<PAGE>
 
                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(MARK ONE)

             (X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
                                      OR
             ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                    FOR THE TRANSITION PERIOD FROM _______ TO _______

                         COMMISSION FILE NUMBER 1-6522



                           BANK OF BOSTON CORPORATION

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



MASSACHUSETTS                                               04-2471221
(STATE OR OTHER JURISDICTION OF                             (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                              IDENTIFICATION NO.)


100 FEDERAL STREET, BOSTON, MASSACHUSETTS                   02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                     (ZIP CODE)


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE          (617) 434-2200

FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, 
IF CHANGED SINCE LAST REPORT:                               NOT APPLICABLE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X    No
                                       ---      ---


Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1996:

Common Stock, $1.50 par value                                152,967,802
<PAGE>
 
                           BANK OF BOSTON CORPORATION
                           --------------------------

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                        ----
<S>                                                                                                     <C>
CONSOLIDATED SELECTED FINANCIAL DATA                                                                      3
 
PART I    FINANCIAL INFORMATION
 
ITEM 1.   FINANCIAL STATEMENTS:

          Bank of Boston Corporation and Subsidiaries:

               Consolidated Balance Sheet                                                                 4

               Consolidated Statement of Income                                                           6

               Consolidated Statement of Changes in Stockholders' Equity                                  7

               Consolidated Statement of Cash Flows                                                       8

          Notes to Financial Statements                                                                   9
 
ITEM 2.   Management's Discussion and Analysis of Financial Condition  and Results of Operations         14
 
PART II   OTHER INFORMATION
 
ITEM 1.   Legal Proceedings                                                                              38
                                                                                                          
ITEM 6.   Exhibits and Reports on Form 8-K                                                               38
 
SIGNATURES                                                                                               39
 
LIST OF TABLES

          Consolidated Average Balance Sheet - Nine Quarters                                             31

          Consolidated Statement of Income - Nine Quarters                                               32

          Average Balances and Interest Rates - Quarter                                                  33

          Average Balances and Interest Rates - Nine Months                                              35

          Change in Net Interest Revenue - Volume and Rate Analysis                                      37
</TABLE>


                                       2
<PAGE>
 
                          BANK OF BOSTON CORPORATION
                     CONSOLIDATED SELECTED FINANCIAL DATA
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE> 
<CAPTION> 
QUARTERS ENDED SEPTEMBER 30                      1996            1995
                                                 ----            ----
<S>                                          <C>             <C> 
INCOME STATEMENT DATA
Net interest revenue                         $    591        $    570 
Provision for credit losses                        57              51
Noninterest income                                337             305
Noninterest expense (1)                           713             518
Net income (1)                                     80             175 
Per common share
     Primary (1)                                  .46            1.06
     Fully diluted (1)                            .45            1.05
Market value per common share
     High                                      57 7/8          47 5/8
     Low                                       50 1/8          36 3/4
 
NINE MONTH ENDED SEPTEMBER 30
INCOME STATEMENT DATA
Net interest revenue                         $  1,728        $  1,676 
Provision for credit losses                       171             194 
Noninterest income                              1,005             942 
Noninterest expense (1)                         1,772           1,531 
Net income (1)                                    449             498 
Per common share                                                      
     Primary (1)                                 2.74            3.07 
     Fully diluted (1)                           2.69            3.00 
Market value per common share                                         
     High                                      57 7/8          47 5/8 
     Low                                       41 5/8          25 5/8 
                                                                      
AT SEPTEMBER 30                                                       
BALANCE SHEET DATA                                                    
Loans and lease financing                    $ 42,053        $ 39,188 
Total assets                                   61,963          57,559 
Deposits                                       43,328          39,624 
Total stockholders' equity                      4,754           4,499 
Book value per common share                     27.81           25.69 
Regulatory capital ratios                                             
  Risk-based capital ratios                                           
     Tier 1                                       8.3%            8.4%
     Total                                       12.7            12.8 
Leverage ratio                                    7.2             7.4 
</TABLE>

(1)  Reflects, in 1996, $180 million ($117 million after-tax, or $.76 per share
     on a primary and fully diluted basis) of restructuring and merger-related
     charges, recorded in connection with the Corporation's acquisition of
     BayBanks, Inc. completed on July 29, 1996.

                                       3
<PAGE>
 
                           BANK OF BOSTON CORPORATION
                           CONSOLIDATED BALANCE SHEET
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
ASSETS                                                                            SEPTEMBER 30              DECEMBER 31 
                                                                                          1996                     1995      
                                                                                    ----------                ---------
<S>                                                                              <C>                      <C>                
Cash and due from banks                                                          $       3,755            $       3,561      
                                                                                                                             
Interest bearing deposits in other banks                                                 1,251                    1,356      
                                                                                                                             
Federal funds sold and securities purchased under agreements to resell                   1,680                    1,548      
                                                                                                                             
Trading securities                                                                       1,549                    1,159      
                                                                                                                             
Mortgages held for sale                                                                     33                      910      
                                                                                                                             
Securities                                                                                                                   
                                                                                                                             
  Available for sale                                                                     7,413                    7,582      
                                                                                                                             
  Held to maturity (fair value of $672 in 1996 and $667 in 1995)                           685                      660      
                                                                                                                             
Loans and lease financing                                                                                                    
                                                                                                                             
  United States Operations                                                              32,552                   30,163      
                                                                                                                             
  International Operations                                                               9,501                    8,707      
                                                                                        ------                   ------      
                                                                                                                             
    Total loans and lease financing (net of unearned income of $356 in                                                         
                                                                                                                             
      1996 and $277 in 1995)                                                            42,053                   38,870      
                                                                                                                             
Reserve for credit losses                                                                 (897)                    (890)     
                                                                                        ------                   ------      

  Net loans and lease financing                                                         41,156                   37,980      
                                                                                                                             
Premises and equipment, net                                                                876                      832      
                                                                                                                             
Due from customers on acceptances                                                          486                      360      
                                                                                                                             
Accrued interest receivable                                                                519                      554      
                                                                                                                             
Other assets                                                                             2,560                    2,921      
                                                                                        ------                   ------      
                                                                                                                             
TOTAL ASSETS                                                                     $      61,963            $      59,423      
                                                                                        ======                   ======       
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       4

<PAGE>
 
                           BANK OF BOSTON CORPORATION
                           CONSOLIDATED BALANCE SHEET
               (IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
                                  (CONTINUED)

<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY                                      SEPTEMBER 30           DECEMBER 31
                                                                                  1996                  1995
                                                                            ----------             ---------
<S>                                                                     <C>                    <C>
Deposits

  Domestic offices

    Noninterest bearing                                                 $        7,416         $       7,127
                                                                                                            
    Interest bearing                                                            24,970                24,392
                                                                                                            
  Overseas offices                                                                                          
                                                                                                            
    Noninterest bearing                                                            935                   552
                                                                                                            
    Interest bearing                                                            10,007                 8,993
                                                                                ------                ------
      Total deposits                                                            43,328                41,064
                                                                                                            
Funds borrowed                                                                                              
                                                                                                            
  Federal funds purchased                                                          636                 1,869
                                                                                                            
  Term federal funds purchased                                                   1,626                   870
                                                                                                            
  Securities sold under agreements to repurchase                                 1,939                 1,688
                                                                                                            
  Other funds borrowed                                                           5,049                 5,076
                                                                                                            
Acceptances outstanding                                                            487                   360
                                                                                                            
Accrued expenses and other liabilities                                           1,298                 1,605
                                                                                                            
Notes payable                                                                    2,846                 2,189
                                                                                ------                ------
TOTAL LIABILITIES                                                               57,209                54,721
                                                                                ------                ------ 
 
Commitments and contingencies

Stockholders' equity

  Preferred stock without par value

    Authorized shares - 10,000,000

    Issued and outstanding shares - 4,593,941                                      508                   508 
                                                                                                             
  Common stock, par value $1.50 in 1996 and $2.25 in 1995                                                    
                                                                                                             
    Authorized shares -300,000,000 in 1996 and 200,000,000 in 1995                                           
                                                                                                             
    Issued shares -152,634,188 in 1996 and 155,785,611 in 1995                                               
                                                                                                             
    Outstanding shares -152,634,188 in 1996 and 155,296,203 in 1995                229                   350 
                                                                                                             
  Surplus                                                                        1,181                 1,240 
                                                                                                             
  Retained earnings                                                              2,789                 2,548 
                                                                                                             
  Net unrealized gain on securities available for sale, net of tax                  53                    82 
                                                                                                             
  Treasury stock, at cost (489,408 shares in 1995)                                                       (22)
                                                                                                             
  Cumulative translation adjustments, net of tax                                    (6)                   (4)
                                                                                ------                ------ 
                                                                                                             
TOTAL STOCKHOLDERS' EQUITY                                                       4,754                 4,702 
                                                                                ------                ------ 
                                                                                                             
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $       61,963         $      59,423 
                                                                                ======                ======  
</TABLE> 

   The accompanying notes are an integral part of the financial statements.

                                       5

<PAGE>
 
                           BANK OF BOSTON CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                          QUARTERS ENDED              NINE MONTHS ENDED
                                                           SEPTEMBER 30                 SEPTEMBER 30
                                                    --------------------------    --------------------------
                                                        1996           1995           1996           1995
                                                        ----           ----           ----           ----
<S>                                                <C>            <C>            <C>            <C> 
INTEREST INCOME
Loans and lease financing, including fees          $     944      $   1,006      $   2,860      $   2,863  
Securities                                               146            124            423            362  
Trading securities                                        36             61            129            146  
Mortgages held for sale                                                   9             18             17  
Federal funds sold and securities                                                                          
  purchased under agreements to resell                    50             74            138            274  
Deposits in other banks                                   23             46             74            178  
                                                     -------        -------        -------        -------  
  Total interest income                                1,199          1,320          3,642          3,840  
                                                     -------        -------        -------        -------  
INTEREST EXPENSE                                                                                           
Deposits of domestic offices                             242            235            704            640  
Deposits of overseas offices                             173            229            558            708  
Funds borrowed                                           143            246            513            698  
Notes payable                                             50             40            139            118  
                                                     -------        -------        -------        -------  
  Total interest expense                                 608            750          1,914          2,164  
                                                     -------        -------        -------        -------  
NET INTEREST REVENUE                                     591            570          1,728          1,676  
Provision for credit losses                               57             51            171            194  
                                                     -------        -------        -------        -------  
Net interest revenue after provision for                                                                   
   credit losses                                         534            519          1,557          1,482  
                                                     -------        -------        -------        -------  
NONINTEREST INCOME                                                                                         
Financial service fees                                   140            162            327            465  
Trust and agency fees                                     62             65            181            186  
Trading profits and commissions                           21              7             59             16  
Net securities gains                                       7              1             24              7  
Other income                                             107             71            414            268  
                                                     -------        -------        -------        -------  
  Total noninterest income                               337            306          1,005            942  
                                                     -------        -------        -------        -------  
NONINTEREST EXPENSE                                                                                        
Salaries                                                 244            246            729            704  
Employee benefits                                         49             52            150            153  
Occupancy expense                                         51             48            152            143  
Equipment expense                                         34             34            102             99  
Restructuring and merger-related costs                   180                           180                 
Other expense                                            155            138            459            432  
                                                     -------        -------        -------        -------
  Total noninterest expense                              713            518          1,772          1,531  
                                                     -------        -------        -------        -------  
Income before income taxes                               158            307            790            893  
Provision for income taxes                                78            132            341            395  
                                                     -------        -------        -------        -------  
NET INCOME                                         $      80      $     175      $     449      $     498  
                                                     =======        =======        =======        =======
NET INCOME APPLICABLE TO COMMON STOCK              $      71      $     166      $     421      $     470  
                                                     =======        =======        =======        =======
PER COMMON SHARE                                                                                           
Net income                                                                                                 
    Primary                                        $     .46      $    1.06      $    2.74      $    3.07  
    Fully diluted                                  $     .45      $    1.05      $    2.69      $    3.00  
Dividends declared                                 $     .44      $     .37      $    1.25      $     .91  
AVERAGE NUMBER OF COMMON SHARES (IN THOUSANDS)                                                             
    Primary                                          153,103        155,660        153,715        153,086  
    Fully diluted                                    155,183        157,599        156,300        156,407   
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       6


<PAGE>
 
                           BANK OF BOSTON CORPORATION
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                         1996               1995  
<S>                                                                                 <C>                <C> 
NINE MONTHS ENDED SEPTEMBER 30                                                                                    
 PREFERRED STOCK                                                                                                   
 Balance, January 1                                                                    $  508             $  508  
                                                                                     --------           --------  
 Balance, September 30                                                                    508                508  
                                                                                     --------           --------  
 COMMON STOCK                                                                                                     
 Balance, January 1                                                                       350                336  
 Change in par value                                                                     (118)                    
 Common stock issued                                                                                               
  Dividend reinvestment and stock purchase plan                                                                1  
  Exercise of stock options                                                                 3                  2  
  Conversion of subordinated debentures                                                                        8  
  Acquisition of The Boston Bancorp                                                         1                     
  Acquisition of NFS Financial Corporation                                                                     2  
  Acquisition of BayBanks, Inc.                                                            (7)                    
                                                                                     --------           --------  
 Balance, September 30                                                                    229                349  
                                                                                     --------           --------  
 SURPLUS                                                                                                          
 Balance, January 1                                                                     1,240              1,075  
 Change in par value                                                                      118                     
 Dividend reinvestment and stock purchase plan                                             13                 20  
 Exercise of stock options                                                                (25)                13  
 Acquisition of Ganis Credit Corporation                                                                       1  
 Conversion of subordinated debentures                                                                        71  
 Restricted stock grants, net of forfeitures                                               12                  2  
 Acquisition of The Boston Bancorp                                                         47                     
 Acquisition of NFS Financial Corporation                                                                     37  
 Acquisition of BayBanks, Inc.                                                           (225)                    
 Other, principally employee benefit plans                                                  1                  4  
                                                                                     --------           --------  
 Balance, September 30                                                                  1,181              1,223  
                                                                                     --------           --------  
                                                                                                                  
 RETAINED EARNINGS                                                                                                
 Balance, January 1                                                                     2,548              2,085  
 Net income                                                                               449                498  
 Restricted stock grants, net of forfeitures                                               (3)                 1  
 Payment on ESOP loan                                                                       3                  3  
 Cash dividends declared                                                                                          
  Preferred stock                                                                         (28)               (28) 
  Common stock                                                                           (180)              (130) 
                                                                                     --------           --------  
  Balance, September 30                                                                 2,789              2,429  
                                                                                     --------           --------  
                                                                                                                  
 NET UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR SALE                                                      
 Balance, January 1                                                                        82                (40) 
 Change in net unrealized gain (loss) on securities available for sale, net of tax        (29)                34  
                                                                                     --------           --------  
 Balance, September 30                                                                     53                 (6) 
                                                                                     --------           --------  
 TREASURY STOCK                                                                                                   
 Balance, January 1                                                                       (22)               (27) 
 Purchases of treasury stock                                                             (490)               (28) 
 Treasury stock reissued                                                                                          
  Dividend reinvestment and stock purchase plan                                            23                  9  
  Exercise of stock options                                                                52                  1  
  Restricted stock grants, net of forfeitures                                              10                  7  
  Conversion of subordinated debentures                                                                       15  
  Acquisition of The Boston Bancorp                                                       181                     
  Acquisition of BayBanks, Inc.                                                           232                     
  Acquisition of Ganis Credit Corporation                                                   7                 21  
  Other, principally employee benefit plans                                                 7                  2  
                                                                                     --------           --------  
 Balance,September 30                                                                                             
                                                                                     --------           --------  
                                                                                                                  
 CUMULATIVE TRANSLATION ADJUSTMENTS                                                                               
 Balance, January 1                                                                        (4)                (6) 
 Change in translation adjustments, net of tax                                             (2)                 2  
                                                                                     --------           --------  
 Balance, September 30                                                                     (6)                (4) 
                                                                                     --------           --------  
 TOTAL STOCKHOLDERS' EQUITY, SEPTEMBER 30                                              $4,754             $4,499
                                                                                     ========           ========   
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                       7


<PAGE>
 
                           BANK OF BOSTON CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)

<TABLE> 
<CAPTION> 
                                                                                 1996                  1995  
                                                                               --------               -------
<S>                                                                          <C>                    <C>      
NINE MONTHS ENDED SEPTEMBER 30                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES                                                                         
Net income                                                                   $     449              $    498 
Reconciliation of net income to net cash                                                                     
  provided from (used for) operating activities                                                              
    Provision for credit losses                                                    171                   194 
    Depreciation and amortization                                                  111                   170 
    Provision for deferred taxes                                                    17                    57 
    Net gains on sales of securities and other assets                             (292)                 (160)
    Change in trading securities                                                  (666)                  (99)
    Net change in mortgages held for sale                                          235                  (394)
    Net change in interest receivables and payables                                 23                   (20)
    Other, net                                                                    (229)                 (198)
                                                                               -------                ------ 
      Net cash provided from (used for) operating activities                      (181)                   48 
                                                                               -------                ------ 
CASH FLOWS FROM INVESTING ACTIVITIES                                                                         
Net cash provided from interest bearing deposits in other banks                    105                   204 
Net cash used for federal funds sold and securities                                                          
  purchased under agreements to resell                                            (132)                  (82)
Purchases of securities held to maturity                                           (67)               (2,239)
Purchases of securities available for sale                                      (6,459)               (2,663)
Sales of securities available for sale                                           3,340                 1,708
Maturities of securities held to maturity                                           37                 2,524 
Maturities of securities available for sale                                      3,649                   736 
Loans and lease financing originated by nonbank entities                       (13,493)               (5,599)
Loans and lease financing collected by nonbank entities                         12,233                 4,533 
Proceeds from sales of loan portfolios by bank subsidiaries                        142                   131 
Net cash used for lending activities of bank subsidiaries                       (2,178)                 (774)
Lease financing originated by bank entities                                         (5)                   (3)
Lease financing collected by bank entities                                          16                    44 
Proceeds from sales of other real estate owned                                      32                    61 
Expenditures for premises and equipment                                           (171)                 (164)
Proceeds from sales of business units, premises and equipment                      203                   130 
Other, net                                                                         (24)                 (257)
                                                                               -------                ------ 
     Net cash used for investing activities                                     (2,772)               (1,710)
                                                                               -------                ------ 
CASH FLOWS FROM FINANCING ACTIVITIES                                                                         
Net cash provided from (used for) deposits                                       2,264                  (624)
Net cash provided from funds borrowed                                              859                 2,256 
Net repayments of notes payable                                                   (256)                 (154)
Net proceeds from issuance of notes payable                                        913                   138 
Net proceeds from issuance of common stock                                          74                    50 
Purchases of treasury stock                                                       (490)                  (28)
Dividends paid                                                                    (208)                 (158)
                                                                               -------                ------ 
     Net cash provided from financing activities                                 3,156                 1,480 
Effect of foreign currency translation on cash                                      (9)                   (6)
                                                                               -------                ------ 
NET CHANGE IN CASH AND DUE FROM BANKS                                              194                  (188)
CASH AND DUE FROM BANKS AT JANUARY 1                                             3,561                 3,146 
                                                                               -------                ------ 
CASH AND DUE FROM BANKS AT SEPTEMBER 30                                      $   3,755              $  2,958 
                                                                               =======                ====== 
                                                                                                             
Interest payments made                                                       $   1,926              $  2,124 
Income tax payments made                                                     $     343              $    430  
</TABLE> 

  The accompanying notes are an integral part of these financial statements.

                                       8


<PAGE>
 
                           BANK OF BOSTON CORPORATION
                         NOTES TO FINANCIAL STATEMENTS

1.   The accompanying interim consolidated financial statements of Bank of
     Boston Corporation (the Corporation) are unaudited.  In the opinion of
     management, all adjustments (consisting only of normal recurring
     adjustments) necessary for a fair presentation of the information contained
     herein have been made.  The financial statements reflect the acquisition of
     BayBanks, Inc. (BayBanks), which occurred on July 29, 1996. The acquisition
     was accounted for as a pooling of interests and, accordingly, the
     information included in the accompanying financial statements and notes
     presents the combined financial position and results of operations of the
     Corporation and BayBanks as if they had operated as a combined entity for
     all periods presented.  Certain amounts reported in prior periods have been
     reclassified for comparative purposes.  This information should be read in
     conjunction with the Corporation's 1995 Annual Report on Form 10-K and its
     Current Report on Form 8-K dated September 6, 1996.

2.   ACQUISITIONS AND DIVESTITURES:

     During the first six months of 1996, the Corporation completed a
     transaction with two equity investment firms in which its mortgage banking
     subsidiary was sold to a newly formed independent mortgage company,
     HomeSide, Inc. (HomeSide), and in the second phase of the transaction,
     Barnett Mortgage Company was acquired by HomeSide. As a result of both
     phases of the transaction, the Corporation realized gains of $106 million,
     or $67 million after-tax. Under the sale agreement, the Corporation agreed
     to maintain a risk management program designed to protect the enterprise
     value of its mortgage banking subsidiary. The above-mentioned gains were
     offset by $111 million of losses, or $70 million after-tax, net of
     decreased servicing amortization, from the change in market value of
     contracts used to manage the prepayment risk in the mortgage servicing
     portfolio and the economic value of the mortgage banking subsidiary pending
     the completion of the sale to HomeSide.

     On June 28, 1996, the Corporation completed its acquisition of The Boston
     Bancorp (Bancorp), the holding company of South Boston Savings Bank, a
     Massachusetts chartered savings bank with $1.3 billion in deposits. The
     Corporation exchanged 4.6 million shares of its common stock, with a value
     of approximately $229 million, for all of the outstanding common stock of
     Bancorp. The Corporation has purchased an equivalent amount of shares in
     the open market for this transaction. The acquisition was accounted for as
     a purchase and, accordingly, the assets and liabilities of Bancorp were
     recorded at their estimated fair values as of the acquisition date.
     Goodwill resulting from the transaction is being amortized over a ten-year
     period. The acquisition has been included in the accompanying consolidated
     financial statements since the acquisition date. Pro forma results of
     operations including Bancorp for the nine months ended September 30, 1996
     and 1995 are not presented since the results would not have been
     significantly different in relation to the Corporation's results of
     operations.

     On July 29, 1996, the Corporation completed its acquisition of BayBanks.
     The Corporation issued 43.6 million shares of its common stock in exchange
     for substantially all of the outstanding shares of BayBanks common stock by
     exchanging 2.2 shares of its common stock for each outstanding BayBanks
     share. The transaction was accounted for under the pooling of interests
     method of accounting. Under this method, the historical book values of the
     assets and liabilities of BayBanks, as reported in its consolidated balance
     sheet, are carried over onto the Corporation's consolidated balance sheet,
     and no goodwill or other intangible assets are created. In connection with
     the approval of the transaction by regulatory authorities, the Corporation
     agreed to sell 20 branches of the resulting combined entity, comprising a
     total of approximately $860 million in deposits. The sale of these branches
     is expected to be completed in the fourth quarter of 1996. Information with
     respect to restructuring and merger-related costs recorded upon completion
     of the acquisition is included in Note 9.

     The following tables set forth the results of operations of BayBanks and
     the Corporation for the six months ended June 30, 1996. These six month
     results are included in the results of operations for the nine months ended
     September 30, 1996 presented in the accompanying consolidated statement of
     income.


     SIX MONTHS ENDED JUNE 30, 1996
     (in millions, except per share amounts)


                                   BAYBANKS        CORPORATION      COMBINED
                                   --------        -----------      --------

     Net interest revenue          $    265        $       872      $  1,137
     Noninterest income            $    118        $       550      $    668
     Net income                    $     74        $       295      $    369
     Net income per common share
         Primary                   $   3.71        $      2.50      $   2.27
         Fully diluted             $   3.71        $      2.46      $   2.24

                                       9


<PAGE>
 
                          BANK OF BOSTON CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.   ACQUISITIONS AND DIVESTITURES  (CONTINUED):

     The following table reconciles the revenue and net income previously
     reported by the Corporation with the combined amounts presented in the
     accompanying consolidated statements of income for the quarter and nine
     months ended September 30, 1995.

     QUARTER ENDED SEPTEMBER 30, 1995
     (in millions, except per share amounts)

                              BAYBANKS           CORPORATION         COMBINED
                              --------           -----------         -------- 

     Net interest revenue     $    131           $       439         $     570
     Noninterest income       $     57           $       249         $     306
     Net income               $     35           $       140         $     175
     Net income per share
       Primary                $   1.74           $      1.17         $    1.06
       Fully diluted          $   1.74           $      1.15         $    1.05


     NINE MONTHS ENDED SEPTEMBER 30, 1995
     (in millions, except per share amounts)
 
                              BAYBANKS           CORPORATION         COMBINED
                              --------           -----------         --------
 
     Net interest revenue     $    377           $     1,299         $    1,676
     Noninterest income       $    164           $       778         $      942
     Net income               $     99           $       399         $      498
     Net income per share
       Primary                $   5.11           $      3.36         $     3.07
       Fully diluted          $   5.10           $      3.27         $     3.00
 
                                      10


<PAGE>
 
                          BANK OF BOSTON CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


3.   SECURITIES:
     A summary comparison of securities available for sale by type is as
     follows:
 
<TABLE> 
<CAPTION> 
                                             SEPTEMBER 30, 1996              DECEMBER 31, 1995
                                     --------------------------    ---------------------------
    (in millions)                          COST        CARRYING           COST        CARRYING 
                                        -------        --------       --------        --------  
                                                          VALUE                          VALUE  
                                                          -----                          -----

    <S>                                 <C>        <C>                <C>        <C> 
    U.S. Treasury                       $ 1,760        $    1,760     $  2,556        $   2,591
    U.S. government                                                             
     agencies and corporations -                                                 
     Mortgage-backed securities           3,388             3,378        2,969            3,037
    States and political subdivisions       157               157          245              248
    Foreign debt securities               1,046             1,076          698              685
    Other debt securities                   335               331          343              334
    Marketable equity                                                           
     securities                             169               240          170              222
    Other equity securities                 471               471          465              465
                                          -----             -----        -----            -----
                                        $ 7,326        $    7,413     $  7,446        $   7,582
                                          =====             =====        =====            =====
</TABLE> 
 

Other equity securities included in securities available for sale are not traded
on established exchanges and are carried at cost.

A summary comparison of securities held to maturity by type is as follows:

<TABLE>
<CAPTION>
                                                 SEPTEMBER 30, 1996                 DECEMBER 31, 1995
                                     ------------------------------    ------------------------------
                                        AMORTIZED                       AMORTIZED                 
     (in millions)                           COST        FAIR VALUE          COST          FAIR VALUE 
                                       ----------        ----------    ----------          ----------
     <S>                             <C>                 <C>           <C>                 <C>  
     U.S. Treasury                         $    1           $     1      $      4           $      4  
     U.S. government                                                                                  
      agencies and corporations -                                                                     
      Mortgage-backed securities              542               529           523                530  
     States and political subdivisions          6                 6             5                  5  
     Foreign debt securities                   11                11            11                 11  
     Other equity securities                  125               125           117                117  
                                              ---               ---           ---                ---  
                                           $  685           $   672       $   660             $  667  
                                              ===               ===           ===                ===   
</TABLE>

     Other equity securities included in securities held to maturity represent
     securities, such as Federal Reserve Bank and Federal Home Loan Bank stock,
     which are not traded on established exchanges and have only redemption
     capabilities. Fair values for such securities are considered to approximate
     cost.

                                      11



<PAGE>
 
                          BANK OF BOSTON CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4.   LOANS AND LEASE FINANCING:
     The following are the details of loan and lease financing balances:

<TABLE>
<CAPTION>
                                                                          SEPT. 30                    DECEMBER 31
                                                                              1996                           1995   
                                                                        ----------                     ----------
<S>                                                               <C>                               <C>  
   (in millions)                                                            
   UNITED STATES OPERATIONS
       Commercial, industrial and financial                       $         13,828                  $      12,809
       Commercial real estate
         Construction                                                          323                            386
         Other                                                               3,228                          3,393
       Consumer-related loans
         Residential mortgages                                               4,156                          4,141
         Home equity loans                                                   2,842                          2,556
         Credit card loans                                                   1,320                            495
         Other                                                               5,349                          5,059
     Lease financing                                                         1,778                          1,564
     Unearned income                                                          (272)                          (240)
                                                                         ---------                      ---------  
                                                                            32,552                         30,163
                                                                         ---------                      ---------  
   INTERNATIONAL OPERATIONS
     Loans and lease financing                                               9,585                          8,744
     Unearned income                                                           (84)                           (37)
                                                                         ---------                      --------- 
                                                                             9,501                          8,707
                                                                         ---------                      ---------  
                                                                  $         42,053                  $      38,870
                                                                         =========                      =========
</TABLE> 
 
5.   RESERVE FOR CREDIT LOSSES:
     An analysis of the reserve for credit losses is as follows:

<TABLE> 
<CAPTION>  
                                                   QUARTERS ENDED                NINE MONTHS ENDED
                                                      SEPT. 30                       SEPT. 30
                                                      --------                       -------- 
                                                   1996       1995            1996             1995
                                                   ----      -----            ----             ----
     <S>                                        <C>       <C>               <C>            <C>  
     (in millions)
     BALANCE, BEGINNING OF PERIOD               $  895    $   838           $  890         $    827
     Provision                                      57         51              171              194
     Reserves of entities sold                                                 (11)             (32)
     Reserve of acquired bank                                  14                2               14
     Domestic credit losses
         Commercial, industrial
              and financial                         (3)       (10)             (16)             (36)
         Commercial real estate                     (3)       (12)             (23)             (43)
         Consumer-related loans
              Residential mortgages                 (2)        (6)             (12)             (16)
              Credit card loans                     (7)        (3)             (16)              (9)
              Home equity loans                     (2)        (3)              (6)              (7)
              Other                                (42)       (18)            (103)             (53)
     International credit losses                   (14)       (15)             (36)             (43)
                                                ------     ------         --------          -------
         Total credit losses                      (73)       (67)            (212)            (207)
                                                ------     ------          -------          -------
     Domestic recoveries
         Commercial, industrial
               and financial                         3          4               11               12
         Commercial real estate                      2          8                8               16
         Consumer-related loans
               Residential mortgages                            1                3                2
               Credit card loans                                                 2                1
               Home equity loans                     2                           2                3
               Other                                 7          6               20               20
     International recoveries                        4          3               11                8
                                                ------     ------          -------          -------
         Total recoveries                           18         22               57               62
                                                ------     ------          -------          -------
     Net credit losses                             (55)       (45)            (155)            (145)
                                                ------     ------          -------          -------  
     BALANCE, END OF PERIOD                     $  897    $   858           $  897         $    858
                                                ======    =======          =======         ========
</TABLE>

                                      12


<PAGE>
 
                          BANK OF BOSTON CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)


5.   RESERVE FOR CREDIT LOSSES (CONTINUED):

     At September 30, 1996, loans for which impairment has been recognized in
     accordance with Statement of Financial Accounting Standards (SFAS) No. 114,
     "Accounting by Creditors for Impairment of a Loan," totaled $320 million,
     of which $53 million related to loans with no valuation reserve and $267
     million related to loans with a valuation reserve of $72 million. For the
     quarter and nine months ended September 30, 1996, average impaired loans
     were approximately $293 million and $275 million, respectively. Interest
     recognized on impaired loans during the third quarter and nine months ended
     September 30, 1996 was not material.

6.   NOTES PAYABLE:

     During the first nine months of 1996, the Corporation issued $400 million
     in senior floating and fixed rate medium-term notes. These notes, which
     mature in 1997 through 1999, had weighted average interest rates of 5.66%
     during the third quarter of 1996. The Corporation entered into interest
     rate swap agreements that effectively converted the fixed rate obligations
     to floating rate obligations. In June 1996, the Corporation's $100 million
     floating rate senior notes, issued in 1994, matured. In September 1996, The
     First National Bank of Boston (FNBB), a major banking subsidiary of the
     Corporation, issued $200 million of 7 3/8% Subordinated Notes due 2006.
     When the notes were issued, FNBB entered into an interest rate swap
     agreement that effectively converted the fixed rate obligation to a
     floating rate obligation. Such interest rate was 6.15% at September 30,
     1996. The subordinated notes are not subject to redemption prior to
     maturity.
 
7.   CONTINGENCIES:

     The Corporation and its subsidiaries are defendants in a number of legal
     proceedings arising in the normal course of business. Management, after
     reviewing all actions and proceedings pending against or involving the
     Corporation and its subsidiaries, considers that the aggregate loss, if
     any, resulting from the final outcome of these proceedings should not be
     material to the Corporation's financial statements.

8.   CAPITAL CHANGES:

     In April 1996, stockholders of the Corporation authorized an increase in
     the authorized shares of the Corporation's common stock from 200 million
     shares, par value $2.25 per share, to 300 million shares, par value $1.50
     per share. This change in par value resulted in the transfer of $118
     million from common stock to surplus in the accompanying consolidated
     balance sheet.

9.   RESTRUCTURING AND MERGER-RELATED COSTS:

     During the third quarter of 1996, the Corporation recorded restructuring
     and merger-related costs of $180 million ($117 million after-tax) in
     connection with the BayBanks acquisition. Included in these costs were
     employee-related severance and property related costs; professional fees
     and other costs of effecting the acquisition; and systems and other
     conversion costs which were incurred during the third quarter. Significant
     components of the costs were as follows:
     
     (in millions) 
     Personnel costs             $ 81 
     Facility costs                50
     Other costs                   49
                                 ----
     Total                       $180
                                 ----   
        
     Personnel costs relate primarily to the Corporation's plan to eliminate
     approximately 2,100 executive, managerial and staff positions through
     attrition, enhanced retirement plans and terminations. These costs include
     severance and retirement plan costs as well as employee assistance costs 
     for separated employees. During the third quarter approximately 600
     employees were either terminated or left the Corporation through enhanced
     retirement plans. Facility costs relate to branch and back office
     consolidations, and include lease termination costs and writedowns of bank
     owned properties and other facility related costs. Other costs principally
     consist of transaction related costs, such as professional fees and stock
     registration costs, as well as systems costs and other costs of effecting
     the acquisition which were incurred during the third quarter. Cash outlays
     during the quarter amounted to $39 million, including $5 million of
     termination benefits and $34 million of transaction, facility and systems
     and other conversion costs. The remaining reserves and other liabilities of
     $141 million at September 30, 1996 include expected cash outlays of $101
     million and expected noncash costs of $40 million. Cash outlays are
     expected to occur throughout the integration process, which the Corporation
     expects to complete by the middle of 1997.
                                        13
<PAGE>
 
   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

                             RESULTS OF OPERATIONS
                             ---------------------
                                    GENERAL

On July 29, 1996, Bank of Boston Corporation (the Corporation) completed its
acquisition of BayBanks, Inc. (BayBanks).  The Corporation acquired BayBanks in
a tax-free exchange of stock, whereby the Corporation exchanged 2.2 shares of
its common stock for each outstanding share of BayBanks common stock.  Refer to
Note 2 to the Financial Statements for further discussion of this transaction.
The acquisition was accounted for as a pooling of interests and, accordingly,
the information included in this discussion presents the combined results of
BayBanks and the Corporation as if the Corporation and BayBanks had operated as
a combined entity for all periods presented.  The combination of the two Boston-
based institutions created a consumer and corporate banking entity, with over
$60 billion in assets and $40 billion in deposits.

The Corporation's net income for the quarter ended September 30, 1996 was $80
million, compared with net income of $175 million for the same period in 1995.
Net income per common share was $.46 on a primary basis and $.45 on a fully
diluted basis for the third quarter of 1996, compared with net income per common
share of $1.06 on a primary basis and $1.05 on a fully diluted basis for the
third quarter of 1995.  In the third quarter of 1996, the Corporation recorded
restructuring and merger-related charges of $180 million ($117 million after-
tax), or $.76 per share on a fully diluted basis, in connection with its
acquisition of BayBanks.  Excluding the effects of the restructuring and merger-
related charges, net income for the third quarter of 1996 was $197 million, or
$1.21 per share on a fully diluted basis, compared to $175 million, or $1.05 per
share, in the third quarter of 1995.  The Corporation expects to achieve total
annualized cost savings in connection with the integration of BayBanks of $230
million.  The major systems and branch conversions are expected to be completed
by the middle of 1997, resulting in the full realization of these savings
occurring in the latter half of 1997.  The Corporation's expectations with
respect to potential cost savings are forward-looking statements.  Readers are
cautioned that many factors could affect the Corporation's future financial
performance and cause actual cost savings to differ materially from expected
amounts.  These factors, some of which are beyond the control of the
Corporation, include, but are not limited to, the regulatory environment,
regional and national economic conditions, inflation, competition, changes in
integration plans, interest rate fluctuations and unanticipated changes in
business conditions.  Therefore, the ultimate level of such expected cost
savings and the period within which such cost savings may be realized or
achieved cannot be predicted with certainty.

Net income for the first nine months of 1996 was $449 million, compared with
$498 million for the first nine months of 1995.  Net income per common share was
$2.74 on a primary basis and $2.69 on a fully diluted basis for the first nine
months of 1996, compared with $3.07 on a primary basis and $3.00 on a fully
diluted basis for the first nine months of 1995.  Excluding the effects of
restructuring and merger-related charges, net income for the first nine months
of 1996 was $566 million, or $3.44 per share on a fully diluted basis, compared
to $498 million, or $3.00 per share, for the 1995 nine-month period.

In connection with the BayBanks acquisition, and specifically to address
competitive issues raised by the Department of Justice and the Massachusetts
Attorney General relative to the transaction, the Corporation agreed to sell 20
branches having aggregate deposits of approximately $860 million.  The
transaction is expected to be completed in the fourth quarter of 1996.

All comparisons are affected by the sale of the Corporation's corporate trust
business and the joint venture of its stock transfer business in the fourth
quarter of 1995, the acquisition of The Boston Bancorp (Bancorp) at the end of
the second quarter  of 1996, and the sale of the Corporation's mortgage banking
subsidiary in the first half of 1996.

Additional information on certain of these transactions can be found in Note 2
to the Financial Statements.

The Corporation continues to explore, on an ongoing basis, acquisition and joint
venture opportunities, as well as analyze each of its businesses in the context
of competitive advantages, industry dynamics and growth potential, such as the
assignment in September of 1996 of two senior executives to evaluate the
Corporation's national consumer specialty businesses.

                                      14

<PAGE>
 
            NET INTEREST REVENUE - (FULLY TAXABLE EQUIVALENT BASIS)

The discussion of net interest revenue should be read in conjunction with
Average Balances and Interest Rates and Change in Net Interest Revenue - Volume
and Rate Analysis appearing elsewhere in this report.  For this review, interest
income that is either exempt from federal income taxes or taxed at a
preferential rate has been adjusted to a fully taxable equivalent basis.  This
adjustment has been calculated using a federal income tax rate of 35 percent,
plus applicable state and local taxes, net of related federal tax benefits.

The following tables present summaries of net interest revenue, on a fully
taxable equivalent basis, and related average loans and lease financing and
average earning asset balances and net interest margin for United States and
International Operations:

<TABLE>
<CAPTION>
QUARTERS ENDED SEPTEMBER 30                                    Change
---------------------------                1996       1995     Amount
(dollars in millions)                     -----     ------     ------ 
<S>                                    <C>         <C>         <C> 
UNITED STATES OPERATIONS:

  Net interest revenue                 $    459    $    456    $     3
  Average loans and lease financing      31,961      31,138        823
  Average earning assets                 40,477      39,286      1,191
  Net interest margin                      4.51%       4.60%      (.09)%

INTERNATIONAL OPERATIONS:                                     

  Net interest revenue                 $    137    $    118    $    19
  Average loans and lease financing       9,262       7,895      1,367
  Average earning assets                 13,447      10,979      2,468
  Net interest margin                      4.07%       4.27%      (.20)%

CONSOLIDATED:                                                 

  Net interest revenue                 $    596    $    574    $    22
  Average loans and lease financing      41,223      39,033      2,190
  Average earning assets                 53,924      50,265      3,659
  Net interest margin                      4.40%       4.53%      (.13)%
 
<CAPTION> 
NINE MONTHS ENDED SEPTEMBER 30                                 Change
------------------------------             1996       1995     Amount
(dollars in millions)                     -----     ------     ------
                                       
<S>                                    <C>         <C>         <C>  
UNITED STATES OPERATIONS:

  Net interest revenue                 $  1,349    $  1,360    $   (11)
  Average loans and lease financing      31,220      30,218      1,002
  Average earning assets                 40,061      38,377      1,684
  Net interest margin                      4.50%       4.74%      (.24)%

INTERNATIONAL OPERATIONS:                                   

  Net interest revenue                 $    394    $    329    $    65
  Average loans and lease financing       8,956       7,702      1,254
  Average earning assets                 12,880      10,608      2,272
  Net interest margin                      4.08%       4.15%      (.07)%

CONSOLIDATED:                                               

  Net interest revenue                 $  1,743    $  1,689    $    54
  Average loans and lease financing      40,176      37,920      2,256
  Average earning assets                 52,941      48,985      3,956
  Net interest margin                      4.40%       4.61%      (.21)%
</TABLE>

                                      15

<PAGE>
 
Domestic net interest revenue increased $3 million, while net interest margin
decreased 9 basis points, in the quarterly comparison. The increase in net
interest revenue was primarily driven by an increase in average earning assets,
including growth in consumer-related loans and other average earning assets, and
a higher level of interest recoveries on loans. The growth in other average
earning assets principally reflected increased securities available for sale,
mainly for asset and liability management purposes, which were partially offset
by decreased mortgages held for sale, resulting from the sale of the mortgage
banking business. The impact of volume increases was partially offset by a
decrease in net interest margin, caused by narrower spreads, which were
mitigated by the addition of $1.3 billion of retail deposits from the June 28
acquisition of Bancorp, which replaced more expensive wholesale funding. In the
nine-month comparison, domestic net interest revenue decreased $11 million and
net interest margin decreased 24 basis points. The decrease in net interest
revenue was due to lower net interest margin, resulting from narrower spreads,
including competitive pricing pressures, and the aggressive marketing of a new
higher-rate savings product introduced during the second quarter of 1995.
Partially offsetting the decrease in net interest revenue was an increase in
average earning assets, as discussed above.

Internationally, the increase in net interest revenue of $19 million in the
quarterly comparison and $65 million in the nine-month comparison was primarily
driven by increases in average earning assets of $2.5 billion and $2.3 billion
in the quarterly and nine-month comparisons, respectively, reflecting increases
in the Corporation's Latin American operations, primarily Brazil and Argentina.
The increases in average earning assets included $1.4 billion and $1.3 billion
increases in average loans and lease financing and $1.1 billion and $.9 billion
in average treasury assets for the quarterly and nine-month comparisons,
respectively.  Volume increases included approximately $700 million of average
loans and leases in Brazil for both comparisons, as well as $620 million and
$380 million in  treasury assets in the quarterly and nine-month comparisons,
respectively. Average loans and leases in Argentina increased approximately $520
million and $450 million, and average treasury assets increased $490 million and
$510 million in the quarterly and nine-month comparisons, respectively. For both
the quarterly and nine-month comparisons, the impact of these volume increases
on net interest revenue was partially offset by tighter Brazilian and Argentine
net interest margins, reflecting lower interest rate spreads stemming from
increasing economic stability in these countries, and mix changes in Argentine
average earning assets. The decrease in interest rate spreads in Argentina and
Brazil and the changes in mix in Argentina were primarily responsible for the
decrease in international margin in the quarterly and nine-month comparisons.

The level of net interest revenue and margin reported for the quarter ended
September 30, 1996 is not necessarily indicative of future results. The
Corporation has experienced and could experience continued pressure on margin in
the future.  Future levels of net interest revenue and margin will be affected
by competitive pricing pressure on retail deposits, loans and other products;
the mix and volume of assets and liabilities; the current interest rate
environment; the economic and political situations in countries where the
Corporation does business; and other factors.

                          PROVISION FOR CREDIT LOSSES

The provision for credit losses was $57 million for the quarter ended September
30, 1996, compared with $51 million for the same period in 1995.  For the first
nine months of 1996, the provision for credit losses was $171 million, compared
with $194 million for the first nine months  of 1995, including a special
provision of $50 million in the first quarter of 1995 reflecting management's
intent to strengthen further the Corporation's loan loss reserve.  This was due
to the uncertainty caused by economic events impacting the Argentine and Mexican
economies in the early part of 1995, and industry trends in consumer credit,
combined with the growth in the Corporation's Latin American lending and
domestic consumer lending portfolios.

The provision for credit losses in each quarter reflects management's assessment
of the adequacy of the reserve for credit losses, considering the current risk
characteristics of the loan portfolio and economic conditions.  The amount of
future provisions will continue to be a function of the regular quarterly review
of the reserve for credit losses, based upon management's assessment of risk at
that time, and, as such, there can be no assurance as to the level of future
provisions.

                                      16

<PAGE>
 
                               NONINTEREST INCOME

The following table sets forth the components of noninterest income.

<TABLE>
<CAPTION>
                                                Third Quarter                        Nine Months
                                                -------------                        -----------
                                            1996      1995      Change       1996       1995        Change
                                            ----      ----      ------       ----       ----        ------
<S>                                        <C>       <C>        <C>      <C>           <C>          <C>   
Financial service fees                                   
  Deposit and ATM-related fees             $  61     $  58      $   3    $   180       $ 173        $   7
  Letter of credit and acceptance fees        18        18                    51          55           (4)
  Syndication and agent fees                  14        12          2         36          26           10
  Other loan-related fees                      9         8          1         28          25            3
  Net mortgage servicing fees                  3        25        (22)       (82)         76         (158)
  Other financial service fees                35        41         (6)       114         110            4
                                             ---       ---        ---      -----         ---         ---- 
   Total financial service fees              140       162        (22)       327         465        (138)
Mutual fund fees                              24        18          6         69          48          21
Personal trust fees                           32        29          3         97          84          13
Other trust and agency fees                    6        18        (12)        15          54         (39)
Trading profits and commissions               21         7         14         59          16          43
Securities portfolio gains, net                7         1          6         24           7          17
Net equity and mezzanine profits              51        25         26        165          65         100
Net foreign exchange trading profits          13        16         (3)        37          45          (8)
Gain on sale of mortgage servicing            13         6          7         13          10           3
Other income                                  30        24          6         93          73          20
Gains on sales of businesses                                                 106          75          31
                                             ---       ---        ---      -----         ---        ----
       Total                               $ 337     $ 306      $  31    $ 1,005       $ 942      $   63
                                             ===       ===        ===      =====         ===        ====
</TABLE>

Lower financial service fees during the first nine months of 1996 reflected $111
million of pre-tax losses ($70 million after-tax) from  risk management
activities, net of decreased mortgage servicing amortization, recorded during
the first quarter of 1996 by BancBoston Mortgage Corporation (BBMC), the
Corporation's mortgage banking subsidiary.  These losses resulted from the
change in market value of contracts used to manage prepayment risk in the
mortgage servicing portfolio which, in turn, protected the economic value of
BBMC pending the completion of its sale to HomeSide, Inc.  The value of mortgage
servicing rights is affected by the expected level of prepayments made by
mortgage holders resulting from changes in mortgage rates.  The value of the
contracts purchased to manage this risk fluctuates inversely with the value of
the mortgage servicing assets.  Due to the sharp increase in long-term interest
rates during the first quarter of 1996, the value of these contracts declined.
Concurrently, the value of the mortgage servicing assets and the amount of gain
to be recognized by the Corporation on the disposition of BBMC increased.  As a
result, the losses from risk management activities were substantially offset by
the pre-tax gain of $106 million ($67 million after-tax) realized on the sale of
BBMC, which is included in gain on sales of businesses. Lower financial service
fees also reflected a reduction in net mortgage servicing fees of approximately
$22 million and $47 million in the quarterly and nine-month comparisons,
respectively, principally due to the sale of BBMC in March 1996.

Excluding the above-noted effects of BBMC, financial service fees were
relatively flat in the quarterly comparison and increased  $20 million in the
nine-month comparison.  The increase was primarily due to increases in deposit
and ATM-related fees, and syndication and agent fees, reflecting a higher volume
of transactions generated by the Corporation's Corporate Finance business.

Net equity and mezzanine profits increased significantly compared with the prior
year periods due to a higher level of gains realized on dispositions of
investments, primarily as a result of a seasoning of the portfolio and favorable
market conditions.  The portfolio has been steadily growing and is diversified
as to industry, geography and type of investment.  The level of net profits from
the equity and mezzanine business is impacted by market and economic conditions,
and, as such, fluctuates from period to period.  Mutual fund fees increased in
the quarterly and nine-month comparisons  primarily due to higher fees from the
Corporation's Brazilian mutual fund business, reflecting growth in these funds
to $3.5 billion at September 30, 1996, from $2.1 billion at September 30, 1995.
Lower other trust and agency fees reflected the Corporation's sale of its
corporate trust business and the joint venture of its stock transfer business in

                                      17


<PAGE>
 
the fourth quarter of 1995.  Compared to prior year periods, trading profits and
commissions increased, mainly due to increases from the Corporation's Global
Capital Markets and Latin American units.  Net securities portfolio gains
increased from the prior year periods as certain domestic securities were sold
as part of a repositioning of the available for sale securities portfolio.  Net
foreign exchange trading profits decreased from the prior year periods
reflecting lower profits from Asia.  The $13 million gain on the sale of
mortgage servicing in the third quarter of 1996 resulted from the sale of
BayBank's $4 billion mortgage servicing portfolio.

Gain on sales of businesses in 1996 reflected the gain on the sale of BBMC as
discussed above, and, in 1995, reflected the sale of the Corporation's Maine and
Vermont banking subsidiaries for a gain of $75 million ($30 million after-tax).


                              NONINTEREST EXPENSE

The following table sets forth the components of noninterest expense.

<TABLE>
<CAPTION>
                                        Third Quarter                        Nine Months
                                        -------------                        -----------
                                      1996      1995       Change        1996          1995        Change
                                      ----      ----       ------        ----          ----        ------
   <S>                             <C>         <C>        <C>         <C>             <C>         <C> 
   Employee costs                  $  293      $  298     $    (5)    $   879       $   857       $    22
   Occupancy and equipment             85          82           3         254           242            12
   Professional fees                   15          17          (2)         42            50            (8)
   Advertising and public relations    26          19           7          84            60            24
   Communications                      24          24                      74            66             8
   Goodwill amortization                7           5           2          17            13             4
   FDIC insurance premiums                          3          (3)          1            36           (35)
   Other                               78          68          10         234           199            35
                                     ----        ----        ----       -----           ---          ----
    Noninterest expense before                                                                     
      restructuring and merger-                                                                    
   related costs and OREO costs       528         516          12       1,585         1,523            62
   Restructuring and merger-                                                                       
      related costs                   180                     180         180                         180
   OREO costs                           5           2           3           7             8            (1)
                                     ----        ----        ----       -----        ------          ----
   Total                           $  713      $  518     $   195     $ 1,772       $ 1,531       $   241
                                     ====        ====        ====      ======        ======          ==== 
 
</TABLE>

The increase in noninterest expense before restructuring and merger-related
costs and OREO of $12 million in the quarterly comparison and $62 million in the
nine-month comparison is primarily due to ongoing expansion and investment
spending in several of the Corporation's growth businesses, mainly Latin
America, Global Capital Markets and Consumer Finance. Initiatives in these units
included: branch expansion and growth in fee-based businesses in Latin America;
the hiring of sales and trading professionals in all the Global Capital Markets
businesses, including the start-up of a high-yield debt unit; and marketing
campaigns related to credit card, home equity and other products in Consumer
Finance. The current period expense levels also included higher incentive
compensation costs related to improved business unit performance, and the
effects of the June 28, 1996 acquisition of Bancorp. These increases were
partially offset by cost savings related to the integration of BayBanks, the
elimination of FDIC insurance premiums in 1996, which amounted to $3 million in
the third quarter of 1995 and $36 million in the first nine months of 1995, and
the absence of operating expenses associated with disposed businesses, including
BBMC and the corporate trust and stock transfer businesses. Total staff levels
decreased by about 7 percent, or 1,600, from September 1995, principally due to
the absence of the above businesses, and the BayBanks integration.

Legislation was passed at the end of the third quarter of 1996 to resolve issues
with respect to capitalization of the Savings Association Insurance Fund (SAIF).
The Corporation does not expect this legislation to have a material impact on
its results of operations.

In the third quarter of 1996, the Corporation recorded restructuring and merger-
related charges of $180 million in connection with its acquisition of BayBanks.
The charges included severance costs, primarily related to separation programs
and employee assistance costs, 

                                      18

<PAGE>
 
related to the Corporation's plan to eliminate approximately 2,100 positions;
facility costs and other restructuring and merger-related costs, including
consolidations of branch and back office operations, resulting in lease
termination costs and writedowns of bank owned property and equipment; and
professional fees and other costs of effecting the merger; as well as systems
and other conversion costs, which were incurred during the third quarter. (See
Note 9 to the Financial Statements for further discussion.)

OREO expense increased in the quarterly comparison due to a writedown on one
property.

                           PROVISION FOR INCOME TAXES

The Corporation's tax provision was $78 million in the third quarter of 1996,
compared with $132 million in the third quarter of 1995.  Included in the third
quarter of 1996 is a tax benefit of $63 million related to the $180 million
restructuring and merger-related charges recorded in connection with the
acquisition of BayBanks.  The low level of tax benefit associated with the
charge reflects the effect of certain non tax deductible costs associated with
the acquisition.  For the first nine months of 1996, the provision for income
taxes was $341 million, compared with $395 million for the first nine months of
1995, including $45 million associated with the $75 million pre-tax gain on the
sales of the Corporation's Maine and Vermont banking subsidiaries during the
first quarter of 1995.  The high level of tax associated with this gain
reflected the lower tax bases in these investments as a result of $35 million of
non-tax deductible goodwill associated with these subsidiaries.  Excluding the
effects of the restructuring and merger-related charges and the gains on the
sales of the banking subsidiaries, the Corporation's effective tax rate was 42
percent for the third quarter and first nine-months of 1996, compared to an
effective tax rate of 43 percent for the third quarter and first nine-months of
1995.  The reduction in the effective tax rate from 1995 periods is due to the
effect of mid-1995 changes in Massachusetts tax law which permit apportionment
of a bank's taxable income and reduce the state income tax rate for banks from
12.5 percent to 10.5 percent to be phased in over five years.

                              FINANCIAL CONDITION
                              -------------------
                                        
                           CONSOLIDATED BALANCE SHEET

At September 30, 1996, the Corporation's total assets were $62.0 billion
compared with $59.4 billion at December 31, 1995.  The $2.6 billion increase was
due to a higher level of earning assets, mainly loans and trading securities,
with  the increases partially offset by a reduction in mortgages held for sale
resulting from the sale of BBMC (see "Credit Profile" below for a further
discussion of loans).  The decline in other assets reflected the removal of over
$500 million of mortgage servicing rights from the Corporation's balance sheet
due to the sale of BBMC.  Domestic deposits increased approximately $.9 billion,
reflecting the addition of $1.3 billion of deposits from the acquisition of
Bancorp, partially offset by a decline in certain savings accounts.  Deposits
overseas also increased $1.4 billion from December 31, 1995, primarily from the
Corporation's Latin American operations.  Notes payable increased approximately
$660 million from December 31, 1995, mainly due to the issuance of medium-term
notes by the Corporation and additional issuances of Brazilian debt, partially
offset by the maturity of certain senior notes of the Corporation.

                                      19

<PAGE>
 
                                 CREDIT PROFILE

A discussion of the Corporation's credit management policies is included on page
28 of its 1995 Annual Report to Stockholders, which is incorporated by reference
into its 1995 Annual Report on Form 10-K and its Current Report on Form 8-K
dated September 6, 1996.

The segments of the lending portfolio are as follows:

<TABLE>
<CAPTION>
                                           Sept. 30      June 30       March 31   Dec. 31      Sept. 30                
                                               1996         1996           1996      1995          1995
                                           ---------     --------       -------     --------     ---------
<S>                                      <C>           <C>          <C>         <C>          <C>
United States Operations
 Commercial, industrial and financial    $   13,828    $  12,915    $ 12,677    $  12,809    $   13,162
 Commercial real estate
  Construction                                  323          410         383          386           460
  Other                                       3,228        3,326       3,242        3,393         3,340
 Consumer-related loans
  Residential mortgages                       4,156        4,133       4,218        4,141         5,244
  Home equity loans                           2,842        2,775       2,644        2,556         2,455
  Credit card                                 1,320        1,223         810          495           369
  Other                                       5,349        5,218       5,200        5,059         4,820
 Lease financing                              1,778        1,627       1,565        1,564         1,510
 Unearned income                               (272)        (245)       (240)        (240)         (238)
                                             ------       ------      ------       ------        ------
                                             32,552       31,382      30,499       30,163        31,122
                                             ------       ------      ------       ------        ------
International Operations
 Loans and lease financing, net of
  unearned income                             9,501        9,271       8,769        8,707         8,066
                                             ------       ------      ------       ------        ------
 
                                                                      ------
Total loan and lease financing           $   42,053    $  40,653    $ 39,268    $  38,870    $   39,188
                                             ======       ======      ======       ======        ======
</TABLE>

The $3.2 billion increase in loans and lease financing since December 31, 1995
reflects a $2.4 billion increase in domestic loans, including increases in both
consumer-related and commercial, industrial and financial loans, and a $.8
billion increase in international loans.  Domestic consumer-related loans
increased $1.4 billion, primarily reflecting the Corporation's re-entry into the
domestic credit card business during the latter part of 1995, as well as the
origination activities of its home equity lending business and national consumer
finance franchise.  The $1.0 billion increase in commercial and industrial loans
occurred in various regional and national portfolios, including specialized
industries, New England corporate banking and asset based lending; loan levels
are also affected by the timing of syndication activity.  The $.8 billion
increase in international loans and lease financing since December 31, 1995,
reflected ongoing growth in the Latin American portfolios, primarily those of
Argentina and Brazil.  A further discussion of the Argentine and Brazilian
operations is included in the "Cross-Border Outstandings" section.

Approximately 74 percent of domestic commercial real estate loans were located
in New England at September 30, 1996, compared with approximately 76 percent at
December 31, 1995. The portion of domestic commercial real estate loans located
outside of New England was dispersed among 27 and 28 states at September 30,
1996 and December 31, 1995, respectively.

The Corporation's total loan portfolio at September 30, 1996 and December 31,
1995, included $1.6 billion and $1.3 billion of highly leveraged transaction
(HLT) loans to 129 and 101 customers, respectively.  The average HLT loan size
at September 30, 1996 and December 31, 1995, was $12 million and $13 million,
respectively.  The amount of unused commitments for HLTs at September 30, 1996
was $614 million, compared with $639 million at December 31, 1995. The amount of
unused commitments does not necessarily represent the actual future funding
requirements of the Corporation, since a portion can be syndicated or assigned
to others or may expire without being drawn upon.  At September 30, 1996 and
December 31, 1995, there were no nonaccrual HLT loans.  Credit losses from HLT
loans were $1.2 million in the first nine months of 1996.  The Corporation does
not currently anticipate a substantial increase in HLT lending over the
September 30, 1996 level.

                                      20


<PAGE>
 
A discussion of the Corporation's real estate and HLT lending activities,
policies and the effect of these activities on results of operations is included
on page 30 of its 1995 Annual Report to Stockholders, which is incorporated by
reference into its 1995 Annual Report on Form 10-K and its Current Report on
Form 8-K dated September 6, 1996.

                           NONACCRUAL LOANS AND OREO


The details of consolidated nonaccrual loans and OREO are as follows:

<TABLE>
<CAPTION>
                                             Sept. 30     June 30    March 31    Dec. 31    Sept. 30
(dollars in millions)                          1996        1996        1996        1995       1995
                                             --------     -------    --------    -------    --------
<S>                                          <C>        <C>          <C>        <C>         <C>
United States
Commercial, industrial and financial         $   114    $     140    $    93    $      88    $   120
Commercial real estate
   Construction                                    9           10         22           25         23
   Other                                          84           86        102          103        110
Consumer-related loans
   Residential mortgages                          60           45         46           42         43
   Home equity loans                              22           20         16           14         17
   Credit card                                     5            2
   Other                                          44           38         42           35         31
                                                ----         ----       ----         ----       ----
                                                 338          341        321          307        344
                                                ----         ----       ----         ----       ----

International                                    106           57         63           66         69
                                                ----         ----       ----         ----       ----
   Total nonaccrual loans                        444          398        384          373        413
OREO                                              52           62         65           69         81
                                                ----         ----       ----         ----       ----
Total                                        $   496    $     460    $   449    $     442    $   494
                                                ====         ====       ====         ====       ====

Nonaccrual loans and OREO as a
   percent of related asset categories           1.2%         1.1%       1.1%         1.1%       1.3  %
</TABLE>

Nonaccrual loans and OREO at September 30, 1996 increased $54 million from
December 31, 1995, and $36 million from June 30, 1996. The increase from June
30, 1996 reflected the placement of a large international loan on nonaccrual
status, and additional increases in domestic consumer-related non-accrual loans,
about half of which resulted from conforming BayBanks consumer loan nonaccrual
policies to those of the Corporation. These increases were partially offset by
decreases in the domestic commercial loan portfolio as well as the commercial
real estate loan and OREO portfolios. The level of nonaccrual loans and OREO is
influenced by the economic environment, interest rates, and other internal and
external factors. As such, no assurance can be given as to future levels of
nonaccrual loans and leases and OREO.


                           RESERVE FOR CREDIT LOSSES

The reserve for credit losses at September 30, 1996 was $897 million, or 2.13
percent of outstanding loans and leases, compared with $895 million, or 2.20
percent, at June 30, 1996, and $858 million, or 2.19 percent at September 30,
1995.  The reserve for credit losses was 202 percent of nonaccrual loans and
leases at September 30, 1996, compared with 225 percent at June 30, 1996, and
208 percent at September 30, 1995.

Net credit losses were $55 million for the third quarter of 1996, and $155
million for the first nine months of 1996.  This compares with $45 million for
the third quarter of 1995, and $145 million for the first nine months of 1995.
Higher net credit losses for both the quarter and nine-month comparisons were
primarily driven by the increase in consumer-related loan net credit losses,
which was partially offset by lower net credit losses from the commercial real
estate and commercial and industrial portfolios.  Net credit losses from the
consumer-related portfolio amounted to $44 million in the third quarter  of
1996, compared to $23 million in the third quarter of 1995, and $110 million in

                                      21

<PAGE>
 
the 1996 nine-month period, compared to $59 million in the 1995 nine-month
period. The increases in the quarterly and nine-month comparisons were
principally due to higher net credit losses from the national consumer finance
portfolios, principally Fidelity Acceptance Corporation, reflecting the
continuing upward trend of net credit losses in these portfolios. International
net credit losses decreased in both the quarterly and nine-month comparisons,
primarily due to lower net credit losses from the loan portfolios in Argentina
and Uruguay, partially offset by higher net credit losses in the Brazilian
consumer loan portfolio. As a percentage of average loans and leases on an
annualized basis, net credit losses were .53 percent in the third quarter of
1996, compared with .49 percent for the second quarter of 1996, and .46 percent
for the third quarter of 1995.

Net credit losses are as follows:

<TABLE>
<CAPTION>
                                              Third Quarter       Nine Months
  (in millions)                               1996     1995     1996     1995
                                              ----     ----     ----     ----
  <S>                                      <C>       <C>     <C>       <C> 
  United States Operations
    Commercial, industrial and financial             $    6  $     5   $   24
    Commercial real estate                 $     1        4       15       27
    Consumer-related loans
       Residential mortgages                     2        5        9       14
       Credit card                               7        3       14        8
       Home equity loans                                  3        4        4
       Other                                    35       12       83       33
                                              ----     ----     ----     ----
                                                45       33      130      110
  International Operations                      10       12       25       35
                                              ----     ----     ----     ----
    Total                                  $    55   $   45  $   155   $  145
                                              ====     ====     ====     ====
</TABLE>


                           CROSS-BORDER OUTSTANDINGS

At September 30, 1996 and December 31, 1995, total cross-border outstandings
represented 13 percent and 14 percent of consolidated total assets,
respectively.   In accordance with the bank regulatory rules, cross-border
outstandings are:

     .    Amounts payable to the Corporation in U.S. dollars or other non-local
          currencies.
     .    Amounts payable to the Corporation in local currency but funded with
          U.S. dollars or other non-local currencies.

Included in these outstandings are deposits in other banks, resale agreements,
trading securities, securities available for sale, securities held to maturity,
loans and lease financing, amounts due from customers on acceptances and accrued
interest receivable.

In addition to credit risk, cross-border outstandings have the risk that, as a
result of political or economic conditions in a country, borrowers are unable to
meet their contractual payment obligations of principal and/or interest when due
because of the unavailability of, or restrictions on, foreign exchange needed by
borrowers to repay their obligations.  The Corporation manages its cross-border
outstandings using country exposure limits.  A discussion of the Corporation's
credit management policies is included on page 28 of its 1995 Annual Report to
Stockholders, which is incorporated by reference into its 1995 Annual Report on
Form 10-K and its Current Report on Form 8-K dated September 6, 1996.

Excluded from cross-border outstandings for a given country are:

     .    Local currency assets funded with U.S. dollars or other non-local
          currency where the providers of funds agree that, in the event their
          claims cannot be repaid in the designated currency due to currency
          exchange restrictions in a given country, they may either accept
          payment in local currency or wait to receive the non-local currency
          until such time as it becomes available in the local market. At
          September 30, 1996, such transactions related to emerging markets
          countries totaled $1.9 billion compared with $1.3 billion at December
          31, 1995.
     .    Local currency outstandings funded with local currency.
     .    U.S. dollar or other non-local currency outstandings reallocated as a
          result of external guarantees or cash collateral. 
     .    U.S. dollar or other non-local currency outstandings reallocated as a
          result of insurance contracts, primarily issued by U.S. government
          agencies.

                                      22


<PAGE>
 
Cross-border outstandings in countries which individually amounted to 1.0
percent or more of consolidated total assets at September 30, 1996 and December
31, 1995 were approximately as follows:

<TABLE>
<CAPTION>
                                                              Consolidated        Percentage of
                             Public     Banks     Other           Total            Total Assets     Commitments (2)
                            --------   -------   -------     ---------------      --------------    ---------------
                                                          (dollars in millions)
<S>                         <C>        <C>       <C>      <C>                     <C>               <C>
September 30, 1996 (1)
Argentina                        $490      $ 40    $1,940          $2,470                   4.0%            $ 65
Brazil                             10        45       940             995                   1.6               80
Chile                             165       235       285             685                   1.1               20

December 31, 1995 (1)
Argentina                        $465      $ 50    $1,710          $2,225                   3.7%            $ 45
Brazil                             25        60       980           1,065                   1.8               35
United Kingdom                              125       570             695                   1.1              130
Chile                             150       140       365             655                   1.1               15
</TABLE>

(1) There were no countries where cross-border outstandings fell within .75
percent and 1 percent of consolidated total assets at September 30, 1996 and
December 31, 1995.
(2) Included within commitments are letters of credit, guarantees and the
undisbursed portion of loan commitments.

To comply with the regulatory definition of cross-border outstandings, the
Corporation included approximately $1.5 billion and $1.3 billion of Argendollar
outstandings in its cross-border totals for Argentina at September 30, 1996 and
December 31, 1995, respectively.  These outstandings are payable to the
Corporation in U.S. dollars, which are funded entirely by dollars borrowed
within Argentina.

EMERGING MARKETS COUNTRIES

At September 30, 1996, approximately $5.2 billion of the Corporation's cross-
border outstandings, or approximately 8.4 percent of total assets, were to
emerging markets countries, of which most were to countries in which the
Corporation maintains a branch network and/or subsidiaries, compared to $4.9
billion at December 31, 1995.  These cross-border outstandings, of which
approximately 78 percent were loans at September 30, 1996, were mainly comprised
of short-term trade credits, non-trade-related loans and leases not subject to
country debt rescheduling agreements, government securities and capital
investments in branches and subsidiaries.

ARGENTINA AND BRAZIL

During the first nine months of 1996, the Argentine government announced a
series of political and economic actions aimed at stimulating growth. The
government continues to propose measures to reduce both the fiscal deficit and
unemployment. The government has expressed expectations for continued low
inflation, which amounted to zero percent during the first nine months of 1996,
and an increase in credit activity, accompanied by declining interest rates.
Total deposits in the country's financial system, which have grown by
approximately 18 percent in the first nine months of 1996, remained steady
during the quarter. The Corporation's Argentine deposits increased by
approximately $400 million from December 31, 1995, and its loans increased by
approximately $420 million from December 31, 1995, including increases in both
commercial and consumer lending. The level of Argentine nonaccrual loans
increased from $52 million at December 31, 1995, to $82 million at September 30,
1996, due to the placement of one large international loan on nonaccrual status,
which was partially offset by decreases in other nonaccrual loans. Net credit
losses declined from $23 million in the first nine months of 1995, to $14
million in the first nine months of 1996.

Brazil's inflation rate of 8.5 percent for the first nine months of 1996
compares favorably to the inflation rate of 17.2 percent for the first nine
months of 1995.  During the third quarter of 1996, Brazil's inflation averaged
 .6 percent per month compared with 2.0 

                                      23

<PAGE>
 
percent per month during the third quarter of 1995. The government continued to
maintain a floating band exchange rate policy, which currently stands at 1.00 to
1.04 Reais to the U.S. dollar. The exchange rate at September 30, 1996 was 1.02
Reais to the U.S. dollar.

Certain local Brazilian banks experienced liquidity and other problems in 1995,
which continued into 1996. This has generally resulted in customers moving their
funds to banks perceived to have more stability, contributing, in part, to the
increases in the Corporation's deposit and mutual funds levels. The
Corporation's deposit levels in Brazil increased from December 31, 1995 by
approximately $600 million, to approximately $1 billion at September 30, 1996.
Additionally, the Corporation's mutual funds under management in Brazil
increased approximately $1 billion from December 31, 1995, to $3.5 billion at
September 30, 1996.

The Corporation's loan level in Brazil increased approximately $500 million
from December 31, 1995, to $2.7 billion at September 30, 1996, which included
increases from various segments of the loan portfolio.  Net credit losses were
$4 million in both the third quarter and second quarter of 1996, primarily due
to higher credit losses from the consumer portfolio.  Nonaccrual loans and OREO
increased from $12 million at the end of the second quarter of 1996 to $20
million at the end of the third quarter of 1996.

During the third quarter of 1996, the Corporation's Argentine and Brazilian
operations continued to structure their balance sheets to take positions in
their local currencies as deemed appropriate.  Such positions are taken when the
Corporation believes that it can maximize its spread from interest operations by
funding local currency assets with U.S. dollars rather than using local currency
liabilities or by funding U.S. dollar assets with local currency liabilities.
The average currency positions for Argentina and Brazil during the third quarter
of 1996 were $117 million and $105 million, respectively, compared to $112
million and $32 million, respectively, in the second quarter of 1996.
Additionally, the Corporation maintained average positions in Chile and Korea of
$42 million and $49 million, respectively, during the third quarter of 1996,
which compared to $23 million and $101 million, respectively, during the second
quarter of 1996. Currency positions are actively managed and, therefore, it is
not unusual for levels to fluctuate from period to period. To date, these
positions have been liquid in nature and local management has been able to close
and re-open these positions as necessary. For additional information related to
the Corporation's currency positions, see page 37 of the Corporation's 1995
Annual Report to Stockholders, which is incorporated by reference into its 1995
Annual Report on Form 10-K and its Current Report on Form 8-K dated September 6,
1996.

The economic situation in Latin American countries can be volatile, including
the effect of world financial markets on these economies. As such, changes in
the economies of the Latin American countries in which the Corporation does
business could have an impact on the Corporation in the future. The Corporation
has not experienced any collection problems as a result of currency restrictions
or foreign exchange liquidity problems on its current portfolio of cross-border
outstandings to emerging markets countries. However, if economic actions
implemented by Latin American governments do not remain effective over time, the
Corporation's operations could experience adverse effects, including stress on
liquidity, deterioration of credit quality, a decline in the value of its
securities portfolio and declines in loan and deposit levels. The Corporation
will continue to monitor the economies of Latin American countries in which it
has local operations, cross-border outstandings and/or currency positions. Each
emerging markets country is at a different stage of development with a unique
set of economic fundamentals; therefore, it is not possible to predict what
developments will occur and what impact these developments will ultimately have
on the economies of these countries or on the Corporation's financial
statements. For additional information related to the Corporation's Latin
American cross-border outstandings see pages 35 through 38, of the Corporation's
1995 Annual Report to Stockholders, which is incorporated by reference into its
1995 Annual Report on Form 10-K and its Current Report on Form 8-K dated
September 6, 1996.


                             LIQUIDITY MANAGEMENT

The Corporation's liquid assets, which consist primarily of interest bearing 
deposits in other banks, federal funds sold and resale agreements, money market 
loans and unencumbered U.S. Treasury and government agency securities, stood at
$6.4 billion at September 30, 1996, compared with $7.4 billion at December 31,
1995. Also, the Corporation has access to additional funding through the public
markets. Management considers overall liquidity at September 30, 1996 to be
adequate to meet current obligations, to support expectations for future changes
in asset and liability levels and to carry on normal operations. For additional
information related to the Corporation's liquidity management, see pages 38 and
39 of the Corporation's 1995 Annual Report to Stockholders, which is
incorporated by reference into its 1995 Annual Report on Form 10-K and its
Current report on Form 8-K dated September 6, 1996.

                                      24

<PAGE>
 
                               INTEREST RATE RISK

Interest rate risk is defined as the exposure of the Corporation's net income or
financial position to adverse movements in interest rates.  The Corporation
manages its interest rate risk within policies and limits established by the
Asset and Liability Management Committee (ALCO)  and approved by the Board of
Directors (Board).  ALCO issues strategic directives to specify the extent to
which Board-approved rate risk limits are utilized, taking into account the
results of the rate risk modeling process as well as other internal and external
factors.

Interest rate risk related to non-trading, U.S. dollar denominated positions,
which represents a significant portion of the consolidated balance sheet at
September 30, 1996, is managed centrally through the Boston Treasury group.
Interest rate risk associated with these positions is evaluated and managed
through several modeling methodologies.  The two principal methodologies used
are market value sensitivity and net interest revenue at risk.  The results of
these models are reviewed monthly with ALCO and at least quarterly with the
Board.

These methodologies are designed to isolate the effects of market changes in
interest rates on the Corporation's existing positions, and they exclude other
factors, such as competitive pricing considerations, future changes in asset and
liability mix, and other management actions, and, therefore, are not by
themselves measures of future levels of net interest revenue.

These two methodologies provide different but complementary measures of the
level of interest rate risk: the longer term view is modeled through market
value sensitivity, while the shorter term view is evaluated through net interest
revenue at risk over the next twelve months.  Under current ALCO directives,
market value sensitivity cannot exceed 3 percent of risk-based capital and net
interest revenue at risk cannot exceed 2 percent of net interest revenue over
the next twelve-month period.  The ALCO market value sensitivity directive was
increased from 2 percent of risk-based capital at December 31, 1995.  The
following table shows the Corporation's market value sensitivity and net
interest revenue at risk positions at September 30, 1996 and December 31, 1995,
respectively.

MARKET VALUE SENSITIVITY AND NET 
INTEREST REVENUE AT RISK POSITIONS

<TABLE> 
<CAPTION> 
                              September 30, 1996         December 31, 1995 (3) 
                              ------------------         ---------------------
                                         Quarterly                   Quarterly
(dollars in millions)         Quarter-end  Average       Quarter-end   Average
--------------------------------------------------------------------------------
<S>                           <C>         <C>            <C>          <C>  
Market Value
  Sensitivity (1).........      $142        $145          $ 87           $ 84
% of risk-based capital         2.1%        2.4%          1.6%           1.6%
--------------------------------------------------------------------------------
 
Net Interest Revenue
  at Risk (2).............      $ 29        $ 25          $ 24           $ 21
% of net interest revenue       1.3%        1.2%          1.4%           1.2%
--------------------------------------------------------------------------------
</TABLE> 

(1)  Based on a 100 basis point adverse interest rate shock.

(2)  Based on the greater of a 100 basis point adverse interest rate shock or a
     200 basis point adverse change in interest rates over the next twelve-month
     period. At September 30, 1996 and December 31, 1995 the adverse position
     was based upon a 200 basis point decline in interest rates over the next
     twelve-month period. See further discussion below.

(3)  December 31, 1995 amounts were not restated for the acquisition of BayBanks
     due to the use of different interest rate risk modeling techniques by
     BayBanks; consequently, restatement was impractical.

At September 30, 1996, and December 31, 1995, the Corporation's adverse market
value sensitivity was to rising interest rates.  The increase in the market
value sensitivity position since December 31, 1995, was primarily due to an
increase in fixed rate assets, the 

                                      25

<PAGE>
 
lengthening of asset durations, and the termination of $8.2 billion of a series
of interest rate futures contracts during the first quarter of 1996 that were
linked to the Corporation's short-term floating rate wholesale funding. The
Corporation's adverse net interest revenue at risk position was to declining
interest rates at September 30, 1996 and December 31, 1995.

Non-U.S. dollar denominated interest rate risk is managed by the Corporation's
overseas units, with oversight by the Boston Treasury group.  The Corporation,
through ALCO, has established limits for its non-U.S. dollar denominated
interest rate risk using cumulative gap limits for each country in which the
Corporation has local market interest rate risk.

The level of U.S. dollar and Non-U.S. dollar interest rate exposure maintained
by the Corporation is a function of the market environment and will change from
period to period based on interest rate and other economic conditions at a
particular point in time.

Additional information with respect to the Corporation's management of interest
rate risk is included on pages 39 to 43 of the Corporation's 1995 Annual Report
to Stockholders which is incorporated by reference into its 1995 Annual Report
on Form 10-K and its Current Report on Form 8-K dated September 6, 1996.

DERIVATIVE FINANCIAL INSTRUMENTS

The Corporation utilizes a variety of financial instruments to manage interest
rate risk including derivatives and securities.  Derivatives provide the
Corporation with significant flexibility in managing its interest rate risk
exposure, enabling it to manage risk efficiently and respond quickly to changing
market conditions by minimizing the impact on balance sheet leverage.  The
Corporation routinely uses non-leveraged rate-related derivative instruments,
primarily interest rate swaps and futures, as part of its asset and liability
management practices.  All derivative activities are managed on a comprehensive
basis, are included in the overall market value sensitivity and net interest
revenue at risk measures and limits described above, and are subject to credit
standards similar to those for balance sheet exposures.

                                      26


<PAGE>
 
The following table summarizes the notional amounts and fair values of interest
rate derivatives and foreign exchange contracts included in the Corporation's
asset and liability management (ALM) portfolio.

<TABLE>
<CAPTION>
                                           September 30, 1996 (1)                            December 31, 1995 (1) 
                                 ---------------------------------------------------------------------------------------------------
                                  Notional Fair Value (2)(3)     Unrecognized(4)    NOTIONAL FAIR VALUE (2)(3)     UNRECOGNIZED (4) 
(DOLLARS IN MILLION)              AMOUNT    ASSET   LIABILITY     GAIN (LOSS)       AMOUNT   ASSET    LIABILITY    GAIN (LOSS)     
-----------------------          ----------------------------------------------    -------------------------------------------------
<S>                               <C>      <C>      <C>          <C>               <C>       <C>      <C>          <C>    
Interest rate contracts           
   Futures and forwards            $3,458                $1              $(55)      $12,558                 $10            $(89)  
   Interest rate swaps              6,984      4         73               (54)        5,852    $93            8             102  
   Interest rate options
     Purchased                                                                        3,968    119                            2 
     Written or sold                                                                    360                  34 
                                 ----------------------------------------------    ---------------------------------------------
Total interest rate contracts     $10,442     $4        $74             $(109)      $22,738   $212          $52             $15 
                                 ==============================================    =============================================

Foreign exchange spot and         
     forward contracts (5)         $1,132     $6         $5                $1        $1,258     $3           $5             $(2) 
                                 ----------------------------------------------    ---------------------------------------------
Total foreign exchange contracts   $1,132     $6         $5                $1        $1,258     $3           $5             $(2) 
                                 ==============================================    =============================================
</TABLE> 

(1)  Contracts under master netting agreements are shown on a net basis. 
(2)  Fair value represents the amount at which a given instrument could be
     exchanged in an arm's length transaction with a third party as of the
     balance sheet date. The majority of derivatives that are part of the ALM
     portfolio are accounted for on the accrual basis, and not carried at fair
     value. In certain cases, contracts, such as futures, are subject to daily
     cash settlements; as such, the fair value of these instruments is zero.
(3)  The credit exposure of interest rate derivative and foreign exchange
     contracts at September 30, 1996 and December 31, 1995, is represented by
     the fair value of contracts reported in the "Asset" Column.
(4)  Unrecognized gain or loss represents the amount of gain or loss, based on
     fair value, that has not been recognized in the income statement at the
     balance sheet date. This includes amounts related to contracts which have
     been terminated. Such amounts are recognized as an adjustment of yield of
     the linked assets or liabilities over the period being managed. At
     September 30, 1996, there were $20 million of unrecognized gains and $41
     million of unrecognized losses related to terminated contracts that are
     being amortized as an adjustment of the yield of the assets or liabilities
     to which they were linked over a weighted average period of 29 months and
     16 months, respectively. At December 31, 1995, unrecognized gains of $32
     million and unrecognized losses of $2 million related to terminated
     contracts were being amortized over weighted average periods of 32 months
     and 23 months, respectively.
(5)  Foreign exchange spot and forward contracts are used to manage the risk
     related to foreign exchange transactions in the Corporation's overseas
     operations.

The decrease in fair value of interest rate derivative contracts, as reflected
in the change from a net unrecognized gain of $15 million at December 31, 1995,
to a net unrecognized loss of $109 million at September 30, 1996, was primarily
due to an increase in long-term interest rates during the first three quarters
of 1996, which principally impacted the receive fixed interest rate swap
portfolio and resulted in a decline in its fair value.

The Corporation's utilization of derivative instruments is modified from time to
time in response to changing market conditions, as well as changes in the
characteristics and mix of the Corporation's related assets and liabilities. In
this respect, during the first quarter of 1996, the Corporation terminated $8.2
billion of a series of interest rate futures contracts that were linked to the
Corporation's continuing need for short-term wholesale funding. The remaining
unrecognized loss of $40 million at September 30, 1996, related to the
terminated futures contracts is being amortized to net interest revenue as an
adjustment of the yield of the short-term liabilities to which they were linked
over the remainder of the period that was being managed.

                                      27


<PAGE>
 
The following table summarizes the remaining maturity of interest rate
derivative financial instruments entered into for asset and liability management
purposes as of September 30, 1996.



<TABLE> 
<CAPTION> 
                                                                     Remaining Maturity
                                             --------------------------------------------------------------------
                                                1996                1997           1998                1999     
                                             -----------        ------------    ----------           ------------
                                                                   (dollars in millions)                          
<S>                                          <C>                <C>             <C>                  <C> 
INTEREST RATE SWAPS                                                                                        
Domestic                                                                                                   
Receive fixed rate swaps (1)                                                                               
 Notional amount                              $      37            $   201        $   60                    
 Weighted average receive rate                     6.28%              8.20%         5.60%                   
 Weighted average pay rate                         5.59%              5.53%         5.81%                   
Pay fixed rate swaps (1)                                                                                    
 Notional amount                              $      28           $      3        $   32              $     2     
 Weighted average receive rate                     5.44%              5.83%         5.82%                5.66% 
 Weighted average pay rate                         5.83%              7.36%         8.71%                7.15% 
Basis swaps (2)                                                                                                
 Notional amount                              $     135           $     75        $   50                       
 Weighted average receive rate                     5.54%              5.57%         5.54%                       
 Weighted average par rate                         5.44%              5.56%         5.48%                       
Total Domestic Interest Rate Swaps                                                                             
 Notional amount                              $     200           $    279        $  142              $     2  
 Weighted average receive rate (3)                 5.66%              7.47%         5.63%                5.66% 
 Weighted average pay rate (3)                     5.52%              5.56%         6.35%               7.155 
Total International Interest Rate Swaps                                                                        
 Notional Amount (4)                          $   2,631           $  1,272                                     
OTHER DERIVATIVE PRODUCTS                                                                                      
Futures and forwards (5)                      $   3,458                                                        
Interest rate options (6)                                                                                      
     Purchased                                                                                                 
     Written or sold                                                                                           
                                               ---------           --------        ------             -------- 
Total Consolidated Notional Amount            $   6,289           $  1,551        $  142             $      2  
                                               =========           ========        ======             ======== 

<CAPTION> 
                                                                     Remaining Maturity
                                             ---------------------------------------------------------------------
                                                                                Sept. 30, 1996     Dec. 31, 1995     
                                                2000                2001+            Total             Total         
                                             -----------        ------------       ----------        -------------
                                                                      (dollars in millions)  
<S>                                          <C>                <C>                <C>               <C>  
INTEREST RATE SWAPS                                                                                                  
Domestic                                                                                                             
Receive fixed rate swaps (1)                                                                                         
 Notional amount                              $   340              $  1,700        $    2,338         $    2,463       
 Weighted average receive rate                   5.50%                 6.46%             6.45%              6.36%      
 Weighted average pay rate                       5.70%                 5.75%             5.72%              5.87%      
Pay fixed rate swaps (1)                                                                                              
 Notional amount                              $    39              $     34        $      138         $      315       
 Weighted average receive rate                   5.61%                 5.75%             5.67%              6.25%      
 Weighted average pay rate                       7.13%                 7.11%             7.23%              6.91%      
Basis swaps (2)                                                                                                       
 Notional amount                              $    50              $    295        $      605         $    1,599       
 Weighted average receive rate                   5.88%                 5.92%             5.76%              5.97%      
 Weighted average par rate                       5.63%                 5.67%             5.59%              5.86% 
Total Domestic Interest Rate Swaps                                                                                    
 Notional amount                              $   429              $  2,029        $    3,081          $   4,377       
 Weighted average receive rate (3)               5.55%                 6.37%             6.28%              6.21%      
 Weighted average pay rate (3)                   5.82%                 5.76%             5.76%              5.94%      
Total International Interest Rate Swaps                                                                               
 Notional Amount (4)                                                               $    3,903          $   1,475       
OTHER DERIVATIVE PRODUCTS                                                                                             
Futures and forwards (5)                                                           $    3,458          $  12,558       
Interest rate options (6)                                                                                             
     Purchased                                                                                             3,968       
     Written or sold                                                                                         360       
                                              -------              --------        ----------          ---------      
Total Consolidated Notional Amount            $   429              $  2,029        $   10,442          $  22,738       
                                              =======              ========        ==========          =========      
</TABLE> 


(1)  Of the receive fixed rate swaps, $1 billion were linked to floating rate
     loans, and the remainder principally to fixed rate notes payable. Of the
     swaps linked to notes payable, approximately $1 billion are scheduled to
     mature in 2001 and thereafter. The majority of pay fixed rate swaps are
     linked to fixed rate securities and short-term bank notes.

(2)  Basis swaps represent swaps where both the pay rate and receive rate are
     floating rates. The majority of basis swaps are linked to short-term bank
     notes and floating rate mortgages.

(3)  The majority of the Corporations's interest rate swaps accrue at LIBOR
     (London Interbank Offered Rate). In arriving at the variable weighted
     average receive and pay rates, LIBOR rates in effect as of September 30,
     1996 have been implicitly assumed to remain constant throughout the terms
     of the swaps. Future changes in LIBOR rates would affect the variable rate
     information disclosed.

(4)  The majority of the international portfolio is comprised of swaps entered
     into by the Corporation's Brazilian operation. These swaps are short-term
     and typically include the exchange of floating rate indices that are
     limited to the Brazilian market.

(5)  At December 31, 1995, the majority of the futures used by the Corporation
     were linked to short-term liabilities and were exchange-traded instruments.
     The reference instruments for these contracts comprise the major types
     available, such as Eurodollar deposits and U.S. Treasury notes. During the
     first quarter of 1996, the Corporation terminated a series of futures
     contracts which accounts for the majority of the decline from December 31,
     1995 (see discussion above). The majority of the futures contracts at
     September 30, 1996 were entered into by the Corporation's Brazilian
     operation and are linked to short-term interest bearing assets and
     liabilities. Average rates are not meaningful for these products.

(6)  At December 31, 1995, primarily includes interest rate options used to
     manage prepayment risk related to the mortgage servicing portfolio of the
     Corporation's mortgage banking subsidiary which was sold in the first
     quarter of 1996.

                                      28

<PAGE>
Derivatives not used for asset and liability management are included in the
derivatives trading portfolio.  The primary focus of the Corporation's
derivatives trading activities is related to providing risk management products
to its customers.
 
The following table summarizes the notional amounts and fair values of interest
rate derivatives and foreign exchange contracts included in the Corporation's
trading portfolio.

<TABLE>
<CAPTION>
                                                   September 30, 1996 (1)                December 31, 1995 (1)         
                                           -----------------------------------  -------------------------------------     
                                                Notional  Fair Value (2)(3)(4)     NOTIONAL   FAIR VALUE (2)(3)(4)        
(DOLLARS IN  MILLIONS)                          AMOUNT       ASSET    LIABILITY    AMOUNT       ASSET      LIABILITY      
------------------------------------------------------------------------------  -------------------------------------     
<S>                                        <C>            <C>         <C>       <C>           <C>          <C> 
Interest rate contracts                                                                                                   
  Futures and forwards                         $50,044       $58        $61      $30,821                                  
  Interest rate swaps                            7,521        58         45        9,169       $91           $80          
  Interest rate options                                                                                                   
     Purchased                                   6,478        20                   3,411         9                        
     Written or sold                             4,504                   20        3,986                       9          
                                           -----------------------------------  -------------------------------------     
Total interest rate contracts                  $68,547      $136       $126      $47,387      $100          $ 89          
                                           ===================================  =====================================     
                                                                                                                          
Foreign exchange contracts                                                                                                
   Spot and forward contracts                  $20,691      $182       $180      $13,254      $172          $167          
   Options purchased                             2,050        29                   1,044        13                        
   Options written or sold                       1,738                   25        1,130                      16          
                                           -----------------------------------  -------------------------------------     
Total foreign exchange contracts               $24,479      $211       $205      $15,428      $185          $183          
                                           ===================================  =====================================     
</TABLE> 

(1)  Contracts under master netting agreements are shown on a net basis.
(2)  Fair value represents the amount at which a given instrument could be
     exchanged in an arm's length transaction with a third party as of the
     balance sheet date. The fair value amounts of the trading portfolio are
     included in other assets or other liabilities, as applicable. In certain
     cases, contracts, such as futures, are subject to daily cash settlements;
     as such, the fair value of these instruments is zero.      
(3)  The credit exposure of interest rate derivative and foreign exchange
     contracts at September 30, 1996 and December 31, 1995 is represented by the
     fair value of contracts reported in the "Asset" column.
(4)  The average asset and liability fair value amounts for interest rate
     contracts included in the trading portfolio for the quarters ended
     September 30, 1996 and December 31, 1995 were $121 million and $125
     million, respectively, and $89 million and $71 million, respectively. The
     average asset and liability fair value amounts for foreign exchange
     contracts included in the trading portfolio were $202 million and $200
     million, respectively, for the quarter ended September 30, 1996, and $233
     million and $222 million, respectively, for the quarter-ended December 31,
     1995.


Net trading gains from interest rate derivatives for the quarter and nine months
ended September 30, 1996 were $.7 million and $7.8 million, respectively, and
for the quarter and nine months ended September 30, 1995 were ($.3) million and
$3.3 million, respectively.  Net trading gains from foreign exchange activities,
which include foreign exchange spot, forward and option contracts, for the
quarter and nine months ended September 30, 1996 were $13 million and $37
million, respectively, and for the quarter and nine months ended September 30,
1995 were $16 million and $45 million, respectively.

Additional information on the Corporation's derivative products, including
accounting policies, is  included on pages 40 to 42 of, and in Notes 1 and 20 to
the Financial Statements in, the Corporation's 1995 Annual Report to
Stockholders, which is incorporated by reference into its 1995 Annual Report on
Form 10-K and its Current Report on Form 8-K dated September 6, 1996.


                                      29

<PAGE>

                                    CAPITAL

The Corporation's Tier 1 and total capital ratios were 8.3 percent and 12.7
percent, respectively, at September 30, 1996, compared with 8.5 percent and 12.8
percent, respectively, at December 31, 1995.  The Corporation's leverage ratio
at September 30, 1996 was 7.2 percent compared with 7.4 percent at December 31,
1995.

As of September 30, 1996, the capital ratios of the Corporation and all of its
banking subsidiaries exceeded the minimum capital ratio requirements of the
"well capitalized" category under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA).  The capital categories of the Corporation's
banking subsidiaries are determined solely for purposes of applying FDICIA's
provisions and, accordingly, such capital categories may not constitute an
accurate representation of the overall financial condition or prospects of any
of the Corporation's banking subsidiaries.

In October 1996, the Board declared a quarterly common stock dividend of $.44
per share, payable on November 29, 1996, to stockholders of record on November
4, 1996.  The payment and level of future common dividends will continue to be
determined by the Board based on the Corporation's financial condition, recent
earnings history and other factors.
 
                        RECENT ACCOUNTING PRONOUNCEMENTS

In June 1996, the Financial Accounting Standards Board (the FASB) issued SFAS
No. 125, ''Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities."  This standard is based on a financial-
components approach under which an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred as a result of a transfer
of financial assets, and derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.  This standard is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and must be applied
prospectively. The Corporation does not expect that, upon adoption, this
standard will have a material effect on its consolidated financial statements.

                                      30

<PAGE>
 
Consolidated Balance Sheet Averages by Quarter
Last Nine Quarters
(in millions)

<TABLE>
<CAPTION>
                                             1994                                         1995                                 1996
                                 --------------------------------------------------------------------------------------------------
                                     3          4            1           2          3          4          1         2         3
                                  -------    -------      -------     -------    -------    -------    -------   -------   -------
<S>                             <C>         <C>         <C>         <C>         <C>        <C>        <C>         <C>      <C>
ASSETS                                                                                                                   
Interest bearing deposits in                                                                                             
   other banks                  $   1,133   $   1,065   $   1,262   $   1,310   $   1,332  $   1,454  $   1,338  $  1,313  $   1,256
Federal funds sold and                                                                                                     
   securities purchased under                                                                                              
   agreements to resell             2,691       1,807       1,482       1,294       1,004        972      1,416     1,532      1,708
Trading securities                    636         768         721         815         922        929      1,136     1,624      1,467
Loans held for sale                   681         345         258         262         506        760        960        69         21
Securities                          6,753       7,478       7,218       7,335       7,468      7,823      8,143     8,065      8,249
Loans and lease financing          36,589      37,606      36,894      37,811      39,033     39,357     39,179    40,114     41,223
                                  -------     -------     -------     -------     -------    -------    -------    ------    -------
     Total earning assets          48,483      49,069      47,835      48,827      50,265     51,295     52,172    52,717     53,924
Other assets                        6,055       6,036       5,722       6,034       6,447      6,506      6,415     5,664      6,125
                                  -------     -------     -------     -------     -------    -------    -------    ------    -------
     TOTAL ASSETS               $  54,538   $  55,105   $  53,557   $  54,861   $  56,712  $  57,801  $  58,587  $ 58,381  $  60,049
                                  =======     =======     =======     =======     =======    =======    =======    ======    =======


<CAPTION>  
LIABILITIES AND
   STOCKHOLDERS' EQUITY
Deposits:
Domestic offices:
   Noninterest bearing          $  6,469    $  6,738    $  6,079   $  6,091   $  6,285   $  6,509   $   6,586   $   6,420   $  6,694
   Interest bearing               23,960      24,034      22,530     23,108     24,190     24,700      24,849      24,931     26,003
Overseas offices:                                                                                                             
   Noninterest bearing               415         481         415        416        501        492         499         465        491
   Interest bearing                7,703       7,875       8,318      7,967      7,790      8,202       8,698       9,302      9,429
                                  ------      ------      ------     ------     ------     ------     -------     -------     ------
     Total deposits               38,547      39,128      37,342     37,582     38,766     39,903      40,632      41,118     42,617
Federal funds purchased and                                                                                                   
   repurchase agreements           4,721       4,388       4,723      4,696      3,959      4,672       3,959       4,561      4,739
Other funds borrowed               3,726       3,913       3,684      4,432      5,661      4,683       5,102       3,721      3,562
Notes payable                      2,041       2,192       2,183      2,112      2,115      2,159       2,421       2,584      2,674
Other liabilities                  1,702       1,580       1,618      1,818      1,790      1,806       1,767       1,709      1,698
Stockholders' equity               3,801       3,904       4,007      4,221      4,421      4,578       4,706       4,688      4,759
                                  ------      ------      ------     ------     ------     ------     -------     -------     ------
 TOTAL LIABILITIES AND                                                                                                        
   STOCKHOLDERS' EQUITY         $ 54,538    $ 55,105    $ 53,557   $ 54,861   $ 56,712   $ 57,801   $  58,587   $  58,381   $ 60,049
                                  ======      ======      ======     ======     ======     ======     =======     =======     ======
</TABLE>

                                      31


<PAGE>
 
Consolidated Statement of Income by Quarter - Taxable Equivalent Basis
Last Nine Quarters
(in millions, except per share amounts)

<TABLE>
<CAPTION>
                                                  1994                                     1995                                1996
                                         3          4          1           2          3          4          1          2          3
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
<S>                                <C>        <C>        <C>         <C>        <C>        <C>        <C>        <C>        <C> 
NET INTEREST REVENUE:              $ 543.9    $ 556.9    $ 549.0     $ 557.3    $ 569.6    $ 572.9    $ 565.5    $ 571.5    $ 591.4
Taxable equivalent adjustment          3.2        4.1        4.2         4.9        4.4        8.4        5.5        4.7        5.0
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
Total net interest revenue           547.1      561.0      553.2       562.2      574.0      581.3      571.0      576.2      596.4
Provision for credit losses           31.0       41.0       96.5        46.5       51.0       81.0       56.9       57.1       57.0
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
Net interest revenue after                                                                                               
    provision for credit losses      516.1      520.0      456.7       515.7      523.0      500.3      514.1      519.1      539.4
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
                                                                                                                         
NONINTEREST INCOME:                                                                                                      
Financial service fees               148.4      148.6      146.7       155.9      162.2      230.6       51.6      135.3      140.4
Trust and agency fees                 56.0       58.5       58.3        63.0       64.4       54.8       57.4       61.9       61.6
Trading profits and commissions       11.4         .5        1.8         6.8        7.2        9.1       12.9       25.0       20.7
Net securities gains                   1.3        2.5        6.1          .2         .8        1.9       13.4        3.4        7.1
Other income                          37.6       39.2      131.6        65.8       71.2       71.3      149.9      157.3      106.7
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
      Total noninterest income       254.7      249.3      344.5       291.7      305.8      367.7      285.2      382.9      336.5
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
                                                                                                                         
NONINTEREST EXPENSE:                                                                                                     
Salaries                             218.8      227.8      227.0       230.7      245.9      243.2      240.8      239.9      244.2
Employee benefits                     47.0       43.8       50.0        51.0       52.2       45.8       52.2       49.0       49.1
Occupancy expense                     47.9       46.6       47.3        46.8       48.3       48.6       51.1       49.7       51.1
Equipment expense                     31.5       31.4       32.2        33.6       33.5       33.8       34.3       33.9       34.2
Acquisition, divestiture and                                                                                             
     restructuring expenses            5.0                                                    28.2                            180.0
Other expense                        145.2      149.4      144.2       149.7      138.0      146.1      148.5      159.7      153.8
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
   Total noninterest expense         495.4      499.0      500.7       511.8      517.9      545.7      526.9      532.2      712.4
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
Income before income taxes           275.4      270.3      300.5       295.6      310.9      322.3      272.4      369.8      163.5
                                                                                                                         
Provision for income taxes           119.2      114.7      140.5       123.0      132.0      133.6      112.0      151.3       78.5
Taxable equivalent adjustment          3.2        4.1        4.2         4.9        4.4        8.4        5.5        4.7        5.0
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
                                     122.4      118.8      144.7       127.9      136.4      142.0      117.5      156.0       83.5
                                     -----      -----      -----       -----      -----      -----      -----      -----      -----
                                                                                                                         
NET INCOME                         $ 153.0    $ 151.5    $ 155.8     $ 167.7    $ 174.5    $ 180.3    $ 154.9    $ 213.8    $  80.0
                                     =====      =====      =====       =====      =====      =====      =====      =====      =====
                                                                                                                         
PER COMMON SHARE:                                                                                                        
Net Income:                                                                                                              
     Primary                       $   .96    $   .95    $   .98     $  1.03    $  1.06    $  1.09    $   .94    $  1.33    $   .46
     Fully diluted                     .94        .92        .95        1.02       1.05       1.08        .93       1.32        .45
Cash dividends declared                .22        .27        .27         .27        .37        .37        .37        .44        .44
</TABLE>

                                      32



<PAGE>
 
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Quarter Ended September 30, 1996
(dollars In millions)
---------------------------------------------------------------------------------------------------------------------------
                                                                                         AVERAGE                    AVERAGE
                        ASSETS                                                            VOLUME    INTEREST(1)        RATE
                                                                                       ------------------------------------ 
<S>                                                                                    <C>         <C>              <C> 
INTEREST BEARING DEPOSITS WITH                                                         
                   OTHER BANKS            U.S.                                         $     173   $        2          4.99%
                                          International                                    1,083           21          7.44
                                                                                          ------        -----
                                             Total                                         1,256           23          7.10
                                                                                          ------        -----          ----
 FEDERAL FUNDS SOLD AND RESALE
                    AGREEMENTS            U.S.                                               480            7          5.52
                                          International                                    1,228           43         13.98
                                                                                          ------        -----
                                             Total                                         1,708           50         11.60
                                                                                          ------        -----         -----

            TRADING SECURITIES            U.S.                                               470            7          6.13
                                          International                                      997           29         11.67
                                                                                          ------        -----
                                             Total                                         1,467           36          9.89
                                                                                          ------        -----         -----
       MORTGAGES HELD FOR SAlE            U.S.                                                21                       8.74
                                                                                          ------                      -----
                    SECURITIES            U.S.
                                           Available for sale (2)                          6,686          109          6.51
                                           Held to maturity                                  686           10          6.06
                                          International
                                           Available for sale (2)                            871           30         14.11
                                           Held to maturity                                    6            1         31.12
                                                                                          ------        -----
                                             Total                                         8,249          150          7.23
                                                                                          ------        -----         -----
     LOANS AND LEASE FINANCING
      (NET OF UNEARNED INCOME)            U.S.                                            31,961          687          8.55
                                          International                                    9,262          258         11.08
                                                                                          ------        -----
                                             Total loans and lease financing (3)          41,223          945          9.12
                                                                                          ------        -----         -----
                                          Earning assets                                  53,924        1,204          8.89
                                                                                          ------        -----         -----
                                          Nonearning assets                                6,125
                                                                                          ------
                                          TOTAL ASSETS                                 $  60,049
                                                                                          ======
                                          ---------------------------------------------------------------------------------
               LIABILITIES AND
          STOCKHOLDERS' EQUITY
                      DEPOSITS            U.S.
                                           Savings deposits                            $  15,001   $      102          2.70%
                                           Time deposits                                  11,002          153          5.55
                                          International                                    9,429          160          6.76
                                                                                          ------        -----
                                             Total                                        35,432          415          4.67
                                                                                          ------        -----         -----
       FEDERAL FUNDS PURCHASED
     AND REPURCHASE AGREEMENTS            U.S.                                             4,643           68          5.85
                                          International                                       96            3         11.07
                                                                                          ------        -----
                                             Total                                         4,739           71          5.95
                                                                                          ------        -----         -----
          OTHER FUNDS BORROWED            U.S.                                             2,580           37          5.74
                                          International                                      982           35         14.22
                                                                                          ------        -----
                                             Total                                         3,562           72          8.08
                                                                                          ------        -----         -----
                 NOTES PAYABLE            U.S.                                             2,087           35          6.55
                                          International                                      587           15         10.14
                                                                                          ------        -----
                                             Total                                         2,674           50          7.34
                                                                                          ------        -----         -----
                                          Total interest bearing liabilities              46,407          608          5.21
                                                                                                        -----         -----
                                          Demand deposits U.S.                             6,694
                                          Demand deposits International                      491
                                          Other noninterest bearing liabilities            1,698
                                          Total Stockholders' Equity                       4,759
                                                                                          ------
                                          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $  60,049
                                                                                          ======
                                          ---------------------------------------------------------------------------------
          NET INTEREST REVENUE
            AS A PERCENTAGE OF
              AVERAGE INTEREST
                EARNING ASSETS            U.S.                                         $  40,477   $      459          4.51%
                                          International                                   13,447          137          4.07
                                                                                          ------        -----
                                             Total                                     $  53,924   $      596          4.40%
                                                                                          ======        =====
                                          ---------------------------------------------------------------------------------
</TABLE> 

(1) Income is shown on a fully taxable equivalent basis.
(2) Average rates for securities available for sale are based on the securities'
    amortized cost.
(3) Loans and lease financing includes nonaccrual and renegotiated balances.

                                      33


<PAGE>
 
<TABLE>
<CAPTION> 
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Quarter Ended September 30, 1995
(dollars In millions)
---------------------------------------------------------------------------------------------------------------------
                                                                                   AVERAGE                    AVERAGE
                        ASSETS                                                      VOLUME      INTEREST(1)      RATE
                                                                                 ------------------------------------

<S>                                                                              <C>         <C>              <C>
INTEREST BEARING DEPOSITS WITH
                   OTHER BANKS                    U.S.                           $     238   $       4           6.40%
                                                  International                      1,094          42          15.19
                                                                                    ------       -----
                                                      Total                          1,332          46          13.63
                                                                                    ------       -----          -----
 FEDERAL FUNDS SOLD AND RESALE
                    AGREEMENTS                    U.S.                                 413           6           5.91
                                                  International                        591          68          45.62
                                                                                    ------       -----
                                                      Total                          1,004          74          29.31
                                                                                    ------       -----          -----
            TRADING SECURITIES                    U.S.                                 209           3           6.07
                                                  International                        713          59          32.41
                                                                                    ------       -----
                                                      Total                            922          62          26.45
                                                                                    ------       -----          -----
       MORTGAGES HELD FOR SALE                    U.S.                                 506           9           7.03
                                                                                    ------       -----          -----
                    SECURITIES                    U.S.
                                                    Available for sale (2)           2,903          47           6.46
                                                    Held to maturity                 3,879          59           6.05
                                                  International
                                                    Available for sale (2)             462          15          14.28
                                                    Held to maturity                   224           6           9.70
                                                                                    ------       -----
                                                      Total                          7,468         127           6.77
                                                                                    ------       -----          -----
     LOANS AND LEASE FINANCING
      (NET OF UNEARNED INCOME)                    U.S.                              31,138         690           8.79
                                                  International                      7,895         316          15.90
                                                                                    ------       -----
                                                      Total loans and lease 
                                                       financing (3)                39,033       1,006          10.23
                                                                                    ------       -----          -----
                                                  Earning assets                    50,265       1,324          10.45
                                                                                                 -----          -----
                                                  Nonearning assets                  6,447
                                                                                    ------
                                                  TOTAL ASSETS                   $  56,712
                                                                                    ======
                                                  -------------------------------------------------------------------
               LIABILITIES AND
          STOCKHOLDERS' EQUITY
                      DEPOSITS                    U.S.
                                                   Savings deposits              $  14,606   $     100           2.76%
                                                   Time deposits                     9,584         139           5.74
                                                  International                      7,790         225          11.44
                                                                                    ------       -----
                                                      Total                         31,980         464           5.77
                                                                                    ------       -----          -----
       FEDERAL FUNDS PURCHASED
     AND REPURCHASE AGREEMENTS                    U.S.                               3,799          46           4.81
                                                  International                        160          10          24.40
                                                                                    ------       -----
                                                      Total                          3,959          56           5.60
                                                                                    ------       -----          -----

          OTHER FUNDS BORROWED                    U.S.                               4,831          74           6.05
                                                  International                        830         116          55.70
                                                                                    ------       -----
                                                      Total                          5,661         190          13.33
                                                                                    ------       -----          -----
                 NOTES PAYABLE                    U.S.                               1,912          34           7.06
                                                  International                        203           6          11.00
                                                                                    ------       -----
                                                      Total                          2,115          40           7.44
                                                                                    ------       -----          -----
                                                  Total interest bearing
                                                  liabilities                       43,715         750           6.81
                                                                                                 -----          -----
                                                  Demand deposits U.S.               6,285
                                                  Demand deposits International        501
                                                  Other noninterest bearing 
                                                   liabilities                       1,790
                                                  Total Stockholders' Equity         4,421
                                                                                    ------
                                                  TOTAL LIABILITIES AND 
                                                   STOCKHOLDERS'  EQUITY         $  56,712
                                                                                    ======
                                                  ------------------------------------------------------------------- 
          NET INTEREST REVENUE
            AS A PERCENTAGE OF
              AVERAGE INTEREST
                EARNING ASSETS                    U.S.                           $  39,286   $     456           4.60%
                                                  International                     10,979         118           4.27
                                                                                    ------       -----
                                                      Total                      $  50,265   $     574           4.53%
                                                                                    ======       =====
                                               ----------------------------------------------------------------------
</TABLE>
 
(1)  Income is shown on a fully taxable equivalent basis.
(2)  Average rates for securities available for sale are based on the
     securities' amortized cost.
(3)  Loans and lease financing includes nonaccrual and renegotiated balances.

                                      34


<PAGE>
 
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Nine Months Ended September 30, 1996
(dollars In millions)
-------------------------------------------------------------------------------------------------------------------------
                                                                                       AVERAGE                    AVERAGE   
                                                                                        VOLUME     INTEREST(1)       RATE   
                                                                                       ----------------------------------    
          <S>                                         <C>                            <C>         <C>              <C>           
                                  ASSETS                                                                                  
          INTEREST BEARING DEPOSITS WITH                                                                                  
                             OTHER BANKS              U.S.                           $     211   $        9          5.67%
                                                      International                      1,091           65          8.01
                                                                                        ------        -----
                                                          Total                          1,302           74          7.63
                                                                                        ------        -----         -----
           FEDERAL FUNDS SOLD AND RESALE
                              AGREEMENTS              U.S.                                 456           18          5.33
                                                      International                      1,096          120         14.60
                                                                                        ------        -----
                                                          Total                          1,552          138         11.87
                                                                                        ------        -----         -----
                      TRADING SECURITIES              U.S.                                 466           20          5.62
                                                      International                        943          110         15.58
                                                                                        ------        -----
                                                          Total                          1,409          130         12.29
                                                                                        ------        -----         -----
                 MORTGAGES HELD FOR SALE              U.S.                                 332           17          7.00
                                                      International                         17            1          6.11
                                                                                        ------        -----        
                                                          Total                            349           18          6.96
                                                                                        ------        -----         -----
                              SECURITIES              U.S.     
                                                        Available for sale (2)           6,692          321          6.42
                                                        Held to maturity                   684           31          6.08
                                                      International
                                                        Available for sale (2)             738           77         13.89
                                                        Held to maturity                    39            5         16.60
                                                                                        ------        -----
                                                          Total                          8,153          434          6.98
                                                                                        ------        -----         -----
               LOANS AND LEASE FINANCING 
                (NET OF UNEARNED INCOME)              U.S.                              31,220        2,008          8.59
                                                      International                      8,956          855         12.75
                                                                                        ------        -----
                                                          Total loans and lease         
                                                           financing (3)                40,176        2,863          9.52
                                                                                        ------        -----         -----   
                                                      Earning assets                    52,941        3,657          9.23
                                                                                                      -----         -----
                                                      Nonearning assets                  6,069
                                                                                        ------
                                                      TOTAL ASSETS                   $  59,010
                                                                                        ======
                                                      -------------------------------------------------------------------
                         LIABILITIES AND
                    STOCKHOLDERS' EQUITY 
                                DEPOSITS              U.S.      
                                                        Savings deposits             $  14,938   $      300          2.69%
                                                        Time deposits                   10,325          435          5.62
                                                      International                      9,145          527          7.69
                                                                                        ------        -----
                                                          Total                         34,408        1,262          4.90
                                                                                        ------        -----         -----
                 FEDERAL FUNDS PURCHASED
               AND REPURCHASE AGREEMENTS              U.S.                               4,319          186          5.75
                                                      International                        102           10         12.90
                                                                                        ------        -----
                                                          Total                          4,421          196          5.91
                                                                                        ------        -----         -----
                    OTHER FUNDS BORROWED              U.S.                               3,180          142          5.98
                                                      International                        946          175         24.66
                                                                                        ------        -----
                                                          Total                          4,126          317         10.26
                                                                                        ------        -----         -----
                           NOTES PAYABLE              U.S.                               2,022           99          6.55
                                                      International                        538           40         10.02
                                                                                        ------        -----
                                                          Total                          2,560          139          7.28
                                                                                        ------        -----         -----
                                                      Total interest bearing            
                                                       liabilities                      45,515        1,914          5.62
                                                                                                      -----         ----- 
                                                      Demand deposits U.S.               6,567
                                                      Demand deposits International        485
                                                      Other noninterest bearing          
                                                       liabilities                       1,725
                                                      Total Stockholders' Equity         4,718
                                                                                        ------
                                                      TOTAL LIABILITIES AND                                  
                                                       STOCKHOLDERS' EQUITY          $  59,010        
                                                                                        ====== 
                                                      ------------------------------------------------------------------- 
                    NET INTEREST REVENUE 
                      AS A PERCENTAGE OF 
                        AVERAGE INTEREST 
                          EARNING ASSETS              U.S.                           $  40,061   $    1,349          4.50%
                                                      International                     12,880          394          4.08
                                                                                        ------        -----
                                                          Total                      $  52,941   $    1,743          4.40%
                                                                                        ======        =====
                                                      ------------------------------------------------------------------- 
</TABLE>

(1)  Income is shown on a fully taxable equivalent basis.
(2)  Average rates for securities available for sale are based on the
     securities' amortized cost.
(3)  Loans and lease financing includes nonaccrual and renegotiated balances.

                                      35


<PAGE>
 
<TABLE>
<CAPTION>
AVERAGE BALANCES AND INTEREST RATES, TAXABLE EQUIVALENT BASIS
Nine Months Ended September 30, 1995
(dollars In millions)
-------------------------------------------------------------------------------------------------------------------------
                                                                                       AVERAGE                    AVERAGE   
                                                                                        VOLUME     INTEREST  (1)     RATE   
                                                                                     ------------------------------------
          <S>                                         <C>                            <C>         <C>              <C> 
                                  ASSETS                                               
          INTEREST BEARING DEPOSITS WITH
                             OTHER BANKS              U.S.                           $     243   $        9          5.16%
                                                      International                      1,059          169         21.26
                                                                                        ------        -----
                                                          Total                          1,302          178         18.26
                                                                                        ------        -----         -----
           FEDERAL FUNDS SOLD AND RESALE
                              AGREEMENTS              U.S.                                 593           27          5.98
                                                      International                        665          247         49.66
                                                                                        ------        -----
                                                          Total                          1,258          274         29.05
                                                                                        ------        -----         -----
                      TRADING SECURITIES              U.S.                                 229           10          6.37
                                                      International                        591          136         30.67
                                                                                        ------        -----
                                                          Total                            820          146         23.90
                                                                                        ------        -----         -----
                 MORTGAGES HELD FOR SALE              U.S.                                 343           17          6.89
                                                                                        ------        -----         -----
                              SECURITIES              U.S.     
                                                        Available for sale (2)           2,616          131          6.71
                                                        Held to maturity                 4,135          186          6.02
                                                      International
                                                        Available for sale (2)             381           40         14.04
                                                        Held to maturity                   210           15          9.55
                                                                                        ------        -----
                                                          Total                          7,342          372          6.77
                                                                                        ------        -----         -----
               LOANS AND LEASE FINANCING
                (NET OF UNEARNED INCOME)              U.S.                              30,218        2,001          8.85
                                                      International                      7,702          865         15.02
                                                                                        ------        -----
                                                          Total loans and lease         
                                                           financing (3)                37,920        2,866         10.11
                                                                                        ------        -----         ----- 
                                                      Earning assets                    48,985        3,853         10.52
                                                                                                      -----         -----
                                                      Nonearning assets                  6,068
                                                                                        ------
                                                      TOTAL ASSETS                   $  55,053
                                                                                        ======
                                                      -------------------------------------------------------------------
                         LIABILITIES AND
                    STOCKHOLDERS' EQUITY
                                DEPOSITS              U.S.     
                                                       Savings deposits              $  14,191   $      276          2.60%
                                                       Time deposits                     9,090          375          5.52
                                                      International                      8,024          697         11.60
                                                                                        ------        -----
                                                          Total                         31,305        1,348          5.75
                                                                                        ------        -----         -----
                 FEDERAL FUNDS PURCHASED
               AND REPURCHASE AGREEMENTS              U.S.                               4,294          161          5.03
                                                      International                        162           36         29.47
                                                                                        ------        -----
                                                          Total                          4,456          197          5.92
                                                                                        ------        -----         -----
                    OTHER FUNDS BORROWED              U.S.                               3,725          172          6.20
                                                      International                        875          329         50.17
                                                                                        ------        -----
                                                          Total                          4,600          501         14.56
                                                                                        ------        -----         -----
                           NOTES PAYABLE              U.S.                               1,973          104          7.08
                                                      International                        164           14         11.56
                                                                                        ------        -----
                                                          Total                          2,137          118          7.43
                                                                                        ------        -----         -----
                                                      Total interest bearing 
                                                       liabilities                      42,498        2,164          6.81  
                                                                                                      -----         -----      
                                                      Demand deposits U.S.               6,153
                                                      Demand deposits International        444
                                                      Other noninterest bearing 
                                                       liabilities                       1,742 
                                                      Total Stockholders' Equity         4,216
                                                                                        ------
                                                      TOTAL LIABILITIES AND 
                                                       STOCKHOLDERS' EQUITY          $  55,053 
                                                                                        ======
                                                      -------------------------------------------------------------------
                    NET INTEREST REVENUE 
                      AS A PERCENTAGE OF 
                        AVERAGE INTEREST 
                          EARNING ASSETS              U.S.                           $  38,377   $    1,360          4.74%
                                                      International                     10,608          329          4.15
                                                                                        ------        -----
                                                          Total                      $  48,985   $    1,689          4.61%
                                                                                        ======        =====
                                                      -------------------------------------------------------------------
</TABLE>

(1)  Income is shown on a fully taxable equivalent basis.
(2)  Average rates for securities available for sale are based on the
     securities' amortized cost.
(3)  Loans and lease financing includes nonaccrual and renegotiated balances.

                                      36


<PAGE>
 
CHANGE IN NET INTEREST REVENUE -- VOLUME AND RATE ANALYSIS
Third Quarter 1996 Compared With Third Quarter 1995

The following table presents, on a fully taxable equivalent basis, an analysis
of the effect on net interest revenue of volume and rate changes. The change due
to the volume/rate variance has been allocated to volume, and the change because
of the difference in the number of days in the periods has been allocated to
rate.

<TABLE>
<CAPTION>
                                                      INCREASE (DECREASE)
                                                       DUE TO CHANGE IN
                                                       ----------------
(IN MILLIONS)                                       VOLUME           RATE           NET CHANGE                   
                                                    ------           ----           ----------
<S>                                 <C>             <C>           <C>             <C> 
INTEREST INCOME
LOANS AND LEASE FINANCING                    U.S.   $    18       $     (21)      $          (3)
                                    International        38             (96)                (58)
                                                                                      ---------
                                                                                            (61)
                                                                                      ---------
OTHER EARNING ASSETS                         U.S.         6               1                   7
                                    International        32             (98)                (66)
                                                                                      ---------
                                                                                            (59)
                                                                                      ---------
                             
TOTAL INTEREST INCOME                                    82            (202)               (120)
                             
TOTAL INTEREST EXPENSE                                   41            (183)               (142)
                                                                                      ---------
                                                                                  
NET INTEREST REVENUE                                                              $          22
                                                                                      =========
</TABLE> 

Nine Months Ended September 30, 1996 Compared With Nine Months Ended September
30, 1995

The following table presents, on a fully taxable equivalent basis, an analysis
of the effect on net interest revenue of volume and rate changes. The change due
to the volume/rate variance has been allocated to volume, and the change because
of the difference in the number of days in the periods has been allocated to
rate.

<TABLE>
<CAPTION>
                                                      INCREASE (DECREASE)
                                                       DUE TO CHANGE IN
                                                       ----------------
(IN MILLIONS)                                       VOLUME           RATE           NET CHANGE                   
                                                    ------           ----           ----------
<S>                                 <C>             <C>           <C>             <C> 
INTEREST INCOME
LOANS AND LEASE FINANCING                    U.S.   $    64       $     (57)      $          (7)
                                    International       120            (130)                (10)
                                                                                      ---------
                                                                                             (3)
                                                                                      ---------
OTHER EARNING ASSETS                         U.S.        32               4                  36
                                    International        98            (327)               (229)
                                                                                      ---------
                                                                                           (193)
                                                                                      ---------
                                    
TOTAL INTEREST INCOME                                   273            (469)               (196)
                                    
TOTAL INTEREST EXPENSE                                  144            (394)               (250)
                                                                                      ---------
                                                                                  
NET INTEREST REVENUE                                                              $          54
                                                                                      =========
</TABLE>

                                      37

<PAGE>
 
                          PART II -- OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS

     As previously reported, in March 1993, a complaint was filed in Delaware
Chancery Court against the Corporation, Society for Savings Bancorp, Inc.
("Society") and certain Society directors. The action was brought by a Society
stockholder, individually and as a class action on behalf of all Society
stockholders of record on the date the Corporation's proposed acquisition of
Society was announced, and sought an injunction with respect to the acquisition
and damages in an unspecified amount. In May 1993, the Chancery Court denied the
plaintiff's motion for a preliminary injunction and in July 1993, the
Corporation acquired Society. On January 23, 1995, the defendants filed a motion
for summary judgment with the Chancery Court and on June 15, 1995, the Court
granted summary judgment in favor of the defendants on all claims except for an
aiding and abetting claim against the Corporation, on which no summary judgement
motion was filed. The Chancery Court also denied plaintiff's motion for
rehearing. Following the entry of an Order of Final Judgment by the Chancery
Court, the plaintiff appealed the June 15, 1995 opinion to the Delaware Supreme
Court. On June 25, 1996, the Supreme Court affirmed the Chancery Court's
decision in its entirety, and remanded the case on the sole remaining claim for
aiding and abetting. While vigorously denying any wrongdoing of any kind,
including the claim that it aided and abetted any breach of fiduciary duty, the
Corporation agreed on September 20, 1996 to settle the lawsuit in order to avoid
the substantial expense and distraction associated with continued litigation.
The Chancery Court approved the settlement on November 6, 1996. The settlement
provides for payment by the Corporation of $5 million.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

 
(a)  Exhibits

     3     -   By-Laws of the Corporation, as amended through October 24, 1996
 
     11    -   Computation of Earnings Per Common Share
  
     12(a) -   Computation of the Corporation's Consolidated Ratio of Earnings 
               to Fixed Charges (excluding interest on deposits)
 
     12(b) -   Computation of the Corporation's Consolidated Ratio of Earnings 
               to Fixed Charges (including interest on deposits)
 
     27.1   -  Financial Data Schedule
 
     27.2   -  Restated Financial Data Schedule for the nine months ended
               September 30, 1995


(b)  Current Reports on Form 8-K

     During the third quarter of 1996, the Corporation filed three Current
    Reports on Form 8-K. The current reports, dated July 18, 1996, July 25, 1996
    and September 6, 1996, contained information pursuant to Items 5 and 7,
    Items 2, 5 and 7 and Items 5 and 7, respectively, of Form 8-K. The
    Corporation also filed a Current Report on Form 8-K, dated October 17, 1996,
    which contained information pursuant to Items 5 and 7 of Form 8-K.

                                      38


<PAGE>
 
                                  SIGNATURES
                                  ----------

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



                                         BANK OF BOSTON CORPORATION


                                         /s/ Charles K. Gifford 
                                         ---------------------------------------
                                         Charles K. Gifford
                                         Chief Executive Officer
 
                                               
                                         /s/ William J. Shea  
                                         ---------------------------------------
                                         William J. Shea
                                         Vice Chairman, Chief Financial Officer
                                         and Treasurer


Date:  November 14, 1996

                                      39