over the same period in 1997.
Advisory services fees increased in the second quarter of 1998 by $38
million reflecting the impact of the Montgomery acquisition.

Investment banking income by major business activity follows (dollars
in millions):
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
-------------------------------
Investment Banking Income

Securities underwriting ................ $193 $ 54 $352 $ 80
Syndications ........................... 76 36 126 56
Principal investment activities ........ 50 22 105 46
Advisory services ...................... 47 9 70 14
Other .................................. 11 32 34 48
-------------------------------
Total investment banking income ..... $377 $153 $687 $244
===============================

o Trading account profits and fees by major business activity follows
(dollars in millions):
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1998 1997 1998 1997
-------------------------------
Trading Account Profits and Fees

Securities trading ..................... $ 42 $ 21 $ 79 $ 40
Interest rate contracts ................ 33 40 79 81
Foreign exchange contracts ............. 14 11 24 28
Other .................................. 8 5 21 28
-------------------------------
$ 97 $ 77 $203 $177
===============================

o Brokerage income increased $64 million and $133 million from the second
quarter and first six months of 1997 due mainly to the addition of
Montgomery as well as internal growth of 14 percent and 17 percent,
respectively.
25
o Asset management and fiduciary service fees decreased $16 million to
$177 million in the second quarter of 1998 and decreased $33 million to
$347 million for the first six months of 1998, reflecting the impact of
the third quarter 1997 sales of certain corporate and institutional
trust businesses, which included businesses that provided
administrative and record-keeping services for employee benefit plans.

o Other income totaled $366 million and $720 million in the second
quarter and first six months of 1998, respectively, an increase of $130
million and $271 million over the same periods of 1997. The increase
over the first six months of 1997 was due primarily to a gain of
approximately $110 million on the sale of a partial ownership interest
of a mortgage company as well as the Oxford acquisition during the
second quarter of 1997. Other income includes: certain prepayment fees
and other fees (such as net gains on sales of miscellaneous
investments, business activities, premises and other similar items),
net rental income on operating automobile leases, servicing and related
fees from the Corporation's consumer finance business, insurance
commissions and earnings and bankers' acceptances and letters of credit
fees.

Merger and Restructuring Items

In connection with the Barnett merger during the first quarter of 1998,
the Corporation incurred pretax merger and restructuring items of $900 million
($642 million after-tax), which consisted of approximately $375 million
primarily in severance and change in control payments, $300 million of
conversion and related costs and occupancy and equipment expenses (primarily
lease exit costs and the elimination of duplicate facilities and other
capitalized assets), $125 million of exit costs related to contract terminations
and $100 million of other Barnett merger costs (including legal and investment
banking fees).

During the second quarter of 1998, the Corporation divested 67 Florida
branches with aggregate loans and deposits of $1.4 billion and $2.4 billion,
respectively, in accordance with the Federal Reserve Board, the Department of
Justice and certain Florida authorities approvals of the Barnett merger. These
regulatory-required divestitures resulted in a pretax gain of approximately $430
million ($277 million after tax) which has been reflected in Merger and
Restructuring Items on the Consolidated Statement of Income.
See Note Two to the consolidated financial statements for additional
information.

Noninterest Expense

As presented in Table Six, the Corporation's noninterest expense
increased 12 percent and 11 percent to $2.5 billion and $5.0 billion in the
second quarter and first six months of 1998, respectively, over the same periods
of 1997. Excluding acquisitions and related transition expenses, noninterest
expense during the first six months of 1998 was essentially unchanged.

Table Six
Noninterest Expense
(Dollars in Millions)

A discussion of the significant components of noninterest expense in
the second quarter and the first six months of 1998 compared to the same periods
in 1997 follows:
26
o Personnel expense increased $166 million and $310 million in the second
quarter and first six months of 1998, respectively, over the comparable
1997 periods due mainly to the addition of Montgomery. Excluding the
Montgomery acquisition, personnel expense was essentially unchanged. On
June 30, 1998, the Corporation had approximately 99,000 full-time
equivalent employees compared to approximately 102,000 full-time
equivalent employees on December 31, 1997.

o Intangibles amortization expense increased to $137 million in the
second quarter and $276 million in the first six months of 1998,
reflecting the impact of the Montgomery and Oxford transactions.

o Data processing expense increased $35 million to $107 million in the
second quarter of 1998 and $57 million to $214 million during the first
six months of 1998 mainly as a result of the Montgomery acquisition and
Year 2000 expenses.

o General administrative and miscellaneous expense increased $55 million
to $179 million in the first six months of 1998 due mainly to the
addition of Montgomery.

Noninterest expense includes the cost of projects to ensure accurate
date recognition and data processing with respect to the Year 2000 issue as it
relates to the Corporation's businesses, operations, customers and vendors. A
process of software inventory, analysis, modification, testing and verification
and implementation is underway. The Corporation expects to substantially
complete the Year 2000 software conversion projects for its systems by the end
of 1998. The related costs, which are expensed as incurred, are included in
professional, data processing, and equipment expenses. Cumulative Year 2000
expenses incurred through the second quarter of 1998 amounted to approximately
$50 million and the total cost of the Year 2000 project is estimated to be
approximately $120 million.

Management believes that its plans for dealing with the Year 2000 issue
will result in timely and adequate modifications of systems and technology.
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the corrective measures the Corporation undertakes, but also on the way in which
the Year 2000 issue is addressed by governmental agencies, businesses, and other
entities who provide data to, or receive data from, the Corporation, or whose
financial condition or operational capability is important to the Corporation as
borrowers, vendors, customers or investment opportunities. Therefore, in early
1998, communications with these parties commenced to heighten their awareness of
the Year 2000 issue. Over the next 18 months, the plans of such third parties to
address the Year 2000 issue will be monitored and any identified impact on the
Corporation will be evaluated.

Income Taxes

The Corporation's income tax expense for the second quarter and first
six months of 1998 was $727 million and $1.1 billion, respectively, for
effective tax rates of 34 percent and 36 percent, respectively. Excluding merger
and restructuring items, the effective tax rate for the second quarter, as well
as the first six months of 1998, was 34 percent. Income tax expense for the
second quarter and first six months of 1997 was $515 million and $992 million,
respectively, for an effective tax rate of 36 percent for both periods. The
reduction in the effective tax rate from 1997 to 1998 was due primarily to the
reorganization of certain subsidiaries of the Corporation in 1998.

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. The average balances discussed below can be
derived from Table Four. The following discussion addresses changes in average
balances for the first six months of 1998 compared to the same period in 1997.

Average levels of customer-based funds for the first six months of 1998
decreased $2.2 billion to $156.3 billion compared to average levels for the
first six months of 1997 due to deposit declines in the former Boatmen's
franchise, including the impact of sales of selected banking centers. As a
percentage of total sources, average levels of customer-based funds in the first
six months of 1998 decreased to 50 percent compared to 56 percent for the same
period in 1997.

During the first six months of 1998, higher average levels of
market-based funds replaced the lower average levels of customer-based funds.
Average levels of market-based funds for 1998 increased $24.3 billion over 1997
levels to $85.5 billion compared to $61.2 billion for the same period in 1997.

27
Market-based funds also comprised a larger portion of total sources of funds at
approximately 27 percent in 1998 compared to approximately 22 percent during the
same period in 1997. In addition, 1998 average levels of long-term debt
increased by $3.7 billion over average levels during the same six month period
in 1997, mainly the result of borrowings to fund business development
opportunities and to replace debt maturities.

Average loans and leases, the Corporation's primary use of funds,
decreased $570 million to $177.8 billion during the first six months of 1998. As
a percentage of total uses of funds, average loans and leases for the first six
months of 1998 decreased to 57 percent from 63 percent during the same period in
1997. The decrease in average loans and leases was due primarily to
approximately $15.7 billion of securitizations in 1997, which mainly took place
in the third quarter, and $3.0 billion in 1998. The ratio of average loans and
leases to average customer-based funds was 114 percent in 1998 and 113 percent
in 1997. See "Concentrations of Credit Risk - Consumer" for managed loans
information, page 35.

The average securities portfolio in the first six months of 1998
increased $20.9 billion over 1997 levels, amounting to 15 percent of total uses
of funds in 1998 compared to 10 percent in the first six months of 1997. See the
following "Securities" section for additional information on the securities
portfolio.

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 monitors its assets and liabilities and
modifies these positions as liquidity requirements change. This process, coupled
with the Corporation's ability to raise capital and debt financing, is designed
to cover the liquidity needs of the Corporation. Management believes the
Corporation's sources of liquidity are more than adequate to meet its cash
requirements.

The following discussion provides an overview of significant on- and
off-balance sheet components.

Securities

The securities portfolio on June 30, 1998 consisted of securities held
for investment totaling $994 million and securities available for sale totaling
$44.0 billion compared to $1.2 billion and $49.4 billion, respectively, on
December 31, 1997. The decrease in available for sale securities reflects the
Corporation's sale of certain securities in light of favorable market
conditions.

On June 30, 1998 and December 31, 1997, the market value of the
Corporation's securities held for investment reflected net unrealized
appreciation of $11 million and $5 million, respectively.

The valuation reserve for securities available for sale, marketable
equity securities and certain servicing assets increased shareholders' equity by
$466 million on June 30, 1998, primarily reflecting pretax appreciation of $586
million on debt securities and $112 million on marketable equity securities. The
valuation reserve increased shareholders' equity by $408 million on December 31,
1997.

The estimated average maturities of securities held for investment and
securities available for sale portfolios were 1.67 years and 5.47 years,
respectively, on June 30, 1998 compared with 1.48 years and 5.45 years,
respectively, on December 31, 1997. The increase in the valuation reserve was
primarily attributable to a decrease in market interest rates over the first six
months of 1998.
28
Off-Balance Sheet

Derivatives - Asset and Liability Management Activities

Risk management interest rate contracts are used in the asset and
liability management (ALM) process. Such contracts, which are generally
non-leveraged generic interest rate and basis swaps and options, allow the
Corporation to effectively manage its interest rate risk position. Generic
interest rate swaps involve the exchange of fixed-rate and variable-rate
interest payments based on the contractual underlying notional amounts. 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. Option products primarily consist of
caps and floors.

As reflected in Table Seven, the total gross notional amount of the
Corporation's ALM interest rate swaps on June 30, 1998 was $41.3 billion, with
the Corporation receiving fixed on $31.2 billion, primarily converting
variable-rate commercial loans to fixed rate, and receiving variable on $3.5
billion. The net receive fixed position was $27.7 billion on June 30, 1998, a
decrease of $2.0 billion from December 31, 1997. In addition, the Corporation
had $6.6 billion of basis swaps linked primarily to long-term debt.

Table Seven also summarizes the expected maturities, weighted average
pay and receive rates and the unrealized gains and losses on June 30, 1998 of
the Corporation's ALM interest rate contracts. Floating rates represent the last
repricing and will change in the future based primarily on movements in one-,
three- and six-month LIBOR rates.

The net unrealized appreciation of the ALM swap portfolio on June 30,
1998 was $385 million compared to unrealized appreciation of $307 million on
December 31, 1997. The amount of net realized deferred gains associated with
terminated ALM swaps was $58 million and $51 million on June 30, 1998 and
December 31, 1997, respectively.

To manage interest rate risk, the Corporation also uses interest rate
option products, primarily 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, respectively. On June 30, 1998, the Corporation had a gross notional
amount of $16.6 billion in outstanding interest rate option contracts used for
ALM purposes compared to $6.2 billion at December 31, 1997. Such instruments are
primarily linked to long-term debt, short-term borrowings and pools of similar
residential mortgages and consist mainly of purchased options. On June 30, 1998,
the net unrealized depreciation of ALM option products was $22 million compared
to net unrealized depreciation of $7 million on December 31, 1997. The amount of
net realized deferred gains associated with terminated ALM options was $17
million and $13 million on June 30, 1998 and December 31, 1997, respectively.

In addition, the Corporation uses foreign currency contracts to manage
the foreign exchange risk associated with foreign-denominated liabilities.
Foreign currency contracts involve the conversion of certain scheduled interest
and principal payments denominated in foreign currencies. On June 30, 1998,
these contracts had a notional value of $2.7 billion and a net market value of
negative $73 million.

The net unrealized appreciation in the estimated value of the ALM
interest rate and unrealized depreciation in the ALM foreign exchange portfolios
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.

For a discussion of the Corporation's management of risk associated
with mortgage production activities, see the "Noninterest Income" section.

29
Table Seven
Asset and Liability Management Interest Rate Contracts
June 30, 1998
(Dollars in Millions, Average Expected Maturity in Years)

30
Table Eight
Allowance For Credit Losses
(Dollars in Millions)

31
Allowance for Credit Losses

The Corporation's allowance for credit losses was $3.2 billion, or 1.78
percent of net loans, leases, and factored accounts receivable on June 30, 1998
compared to $3.3 billion, or 1.85 percent, on December 31, 1997.

Table Eight provides an analysis of the changes in the allowance for
credit losses. During the second quarter of 1998, higher other consumer and
commercial net charge-offs caused the $56-million increase in total net
charge-offs, which amounted to $276 million, or .61 percent of average loans,
leases and factored accounts receivable compared to $220 million, or .49
percent, for the same period in 1997. Net charge-offs increased $118 million to
$553 million in the first six months of 1998 or .62 percent of average loans,
leases, and factored accounts receivable, compared to net charge-offs of $435
million or .49 percent, for the first six months of 1997. Higher other consumer
net charge-offs were due to net charge-offs associated with a sub-prime auto
lending portfolio, which the Corporation is allowing to run off.

Excluding increases that resulted from recent acquisitions, management
expects charge-offs in general to increase modestly throughout 1998, with
increases in the consumer loan categories anticipated as the Corporation
continues its efforts to shift the mix of the managed loan portfolio to a higher
consumer loan concentration. Furthermore, future economic conditions also will
impact credit quality and may result in increased net charge-offs and higher
provision for credit losses.

Nonperforming Assets

As presented in Table Nine, on June 30, 1998, nonperforming assets were
$1.4 billion, or .80 percent of net loans, leases, factored accounts receivable
and foreclosed properties, compared to $1.4 billion, or .77 percent, on December
31, 1997. Nonperforming loans increased $81 million to $1.3 billion on June 30,
1998 due to higher commercial nonperforming loans partially offset by lower
consumer nonperforming loans. The allowance coverage of nonperforming loans was
248 percent on June 30, 1998 compared to 270 percent on December 31, 1997.

Table Nine
Nonperforming Assets
(Dollars in Millions)

32
Concentrations of Credit Risk

In an effort to minimize the adverse impact of any single event or set
of occurrences, the Corporation strives to maintain a diverse credit portfolio.
The following section discusses credit risk in the loan portfolio, including net
charge-offs by loan categories as presented in Table Ten.

Table Ten
Net Charge-offs in Dollars and as a Percentage of Average Loans Outstanding
(Dollars in Millions)

Net charge-offs for each loan type are calculated as a percentage of average
outstanding or managed loans for each loan category. Total net charge-offs are
calculated based on total average outstanding loans, leases and factored
accounts receivable.

Real Estate - Total nonresidential real estate commercial and
construction loans, the portion of such loans which are nonperforming,
foreclosed properties and other credit exposures are presented in Table Eleven.
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
totaled $13.6 billion and $13.7 billion on June 30, 1998 and December 31, 1997,
respectively, or 8 percent of net loans, leases and factored accounts receivable
for both periods. Real estate loans past due 90 days or more and still accruing
interest were $14 million, or .10 percent of real estate loans, on both June 30,
1998 and December 31, 1997.

The exposures included in Table Eleven do not include credit extensions
which were made on the general creditworthiness of the borrower for which real
estate was obtained as security 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 tables, on June
30, 1998, the Corporation had approximately $11.1 billion of commercial loans
which were not real estate dependent but for which the Corporation had obtained
real estate as secondary repayment security.

33
Table Eleven
Real Estate Commercial and Construction Loans, Foreclosed Properties
and Other Real Estate Credit Exposures
June 30, 1998
(Dollars in Millions)

(1) On June 30, 1998, the Corporation had unfunded binding real estate
commercial and construction loan commitments.

(2) Foreclosed properties include commercial and construction real estate
loans only.

(3) Other credit exposures include letters of credit and loans held for
sale.

(4) Distribution based on geographic location of collateral.

Other Industries - Table Twelve presents selected industry credit
exposures, commercial loans, factored accounts receivable and lease financings.
On June 30, 1998, commercial loan outstandings totaled $69.8 billion, or 39
percent of net loans, leases and factored accounts receivable, and $65.6
billion, or 37 percent, on December 31, 1997. Average managed commercial loans
were $72.7 billion and $71.6 billion for the three months and six months ended
June 30, 1998, respectively, compared to $65.3 billion and $65.0 billion for the
same prior year periods and include a $4.2-billion commercial loan
securitization completed in the third quarter of 1997. Commercial loan net
charge-offs for the six months ended June 30, 1998 and 1997 were $35 million, or
.11 percent of average commercial loans and $15 million, or .05 percent of
average commercial loans, respectively. Commercial loans past due 90 days or
more and still accruing interest were $71 million, or .10 percent of commercial
loans, on June 30, 1998 compared to $36 million, or .05 percent, on December 31,
1997. Nonperforming commercial loans were $450 million, or .64 percent of
commercial loans, on June 30, 1998, compared to $316 million, or .48 percent, on
December 31, 1997.
34
Table Twelve
Selected Industry Loans, Leases and Factored Accounts
Receivable, Net of Unearned Income
June 30, 1998
(Dollars in Millions)
Outstanding
-----------
Health care .............................................. $4,878
Food, including agribusiness ............................. 3,727
Machinery and equipment, excluding defense ............... 3,596
Leisure and sports ....................................... 3,437
Automotive excluding trucking ............................ 3,239
Oil and gas .............................................. 3,234
Media .................................................... 3,206
Textiles and apparel, excluding retail ................... 3,118
Retail ................................................... 3,087
Transportation, excluding air and trucking ............... 2,257

Consumer - On June 30, 1998 and December 31, 1997, total consumer loan
outstandings totaled $85.2 billion, or 47 percent of net loans, leases and
factored accounts receivable, and $86.0 billion, or 49 percent of net loans,
leases and factored accounts receivable, respectively. The increase in total
consumer net charge-offs during the six months ended June 30 1998 was due mainly
to higher other consumer net charge-offs, the result of net charge-offs
associated with a sub-prime auto lending portfolio which the Corporation is
allowing to run off, as well as higher credit card net charge-offs in the first
quarter of 1998 resulting mainly from deterioration in consumer credit quality
experienced on an industry-wide basis.

Average residential mortgage loans were $37.4 billion and $37.3
billion, respectively, for the three months and six months ended June 30,1998
compared to $43.5 billion and $42.7 billion for the same periods in 1997,
reflecting the impact of approximately $8.1 billion of mortgage loan
securitizations that occurred primarily during the third quarter of 1997 and
$1.5 billion of mortgage loan securitizations in the first six months of 1998.

Average managed credit card receivables (excluding private label credit
cards) were $9.7 billion and $9.9 billion, respectively for the three months and
six months ended June 30, 1998 compared to $10.5 billion for the same prior year
periods. Higher net charge-offs during the first six months of 1998 reflect
deterioration in consumer credit quality experienced on an industry-wide basis.
Although 1998 net charge-offs are higher when compared to the second quarter
of 1997, they have decreased to 6.44 percent of average managed credit cards for
the second quarter of 1998 compared to 6.71 percent for the fourth
quarter of 1997.

Average other consumer loans for the second quarter and first half of
1998 were $41.1 billion and $41.0 billion, respectively, compared to $38.1
billion and $38.2 billion for the same periods in 1997. The increase was net of
the impact of approximately $3.4 billion of securitizations that occurred
throughout 1997 and $1.5 billion of securitizations in the second quarter of
1998. Average managed other consumer loans, which include direct and indirect
consumer loans and home equity lines, as well as indirect auto loan and consumer
finance securitizations, increased to $48.4 billion and $48.1 billion in the
second quarter and first half of 1998, respectively, compared to $44.1 billion
and $44.0 billion in the same periods of 1997.

35
Total consumer loans past due 90 days or more and still accruing
interest were $279 million, or .33 percent of total consumer loans, on June 30,
1998 compared to $353 million, or .41 percent, on December 31, 1997. Total
consumer nonperforming loans were $601 million, or .71 percent of total consumer
loans and $656 million, or .76 percent on June 30, 1998 and December 31, 1997,
respectively.

Market Risk Management

In the normal course of conducting its 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 market
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 its securities portfolio and
interest rate contracts, and management of the mix, yields or rates and
maturities of assets and wholesale and retail funding sources of the
Corporation.

For a discussion of market risk associated with ALM activities, see the
"Off-Balance Sheet" section. Market risk associated with trading activities is
discussed in this section and information on trading assets and liabilities and
derivatives-dealer positions can be found in Notes Three and Six to the
consolidated financial statements, respectively. There have been no significant
changes in market risk associated with non-trading, on-balance sheet financial
instruments since December 31, 1997.

On June 30, 1998, 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 factor based scenario model is used to calculate daily earnings
at risk. This model breaks down yield curve movements into three underlying
factors to produce sixteen yield curve scenarios used to estimate hypothetical
profit or loss. Earnings at risk represents a one-day measurement of pretax
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 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 June
30, 1998, the gross estimates for aggregate interest rate, foreign exchange and
equity and commodity trading activities were $69 million, $7 million and $3
million, respectively. Alternatively, using a statistical measure which is more
likely to capture the effects of market movements, the uncorrelated estimate on
June 30, 1998 for aggregate trading activities was $28 million. Both measures
indicate that the Corporation's primary risk exposure is related to its interest
rate activities.

Average daily trading revenues during the first six months of 1998
approximated $2 million. During the first half of 1998, the Corporation's
trading activities resulted in positive daily revenues for approximately 83
percent of total trading days. During the first six months of 1998, the standard
deviation of trading revenues was $3 million. Using this data, one can conclude
that the aggregate trading activities should not result in exposure of more than
$5 million for any one day, assuming 99-percent confidence. When comparing daily
earnings at risk to trading revenues, daily earnings at risk will average
considerably more due to the assumption of no corrective actions as well as the
assumption that adverse market movements occur simultaneously across all
segments of the trading portfolio.
36
Capital Resources and Capital Management

Presented below are the Corporation's regulatory capital ratios on
June 30, 1998 and December 31, 1997:

June 30 December 31
1998 1997
-----------------------------------------------------
Risk-Based Capital Ratios
Tier 1 Capital .......... 7.32% 6.50%
Total Capital ........... 11.77 10.89

Leverage Capital Ratio .. 6.21 5.57

The Corporation's and its significant banking subsidiaries' regulatory
capital ratios on June 30, 1998 exceeded the regulatory minimums of 4 percent
for Tier 1 risk-based capital, 8 percent for total risk-based capital and the
leverage guidelines of 100 to 200 basis points above the minimum ratio of 3
percent. The Corporation and its significant banking subsidiaries were
considered "well-capitalized" on June 30, 1998. Ratios for December 31, 1997
have not been restated to reflect the impact of the Barnett merger. Barnett and
its significant banking subsidiary were considered "well-capitalized" on
December 31, 1997.

Regulatory capital guidelines were amended on September 12, 1996 to
incorporate a measure for market risk. In accordance with the amended
guidelines, the Corporation and any of its banking subsidiaries with significant
trading activity, as defined in the amendment, must incorporate a measure for
market risk in their regulatory capital calculations effective for reporting
periods after January 1, 1998. The revised guidelines did not have a material
impact on the Corporation or its subsidiaries' regulatory capital ratios or
their well capitalized status on June 30, 1998.

37
Table Thirteen
Selected Quarterly Operating Results
(Dollars in Millions Except Per-Share Information)

(1) Cash basis calculations exclude intangible assets and the related
amortization expense.

(2) Ratios for 1997 have not been restated to reflect the impact of the
Barnett merger.
38
Item 3. Quantitative and Qualitative Disclosures about Market Risk

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Market Risk Management" on page 36 and the sections
referenced therein for Quantitative and Qualitative Disclosures about Market
Risk.

Part II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders

a. The Annual Meeting of Shareholders was held on April 22, 1998.

b. The following are voting results on each of the matters which were
submitted to the shareholders:

39

Against or Broken
For Withheld Abstentions Nonvotes
--- -------- ----------- --------
2. To consider and act upon a
proposal to ratify the action of
the Board of Directors in selecting
Price Waterhouse LLP as
independent public accountants to
audit the books of the Corporation
and its subsidiaries for the
current year....................... 791,757,140 2,775,606 3,782,534

3. To consider and act upon a
shareholder proposal requesting
that the Corporation change the
date of the Annual Meeting.......... 27,031,537 622,973,570 29,498,651 118,811,522

4. To consider and act upon a
shareholder proposal requesting
that the Corporation not
increase salaries of executive
officers or grant stock options
to executive officers and
directors in the event the
dividend is reduced................. 66,518,016 598,707,008 14,554,167 118,536,089

5. To consider and act upon a
shareholder proposal requesting
that the Board adopt a specific
definition of independence for
members of the compensation
committee.......................... 115,741,945 544,739,628 19,297,626 118,536,081

40
Item 5. Other Information

On May 21, 1998, the Securities and Exchange Commission adopted an
amendment to Rule 14a-4 under the Securities Exchange Act of 1934. Rule 14a-4
governs a company's use of its discretionary proxy voting authority with respect
to certain stockholder proposals raised at a stockholder meeting and not
included as part of the Company's proxy materials ("non-Rule 14a-8 proposals").
In addition, Rule 14a-4 establishes a 45-day advance notice provision by which
stockholders must present non-Rule 14a-8 proposals for consideration at annual
meetings, although this period may be overridden by an advance notice provision
included in a company's bylaws. The Successor Registrant has adopted such an
advance notice provision which requires that non-Rule 14a-8 proposals must be
received by the Successor Registrant no later than 75 days before the date it
mailed its proxy materials for the prior year's annual meeting of stockholders
(which, for 1999, will be 75 days before the date the Corporation mailed its
1998 proxy materials.) Accordingly, for the Successor Registrant's 1999 annual
meeting of stockholders, the Secretary of the Successor Registrant must receive
notice of a non-Rule 14a-8 proposal no later than the close of business on
January 4, 1999, or such proposal may not be brought before the meeting. For
proposals to be included as part of the proxy materials relating to the 1999
annual meeting of stockholders ("Rule 14a-8 proposals"), the Secretary of the
Successor Registrant must receive notice of such proposal no later than the
close of business on November 23, 1998.
If the Reorganization is not consummated for any reason, the deadline for
submitting Rule 14a-8 proposals would also be November 23, 1998, but the
deadline for submitting non-Rule 14a-8 proposals would be February 3, 1999. Any
non-Rule 14a-8 proposal received after that date would be considered untimely,
and the Corporation may exercise discretionary proxy voting power with respect
to such proposal. As previously indicated, the Reorganization is currently
expected to close on September 30, 1998. See Note 2 - Merger Related Activity.

41
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 June 30, 1998:

Current Report on Form 8-K dated April 13, 1998, and filed April 15,
1998, Items 5&7.

Current Report on Form 8-K dated January 9, 1998, and filed April 16,
1998, Items 5&7, which restated the Corporation's historical financial
statements as of and for the three-year period ended December 31, 1997
to reflect the merger with Barnett which was accounted for as a pooling
of interests.

Current Report on Form 8-K dated April 10, 1998, and filed April 17,
1998, Item 5, as amended by Current Report on Form 8-K/A-1 dated April
10, 1998, and filed April 24, 1998, Item 7, and Current Report on Form
8-K/A-2 dated April 10, 1998, and filed May 18, 1998, Item 7, which
included financial statements of BankAmerica as presented in its
Annual Report on Form 10-K for the year ended December 31, 1997 and its
Form 10-Q for the quarter ended March 31, 1998. In addition, the
following unaudited pro forma condensed financial information was filed
as part of this Current Report on Form 8-K, as amended, reflecting
the BankAmerica transaction: Unaudited Pro Forma Condensed Balance
Sheets as of March 31, 1998 and December 31, 1997 and Unaudited Pro
Forma Condensed Statements of Income for the three months ended
March 31, 1998 and for the years ended December 31, 1997, 1996 and
1995.

Current Report on Form 8-K dated April 28, 1998, and filed May 6, 1998,
Items 5&7.

Current Report on Form 8-K dated May 4, 1998, and filed May 13, 1998,
Items 5&7.
42
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: August 14, 1998 /s/ Marc D. Oken
---------------- -----------------
Marc D. Oken
Executive Vice President
and Chief Accounting Officer
(Duly Authorized Officer and
Chief Accounting Officer)

43
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

44

Form: 10-Q

Documents

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