<PAGE>
 
Did your bank perform for you today?



1997 Annual Report
<PAGE>
 
-------------------------------------------------------------------------------
Letter to Shareholders                                                        3
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Financial Contents                                                           20
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Financial Review                                                             21
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Consolidated Financial Statements                                            54
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Corporate Information                                                        93
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BankAmerica Today
BankAmerica Corporation and its consolidated subsidiaries provide diverse
financial products and services to individuals, corporations, small- and mid-
size businesses, government agencies, and financial institutions throughout the
world. BankAmerica is the nation's second largest banking company, measured by
market capitalization at December 31, 1997.

BankAmerica operates one of the financial services industry's outstanding global
banking franchises. We have offices in 38 countries, and regionally we are
focused on the Pacific Rim. The corporation's management structure was
reorganized in 1997 to reflect a focus on two core businesses: Global Retail
Banking and Global Wholesale Banking.

The Global Retail Bank is a leader in providing financial services to consumers
and small- and mid-size businesses. Using diverse delivery channels for customer
convenience, it reaches more than 11 million households and nearly 1 million
businesses. Consumer and commercial financial services are provided throughout
the U.S. and in much of Asia. The Global Retail Bank's major presence is in the
western United States.

The Global Wholesale Bank is a leading provider of tailored financial solutions
to clients across the U.S. and around the world. With one of the most extensive
global banking networks, BankAmerica offers clients the full spectrum of
financial service capabilities from capital raising and capital markets, cash
management and trade finance, to investment banking and financial advisory
services.

Forward-Looking Statements
This report contains forward-looking statements, usually containing the words
"estimate," "project," "expect," "objective," "goal," or similar expressions.
Those statements are subject to uncertainties, including those discussed in this
report, particularly in Year 2000 on page 28, Recent International Developments
and Regional Foreign Exposures on pages 35 -- 37, and in Risk Management and
Capital Management on pages 44 -- 53. These uncertainties could cause actual
results to differ materially. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof.
Readers should also consider information on risks and uncertainties contained in
the discussions of competition, supervision and regulation, and forward-looking
statements in BAC's most recent report on Form 10-K.

Claire Giannini Hoffman (1904-1997)
BankAmerica Corporation lost a direct link to its roots in 1997 with the passing
of Claire Giannini Hoffman, daughter of the company's founder, A.P. Giannini.
Mrs. Hoffman was herself a significant figure in international business and
banking circles and served on BankAmerica's Board of Directors. Her spirit and
devotion to the founding principles of this company will be greatly missed.

Chauncey J. Medberry, III (1917-1997)
BankAmerica Corporation and the city of Los Angeles both lost a widely respected
leader with the passing of Chauncey J. Medberry, III. He was BankAmerica's
Chairman of the Board from 1971 to 1981. He was also a director of numerous
civic and charitable organizations in Southern California. His energy, skill and
selflessness left lasting imprints on his company and his home town.
<PAGE>
 
BankAmerica Corporation has coupled an outstanding global franchise with strict
financial discipline to produce profitable growth. Our governing objective is to
maximize value for our shareholders.


--------------------------------------------------------------------------------
          Great Franchise + Financial Discipline = Profitable Growth
--------------------------------------------------------------------------------

                                                                               1
<PAGE>  
 
BankAmerica Corporation

--------------------------------------------------------------------------------
                            Selected Financial Data
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
(Dollar amounts in millions, except per share data)             1997       1996
--------------------------------------------------------------------------------
<S>                                                        <C>        <C> 
FOR THE YEAR
Net income                                                  $  3,210   $  2,873
Diluted earnings per                                      
    common share*                                               4.32       3.65

--------------------------------------------------------------------------------
AT YEAR END                                               
Loans                                                       $167,111   $165,415
Total assets                                                 260,159    250,753
Deposits                                                     172,037    168,015
Stockholders' equity                                          19,837     20,713

--------------------------------------------------------------------------------
SELECTED RATIOS                                           
Rate of return on average                                 
   common equity                                               16.69%     15.00%
Ratio of common equity to                                 
   total assets                                                 7.39%      7.37%
Tier 1 risk-based                                         
   capital ratio                                                7.53%      7.77%
</TABLE> 
--------------------------------------------------------------------------------
*Restated to reflect the implementation of Statement of Financial Accounting
 Standards No. 128, "Earnings per Share" (SFAS No.128) and a two-for-one stock
 split effective June 2, 1997.

DILUTED EARNINGS PER COMMON SHARE*

                1993     1994     1995     1996      1997
               ------   ------   ------   ------    ------
                $2.39    $2.68    $3.24    $3.65     $4.32      

*Restated to reflect the implementation of SFAS No. 128 and a two-for-one stock
 split effective June 2, 1997.


RETURN ON AVERAGE COMMON EQUITY

                1993     1994     1995     1996      1997
               ------   ------   ------   ------    ------
               12.88%   13.20%   14.58%   15.00%    16.69%


EXPENSE-TO-REVENUE RATIO*

                1993     1994     1995     1996      1997
               ------   ------   ------   ------    ------
               59.50%   60.42%   58.08%   54.85%    53.53%



*Excludes net other real estate owned expense, amortization of intangibles, and
 expenses associated with trust preferred securities. Also excludes the effect
 of the following items in 1997: a $246 million gain on the sale of Security
 Pacific Financial Services, Inc. (SPFS), charges of approximately $112 million
 associated with the decision to exit Midwest retail facilities, and in the
 third quarter of 1997, expenses connected with multiple legal matters,
 writedowns on corporate real estate, and contributions to BankAmerica
 Foundation totaling $140 million. In addition, excludes the effect of the
 following items in 1996: an $82 million pre-tax one-time Savings Association
 Insurance Fund (SAIF) assessment, a $280 million pre-tax restructuring charge,
 and a $147 million nontaxable gain from the initial public offering of BA
 Merchant Services, Inc. (BPI) common stock.

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

2
<PAGE>
 
                                                         BankAmerica Corporation




Chairman and CEO Dave Coulter


Dear Shareholders:
On the cover of this Annual Report we pose a question: Did your bank perform for
you today? Throughout 1997, I believe the answer for BankAmerica Corporation
shareholders was a resounding "Yes."

I am proud to report that 1997 was a very good year for us. We registered gains
in all the important financial yardsticks. Return on equity (which indicates how
effectively we employ our capital) increased 169 basis points from a year ago to
nearly 17 percent. Diluted earnings per common share were up 18 percent over
1996. Our stock price increased 46 percent and total shareholder return (stock
price appreciation plus dividends) was 49 percent. Over the past two years,
total shareholder return was 136 percent, the best performance among the 10
largest banks in the United States. These results helped prompt your Board of
Directors, recently, to raise the quarterly dividend on common stock 13 percent
to 34.5 cents a share.

We achieved these results by paying close attention to an approach represented
by a simple formula: "Great Franchise + Financial Discipline = Profitable
Growth." It's this formula that continues to guide our efforts in 1998.

We are a global financial services leader operating in the world's most vibrant
markets. Our good name and deep client base offer the potential for significant
revenue growth in these markets. But to provide for profitable growth, we must
pay close attention to the fundamentals.

This means having the day-to-day financial discipline to make decisions that
will help us achieve our goals for profitability. For this purpose, we target
three key areas: operating leverage, risk management, and capital management.

Paying close attention to the fundamentals means tightly managing our operating
leverage by keeping operating expense growth well below operating revenue
growth. In 1997, the corporation achieved a 4 percent spread between revenue
growth and expense growth in order to produce an 11 percent increase in
operating income.

In times when competitive pressures and economic conditions limit revenue growth
and narrow our margins, maintaining tight expense discipline is necessary to
achieve our desired operating leverage. We have made progress recently in a
number of areas, including the restructuring and, in some cases, outsourcing of
some of our business and staff support units for improved efficiency.
Consolidating most of our subsidiary banks into a single entity has produced
additional ongoing savings. And a corporate initiative to coordinate and
centralize our purchasing activities has produced significant savings.

Management of risk -- credit risk, market risk, foreign risk, and business risk
-- has to be a core competency of BankAmerica, and is a key determinant of our
overall financial performance. We apply a variety of strategies to mitigate
risks to which we are exposed, including careful evaluation of the
creditworthiness of borrowers; diversification of loan portfolios; high-quality
internal auditing functions; maintenance of contingency systems for operations
support in the event of natural disasters; appropriate limits on trading
activities; and a conservative approach to managing liquidity and interest rate
exposure.

One current risk management challenge is managing through economic turmoil in
Asia. BankAmerica, like most other multinational corporations, has been affected
by the situation. Our fourth quarter results were clearly impacted by the
volatility in Asian markets. But thanks to the diversity of our portfolios and
our careful approach to risk management, our overall performance in 1997
remained strong. Although Asian economies will likely slow down in the near
term, we are confident that over


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          Great Franchise + Financial Discipline = Profitable Growth
--------------------------------------------------------------------------------

                                                                               3
<PAGE>
 
BankAmerica Corporation


a longer horizon, the Pacific Rim will remain a very important market.

Finally, in terms of fundamentals, BankAmerica has imposed a heightened capital
discipline throughout the organization. Businesses, products, and client
relationships are all being examined and evaluated on an ongoing basis to
determine whether returns on each exceed the cost of capital. Changing market
conditions make some once-attractive business lines less valuable to our
shareholders so we must continue to ask whether we want to direct our efforts in
other areas.

Capital management decisions are evident in the ongoing divestitures and
acquisitions of businesses and products. In 1997, we sold Security Pacific
Financial Services, a consumer finance company; and our branch system in Hawaii;
and also announced our intention to sell our manufactured housing finance
company, BA Housing Services; and exit Midwest grocery store banking centers. At
the same time, we acquired Robertson Stephens & Company, the investment banking
and investment management firm; and formed a strategic alliance with D.E. Shaw,
one of Wall Street's most technologically advanced securities trading firms;
investments that will add value to existing core capabilities.

We have also been active in managing our balance sheet through various means
including numerous portfolio sales and securitizations that have helped improve
the returns on capital for key businesses. As part of our capital management
discipline, we also repurchased $2 billion of common stock, and retired $1.6
billion of preferred stock in 1997, indicating our belief that unless excess
capital can be profitably employed, it should be returned to shareholders. To
that end, your Board of Directors recently increased our common stock repurchase
authority by $3.5 billion.

Of course, financial discipline alone isn't enough to produce the above-average
returns our shareholders expect: We have an outstanding franchise. BankAmerica
serves nearly 14 million checking and savings customers in more than 11 million
households. We have nearly 7,700 ATMs, approximately 1,800 branches, and our
telephone customer service network handles nearly 21 million calls a month. We
also have relationships with 85 percent of the Fortune 500 companies. We're
among the top providers of commercial and industrial loans worldwide. We're a
recognized leader in Community Reinvestment activities with a 10-year, $140
billion loan commitment to mostly minority, low-income, and small business
borrowers; and our Environmental Program has been honored by business and
government leaders. This is a formidable base on which we can build greater
shareholder value. We intend to first make this outstanding franchise even more
effective by improving our


--------------------------------------------------------------------------------
Office of the Chairman: left to right, H. Eugene Lockhart, Jack L. Meyers, David
A. Coulter, Michael J. Murray, Kathleen J. Burke, Michael E. O'Neill, and Martin
A. Stein
--------------------------------------------------------------------------------

4
<PAGE>
 
                                                         BankAmerica Corporation


organization, our systems, our service, and our people. And we also believe we
can grow this franchise in profitable ways.

We took a major step in 1997 by creating a Global Wholesale Bank and a Global
Retail Bank. Gene Lockhart joined us from Mastercard to lead the Retail Bank,
bringing fresh perspective and strong leadership to this rapidly changing
business. Mike Murray took charge of the Global Wholesale Bank, bringing his
years of corporate banking experience to the job of positioning our wholesale
operations for the future. You can learn more about their plans for growing
these businesses on the pages following this letter.

An important priority in developing our franchise is technology. Bank of America
was the first bank to successfully apply computers to its operations back in the
1950s. Today we are every bit as mindful of the need for innovative technology
-- not just to automate processes, but to deliver better service. For instance,
we conducted our first fully electronic loan syndication in 1997, enabling
participants to get detailed information about the transaction from their
desktop computers. Our online banking site has been called "the best overall
Internet banking service," by The New York Times. Our Corporate Data Store has
one of the industry's most extensive client information repositories. It's the
backbone of our relationship marketing effort, providing insight into the
additional services we can profitably sell to existing clients. Many of our
businesses, including some we have real strength in today, such as payments, are
changing by virtue of technology. We must find new ways to use our systems to
remain competitive in those businesses.

Our immediate technology objective is making our systems Year 2000 compliant.
Our goal is that every unit at BankAmerica will implement and begin testing
modifications by the end of 1998. But long term, our goal is to set the industry
standard for technology-driven customer service. That is, we want a common
customer service infrastructure providing consistent and effective service no
matter how our customers want to interface with us.

Another priority that you should note on the following pages is that we are
determined to increase the emphasis on our clients. We have launched a major
initiative to improve client focus at BankAmerica. We want to set ourselves
apart from the competition by excelling at service, making it a living,
breathing part of our day-to-day business existence.

To achieve all of these improvements will require a great team from top to
bottom. Therefore our people are critical to our success. That is why I am proud
of the Take Ownership! stock option program introduced in 1996. It was designed
to better link the interests of employees and management with those of
shareholders, and our employees today are vigorously acting like owners. Our
team is strong, and with training, direction and the right incentives, it's
getting even better.

Success, of course, also requires leadership from the Board of Directors, and I
would like to once again offer my sincere thanks to our board for its guidance,
insight, and hard work on behalf of all shareholders. I would especially like to
recognize the many contributions of director John M. Richman, who will be
retiring as of the 1998 Annual Meeting.

We believe that 1998 will be another year of challenge and tremendous change,
but one thing will remain the same: Everything we do at BankAmerica will have a
common purpose, to maximize value for our shareholders. There is no better
objective for our organization because maximizing shareholder value means always
looking for better ways to do business. And there are always better alternatives
-- it's a never-ending process.


TOTAL SHAREHOLDER RETURN*

     1991     1992     1993     1994     1995     1996     1997
    ------   ------   ------   ------   ------   ------   ------
    39.8%    33.4%     2.8%    -11.5%   69.4%    58.1%    49.2% 


*Appreciation in price of common stock plus common stock dividends.


Did your bank perform for you today? Yes. And as we continue this process of re-
examination, of searching for a better way, I am confident that we will perform
for you in the future, as well.

Thank you for sharing your confidence through your investment in BankAmerica.


--------------------------------------------------------------------------------
David A. Coulter
Chairman and Chief Executive Officer
--------------------------------------------------------------------------------
San Francisco, California, February 6, 1998



                                                                               5
<PAGE>
 
Did Your Bank Make a Difference Today?

BankAmerica Corporation makes a difference for millions of consumers and
businesses every day. Through our products and services, our people, and our
commitment to social responsibility, we help make life easier, businesses more
successful and communities stronger.


Here's how:

 .   We're among the top providers of commercial and industrial loans worldwide
    with more than $55 billion outstanding at the end of 1997.
 .   We're the No. 1 provider of Small Business Administration loans in the
    western U.S.
 .   Our BA Merchant Services, Inc. subsidiary is the fourth-largest processor of
    merchant credit card transactions in the U.S.
 .   BankAmerica Mortgage originated more than $16 billion in home loans
    nationwide in 1997 and serviced nearly $90 billion.
 .   Nearly 14 million consumers have checking and savings accounts with us, and
    more than 10 million have credit card accounts.
 .   We have approximately 1,800 branches, nearly 1,000 in-store locations, and
    nearly 7,700 ATM machines in the U.S.
 .   We process more than 20 million checks every 24 hours.
    Only the Federal Reserve System handles more.
 .   Our 24-hour customer service network handles nearly 21 million calls every
    month.
 .   Our Internet web site averages more than 1 million hits every day.
 .   Our Bank of America Community Development Bank provides financing for small
    businesses in 28 states, and financing for affordable housing in more than
    40 states.
 .   Our $140 billion commitment for community development lending over 10 years
    is the largest multi-year goal ever established by a bank.
 .   We are the first Fortune 500 financial services company to endorse the CERES
    Principles, a corporate code of conduct for environmental responsibility.
 .   The national Points of Light Foundation has recognized TeamAmerica, our
    employee grassroots organization, for its volunteer network.

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          Great Franchise + Financial Discipline = Profitable Growth
--------------------------------------------------------------------------------

6
<PAGE>

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                  CHART--BankAmerica Consumer Banking Profile
--------------------------------------------------------------------------------
 
                          CALIFORNIA     NORTHWEST             SOUTHWEST
States served             California     Washington, Oregon    Arizona, Nevada,
                                         Idaho, Alaska         New Mexico, Texas
                         
Branches                  973            395                   436
ATMs*                     3,955          1,256                 1,866
                                                         
ATM transactions/mo.      35.7 million   7.2 million           5.9 million
Teller transactions/mo.   15.8 million   7.1 million           5.7 million
Teleservicing calls/mo.   11.8 million   3.5 million           5.6 million
Point-of-sale/mo.         11.8 million   3.9 million           3.5 million
 


BankAmerica has retail banking operations in Hong Kong, Macau, India, Taiwan,
Singapore, and the Philippines.
*BankAmerica operates 621 ATMs in 25 other states.



--------------------------------------------------------------------------------
               CHART--BankAmerica Global Network in 38 countries
--------------------------------------------------------------------------------

Argentina       Cayman Islands   Greece        Japan             Philippines
  Buenos Aires    Grand Cayman     Athens        Tokyo             Manila   
Australia       Chile            India         Malaysia          Poland     
  Melbourne       Santiago         Calcutta      Kuala Lumpur      Warsaw   
  Sydney        China              Chennai       Labuan          Russia     
Bahamas           Beijing          Mumbai      Mexico              Moscow   
  Nassau          Dalian           New Delhi     Guadalajara     Singapore  
Belgium           Guangzhou      Indonesia       Mexico City       Singapore
  Antwerp         Hong Kong        Jakarta       Monterrey       South Africa
  Brussels        Shanghai       Ireland       Netherlands         Johannesburg
Brazil          Colombia           Dublin        Amsterdam       South Korea
  Sao Paulo       Bogota         Israel        Pakistan            Pusan    
Canada          France             Tel Aviv      Faisalabad        Seoul    
  Calgary         Paris          Italy           Islamabad   
  Montreal      Germany            Milan         Karachi     
  Toronto         Frankfurt                      Lahore       
  Vancouver


  Spain                  United States      
    Barcelona              Atlanta          
    Bilbao                 Boston           
    Madrid                 Chicago          
  Switzerland              Houston          
    Geneva                 Los Angeles      
  Taiwan                   Menlo Park       
    Taipei                 Miami            
  Thailand                 New York         
    Bangkok                San Francisco   
  United Arab Emirates     Seattle     
    Dubai                Venezuela          
  United Kingdom           Caracas          
    London               Vietnam            
                           Hanoi            
                           Ho Chi Minh City 

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

                                                                               7
<PAGE>
 
BankAmerica Corporation organized the Global Retail Bank in 1997 with a clear
purpose: to create shareholder value by building enduring relationships of
increasing value with our clients.

We intend to be our clients' most important financial services partner by
enabling our employees to listen to and understand our clients, provide valuable
solutions to their needs, and deliver superior service that exceeds their
expectations.

BankAmerica has one of the industry's outstanding retail banking franchises. We
also have outstanding talent on our team. Our challenge now is to make the most
of those advantages. By investing in products, people and technology, and by
putting our clients first, we can become a "Best in Class" Global Retail Bank.


--------------------------------------------------------------------------------
               H. Eugene Lockhart, President, Global Retail Bank
--------------------------------------------------------------------------------

8
<PAGE>
 
                                                         BankAmerica Corporation

BankAmerica Corporation's Global Retail Bank offers exceptional banking choice
and convenience to consumers, small- and middle-market businesses, and high-net-
worth individuals. BankAmerica has a leading consumer and middle-market banking
franchise throughout the western U.S., a strong and growing commercial and
private banking presence in the Midwest, and a significant retail presence in
Asia.

In 1996 we asked BankAmerica Corporation employees to act like owners through
our stock option program Take Ownership! Now, in addition to that, we are asking
everyone in the Global Retail Bank to think and act like clients, and to do that
first and foremost by becoming clients ourselves. Only when we think and act as
our clients do can we fully understand what they want from their financial
institution.

Our goal is to become a "Best in Class" Global Retail Bank when measured in
terms of overall sales and service quality, employee satisfaction and
motivation, and economic profit.

We can accomplish our goal by focusing on the client: understanding client needs
and preferences, designing products and differentiating delivery to meet client
needs, and setting goals and measuring results by client segment.

BankAmerica clients benefit from access to:
 .   The nation's largest proprietary ATM network with nearly 7,700 machines in
    34 states.
 .   Approximately 1,800 branches in nine western states.
 .   Alternative service delivery channels that include the telephone, personal
    computers, and in-store financial service centers.
 .   Nationwide commercial banking products and services, including capital
    raising, cash management, credit, and leasing.
 .   Nationwide consumer loan origination capabilities including first mortgages,
    credit cards, and auto loans.
 .   Comprehensive private banking, trust and investment management services.

The Global Retail Bank has a relationship orientation across all products and
channels of distribution. We want to actively manage our high-value client
relationships to grow our share of their business and maximize the value of
those relationships. That's why we started the Financial Relationship Manager
program, assigning more than 1,000 well-trained professionals to personally
serve our most complex and rewarding relationships.

We aim for "Best in Class" sales and service quality in our local markets. It's
this goal that prompted us in 1997 to take a step unprecedented in the financial
services industry -- covering our customers for liability they incur from
unauthorized transactions on our popular debit and ATM cards.

This also is why we are reworking our technology infrastructure with the goal of
a common platform that provides efficient service to client segments. For
example, until last year BankAmerica had 42 toll-free customer service telephone
numbers throughout the U.S. Now that number is down to two. By investing in
technology we also will make better use of our Data Store -- the key to
unlocking information that will enable us to develop product and service
strategies for distinct client segments, based on measurable differences in what
clients want and are willing to pay for.

Success in our organization depends on our people, on their teamwork and their
common commitment to delivering the power of BankAmerica's Global Retail Bank to
clients. With that in mind we are introducing a new incentive structure so that,
in addition to economic profit generation, employees are rewarded for such
things as service quality, leadership, and teamwork.

Retail Banking Leadership
We serve more than 11 million households through nearly 14 million checking and
savings accounts through our branch networks in California, the Northwest and
the Southwest, and through nationwide lending businesses including mortgages and
credit cards.

BankAmerica has a leading market position, based on deposits, in most of the
West's leading Metropolitan Statistical Areas. In California, we're No. 1 in Los
Angeles/Long Beach, San Francisco/Oakland, Riverside/San Bernardino, San Diego,
Orange County, Sacramento, and San Jose. In the Northwest, we're No. 1 in
Seattle/Bellevue/Everett, and No. 2 in Portland/Vancouver. In the Southwest,
we're No. 1 in Las Vegas, and No. 2 in Phoenix/Mesa.

BankAmerica has more than 260,000 clients performing electronic banking through
HomeBanking(TM), our PC-based consumer transaction service, and Pay-by-
Phone(TM), which permits bill paying by telephone. Customers may access
HomeBanking(TM) through the Internet, America Online or the bank's Managing Your
Money(TM) software.

Nationwide Consumer Loan Products

BankAmerica Mortgage Group is the seventh-largest


--------------------------------------------------------------------------------
          Great Franchise + Financial Discipline = Profitable Growth
--------------------------------------------------------------------------------

                                                                               9
<PAGE>
 
                               GLOBAL RETAIL BANK




   "More than 1,000 of us have been trained for the Financial Relationship
   Manager program. I'm the only person the Niwranskis need to know at the bank.
   Whether it's a question about personal checking or international wire
   transfers for their business, they call me. I love being able to give my
   clients personal service."

   Katrina Wilson, Vice President, Financial Relationship Manager, Bellingham,
   Washington



originator and ninth-largest servicer of residential first mortgages in the
U.S., providing financing to homebuyers in all 50 states. Its assets are $31.5
billion.

In 1966, our BankAmericard became the first nationally accepted bank credit
card. Today, the Credit Card Group issues credit cards in all 50 states, has 10
million accounts, and is one of the largest issuers of Visa/MasterCard accounts
in the country.

National Consumer Assets Group has more than 520,000 home equity accounts,
nearly 450,000 indirect auto accounts, nearly 300,000 other direct lending
accounts, and 334,000 student loans.

Business Banking provides products and services to nearly 1 million small
business clients and has a leading market position in California, Nevada, and
Washington. We provide a variety of deposit and lending products and offer the
convenience of banking via personal computers. Small business owners can even
apply for loans by telephone.

National Commercial Banking
National Commercial Banking provides a range of capital raising, lending, and
cash management services to middle-market companies with revenues from $10
million to $500 million nationwide. It also serves specialty industries such as
agribusiness and the wholesale auto dealer business.

National Commercial Banking serves 12,000 clients through 60 offices in 12
states, with market coverage in 38 states.

National Commercial Banking has a leading market position in California and
Washington, with a growing presence in other key markets including Illinois,
Oregon and Arizona.

Global Private Banking
BankAmerica has consolidated its regional and international private banking
businesses in the Global Private Bank.

The Global Private Bank has about 25,000 clients, and delivers banking, trust,
and investment management


10
<PAGE>
 
"Due to the global nature of our business, we demand instant responses and 
replies to our financial transactions. That's the kind of service we get from 
our banker."

Eve Niwranski, General Manager and Harry Niwranski, President, Helicopter Parts
International, supply helicopter parts and service to government agencies and
commercial enterprises in several countries, Blaine, Washington











                                                                              11
<PAGE>
 
"I appreciate how they look out for the interests of my company, and that their 
capabilities match up well with our increasingly complex financial needs, from 
cash management services to capital markets products."

Harry H. Bake, Owner and President, Sierra Tel Communications Group, provides 
telephone services to 22,000 customers in California's Sierra Nevada foothills 
and cellular service to 35,000 customers in Northern and Central California.



12
<PAGE>
 
                              GLOBAL RETAIL BANK


   "There is a high degree of mutual loyalty in this relationship. We have had
   the privilege of being there when Harry was looking for options while growing
   his company. The bank continues to provide for his personal financial needs,
   also. That is the essence of Commercial Banking at Bank of America, serving
   the business and the individual."

   Michael Stain, Commercial Banking Relationship Manager, Fresno, California




services and works closely with commercial, corporate, retail, and global
private equity areas of BankAmerica to reach our deep client base.

Savings, Investment, Retirement, and 
Insurance Products
BankAmerica Insurance Group, through affiliated insurance companies or agencies,
is authorized to underwrite credit-related insurance products in 48 states and
the District of Columbia, and to act as an agent or broker for the distribution
of insurance products in 24 states. The group has sold insurance products to
more than 1.2 million BankAmerica customers.

Investment Services
In 1997, BA Investment Services, Inc. (BAIS) celebrated its 10th anniversary of
providing Bank of America clients with non-FDIC-insured investment products and
services. Nearly 400 Series-7-registered investment and insurance specialists
are located in approximately 1,600 Bank of America branches in six western
states. Our affiliate, Seafirst Investment Services, located in Seattle, has 60
investment representatives that service Seafirst clients in the Northwest, and
BancAmerica Robertson Stephens has bond trading floors in San Francisco, Los
Angeles, and San Diego. Collectively, these investment groups provide financial
solutions, information, and personal service to help make it possible for
clients to identify their investment objectives, accumulate wealth, and retire
with security and dignity.

BAIS offers investors hundreds of no-load and load mutual funds, including the
Pacific Horizon, Time Horizon, World Horizon, and Robertson Stephens proprietary
mutual fund families, as well as a wide range of funds from other
nationally-recognized companies. Additionally, investors can choose from
fixed-income products such as municipal and corporate bonds and U.S. Treasury
Securities, competitively-priced stock brokerage, margin and covered option
accounts, fixed and variable annuities, TrustAmerica(TM), a proprietary living
trust product and wealth transfer, and business continuation life insurance
products.


                                                                              13
<PAGE>
 
The aspiration of the Global Wholesale Bank is to be recognized and rewarded by
our clients as a global financial services leader delivering solutions to the
complex needs of issuers and investors.

Our challenges are significant. Clients are increasingly sophisticated, markets
are more global, while bank and securities products and providers are
converging. Thus, we are raising our performance standards and changing the way
we compete.

We strive to consistently deliver our institutional strengths--capacity and
product breadth, global reach, and superior execution through our Client Team
approach--to each client. To expand our client-focused capabilities we will
continually invest in our people, our products and our global network while
realizing superior returns for our shareholders.

As our clients succeed, so will we.

--------------------------------------------------------------------------------
               Michael J. Murray, President, Global Wholesale Bank
--------------------------------------------------------------------------------

14
<PAGE>
 
                                                         BankAmerica Corporation



BankAmerica Corporation's Global Wholesale Bank is a proven leader -- delivering
innovative financial solutions to clients in the U.S. and around the world.

We have one of the most significant global corporate franchises of any U.S. 
bank -- maintaining relationships with 85 percent of Fortune 500 companies and
an almost equal share of the global 500. Our offices in 38 countries, broad
spectrum of products, and talented people have firmly established our leadership
position in global finance. We are:

 .    A leading bank in loan syndications, ranking in the top two in
     arranger/co-arranger volume both in the U.S. and globally for the third
     consecutive year.

 .    No.1 Derivatives Bank based on a 1997 poll of corporate executives by
     Treasury & Risk Management magazine.

 .    "1997 Asian Loan House of the Year" awarded to BA Asia Limited by
     International Financing Review for bringing innovative deal structures to
     the market.

 .    No.1 in Latin America loan syndications, with more than $20 billion in
     agent/co-agent volume in 1997.

 .    The largest bank-affiliated commercial paper dealer in the U.S., with more
     than 210 commercial paper program dealerships representing a mix of
     domestic and foreign issuers.

A competitive strength of the Global Wholesale Bank is our relationship teams'
ability to understand our clients' business, anticipate their needs, and then
tailor financial solutions to meet those needs. Our teams allow us to deepen
client relationships through cross-sell opportunities and deliver the customized
capabilities our clients require -- the key to long-term corporate success for
our clients and for us.

The Global Wholesale Bank is building a growth platform -- making strategic
investments in new technology, strengthening our product breadth, and pursuing a
strategy of disciplined expansion into high-growth global markets.

We aggressively pursue advanced technologies to increase the economies of scale
we already enjoy, and to further enhance our responsiveness by developing
innovative solutions for our clients. For instance, Bank of America sponsored
the Leasing Exchange, a website-based venue listing lease assets for sale in the
secondary market. We've also launched full loan syndications via the Internet,
leveraging technology to accelerate the document-intensive syndication
processes.

In March 1997, Bank of America formed a strategic alliance with D.E. Shaw & Co.,
one of the most technologically sophisticated firms on Wall Street. Using
advanced computational and quantitative techniques, D.E. Shaw develops
client-oriented, equity-linked solutions to identify nondirectional equity and
fixed-income trading opportunities.

Building out our growth platform includes strengthening our product
capabilities, sustaining and extending our excellence in traditional credit
products, integrating and enhancing our cash management services, and investing
in targeted debt and equity capital raising capabilities.

In October 1997 we further expanded our product scope, specifically capital
raising products, by acquiring Robertson Stephens & Company, an investment bank
recognized for providing outstanding equity underwriting, research, strategic
advisory, and investment management services. These capabilities complement our
extensive client franchise and broad array of corporate finance products and
advisory services, particularly in high-growth industries and markets.

To strategically position our global network for the future, we are continuing
to pursue a targeted penetration of high-growth global markets. In August 1997,
Bank of America established a wholly owned subsidiary, Bank of America (Polska)
SA, in Warsaw, Poland. With this office we further open the Polish market to
BankAmerica's major U.S. and international corporate clients and strengthen our
ability to serve them in an emerging market. To expand our product offering in
Russia, on December 30, 1997 we signed a memorandum of understanding to open a
wholly owned subsidiary in Moscow.

The Global Wholesale Bank will continue to invest capital in productive ways as
we strive to improve the effectiveness and profitability of the franchise. Our
strong client base, full product suite, and team approach firmly position us at
the forefront of global finance.

Capital Raising
Our complete range of capital raising services -- from traditional credit and
sophisticated corporate finance and advisory services to equity underwriting --
provides clients with integrated origination, structuring, and distribution
solutions.

BancAmerica Robertson Stephens has established strong market positions in a wide
range of wholesale and investment banking products. We have proven leadership in
secondary loan trading and strong distribution capabilities in private equity,
private placements, and public debt (investment grade and high yield).
Recognized as a leading structurer of asset-backed commercial paper programs,
BancAmerica Robertson Stephens is

--------------------------------------------------------------------------------
           Great Franchise + Financial Discipline = Profitable Growth
--------------------------------------------------------------------------------

                                                                              15
<PAGE>
 
                             GLOBAL WHOLESALE BANK


"We had three weeks to develop a highly complex financing for a major AmeriServe
acquisition. We worked with the company to structure an innovative solution that
included a senior bank financing, a high yield debt financing, and a unique
receivables securitization financing that Corporate Finance magazine selected as
the Securitization Deal of the Year in 1997."

Kurt Anstaett, Relationship Manager, Chicago, Illinois



also a top agent for corporate debt products and is one of the largest
distributors of syndicated bank loans in the global marketplace.

Global Capital Markets
During 1997 our Global Capital Markets Group was strengthened by the additional
resources provided through strategic alliance, acquisition and the hiring of a
number of top quality professionals. Bank of America's strategic alliance with
D.E. Shaw & Co. has expanded our capabilities to include equity derivatives,
convertible bonds, warrants structuring, distribution, and market making.
Significant investment was made to develop capabilities in commodities trading,
credit derivatives, emerging markets trading, and U.S. corporate securities.

Global Foreign Exchange trading reported record volumes and revenues in 1997 and
is well positioned to manage business when markets are turbulent. Global
Emerging Markets Trading performed well and is now positioned to expand its
presence in the forfaiting, primary eurobond, and Central and East European
local currency markets.

In Italy, the central bank confirmed Bank of America's status as the foremost
dealer in Italian government bonds in both the primary and secondary markets.

Cash Management and Trade Services
Bank of America is a world leader in providing cash management and trade
services to corporations, other financial institutions, and government entities.
Using our integrated national and global systems, our clients can efficiently
manage their receivables and payables wherever their trading partners are
located.

Services range from locally and regionally linked account structures to
worldwide collection and payment solutions, from simple export letters of credit
to complex structured trade financing for major international projects. We
provide the solutions our clients need from basic cash management and trade
services to comprehensive systems for managing treasury activities globally.

Global Equity Investments
With one of the largest private equity portfolios in the business, our Global
Equity Investments Group makes


16
<PAGE>
 
"Why do we work with Bank of America? They thoroughly understand our 
business, provide innovative solutions to match our strategic and financial 
objectives, and we have complete confidence that they will deliver, and 
deliver quickly."

A. Petter Ostberg, Chief Financial Officer, Holberg Industries, Inc., (Parent 
Company of AmeriServe), AmeriServe Food Distribution Inc., America's largest 
food service distributor to restaurant chains, Dallas, Texas.


                                                                            17
<PAGE>
 
"Technology is our business. The world is our market. We need a financial 
services partner that understands both. Bank of America has the expertise and 
powerful global presence to meet our needs."

Dr. Morris Chang, Chairman and President, Taiwan Semiconductor Manufacturing 
Company, Ltd., the world's largest integrated circuit foundry, Taipei, Taiwan.


18
<PAGE>
 
                             GLOBAL WHOLESALE BANK


"Taiwan Semiconductor is Taiwan's largest company in market capitalization.
Business Week selected the Chairman and President, Dr. Morris Chang, as one of
the 25 top managers of the year in 1997. This is a powerful client that we work
night and day to please. From our credit administrators in Hong Kong to high
tech bankers in Silicon Valley, we have a global team that's powerful too, and
one that knows the client very well."

Vivian Tan, Corporate Finance Manager, Syndications, and Rock Su, Relationship
Manager, Taipei, Taiwan


direct and indirect private equity investments in North and South America, Asia,
and Europe. The group annually invests $750 million to $1 billion in venture
capital, leveraged buyout, acquisitions, growth, and recapitalization
transactions worldwide.

LEASING
Recognized as a premier global provider of leasing and equipment finance,
BankAmerica Leasing and Capital Group offers a broad array of advisory,
arranging, and syndication services. The group has nearly $19 billion in total
original equipment cost, owned or managed for other investors.

BUSINESS CREDIT
BankAmerica Business Credit, Inc., one of the largest commercial finance
companies in the U.S., provides senior secured, closely monitored financing to
large corporate and middle-market companies engaged principally in
manufacturing, distribution, and retailing. In addition, the unit provides loans
secured by consumer receivables of independent finance companies, health care
receivables financing, discounted loan purchases, and debtor-in-possession
financing. The group manages a portfolio of $7 billion with offices throughout
the United States, Canada, and the United Kingdom.

COMMERCIAL REAL ESTATE
With 90 years of experience in the commercial real estate market, Bank of
America delivers expertise in credit and financial services to a variety of
market segments, including developers, investors, pension fund advisors, real
estate investment trusts, and property managers. Our real estate financing draws
on commercial mortgage loans, construction lending, real estate acquisition
lending, mortgage warehousing, syndicated real estate bank loans, and secured
private placements.

ACHIEVING OUR OBJECTIVES
Expanding our capabilities, building on strong client relationships, and
generating solid financial performance are our objectives. These objectives not
only meet client needs, but also enable us to realize superior returns across a
changing marketplace.


                                                                              19
<PAGE>
 
--------------------------------------------------------------------------------
FINANCIAL REVIEW
--------------------------------------------------------------------------------

Overview                                                                      21
  Operating Leverage and Capital Management                                   23
Results of Operations                                                         24
  Net Interest Income                                                         24
  Noninterest Income                                                          26
  Noninterest Expense                                                         27
  Income Tax                                                                  28
  Comparison of 1996 with 1995                                                28
Business Sectors                                                              29
Balance Sheet Review                                                          32
  Overview                                                                    32
  Loan Portfolio Management                                                   32
  Allowance for Credit Losses                                                 38
  Nonperforming Assets                                                        41
Off-Balance-Sheet Financial Instruments                                       43
  Credit-Related Financial Instruments                                        43
  Derivative Financial Instruments                                            43
Risk Management                                                               44
  Credit Risk Management                                                      44
  Operational Risk                                                            45
  Market Risk                                                                 45
  Liquidity Risk Management                                                   49
Capital Management                                                            50
  Capital Review                                                              50
Pending Accounting Standards                                                  53
--------------------------------------------------------------------------------
Consolidated Financial Statements
--------------------------------------------------------------------------------

Report of Management                                                          54
Report of Independent Auditors                                                55
Consolidated Financial Statements                                             56
Notes to Consolidated Financial Statements                                    60
--------------------------------------------------------------------------------
Corporate Information
--------------------------------------------------------------------------------

Boards of Directors/BankAmerica Corporation
  and Bank of America NT&SA                                                   93
Principal Officers and Senior Management
  Council/BankAmerica Corporation                                             94
BankAmerica Corporate Governance Principles                                   95
Glossary of Common Banking Terms                                              96


--------------------------------------------------------------------------------
           Great Franchise + Financial Discipline = Profitable Growth
--------------------------------------------------------------------------------

20
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


FINANCIAL REVIEW


OVERVIEW

BankAmerica Corporation (the parent) and its subsidiaries (collectively BAC) is
the second largest bank holding company in the United States based upon total
market capitalization of $50.2 billion at December 31, 1997. At year-end 1997,
BAC's closing stock price was $73.00 per common share, up 46 percent from
year-end 1996.

                        PRICE RANGE OF COMMON STOCK/A/

<TABLE> 
<CAPTION> 

                1993       1994       1995      1996      1997
              --------   --------   --------  --------  -------- 
<S>           <C>        <C>        <C>       <C>       <C> 
High          27.7500    25.1250    34.2500   51.9375   81.9375
Low           20.1875    19.1875    19.7500   29.3750   47.6875

</TABLE> 

/a/ Reflects a two-for-one stock split effective June 2, 1997.


BAC reported record earnings of $3,210 million for 1997. BAC's earnings for the
year ended December 31, 1997 increased $337 million, or 12 percent, from $2,873
million in 1996. Diluted earnings per common share for 1997 were $4.32, an
increase of 18 percent from $3.65 in 1996. Diluted cash earnings per common
share, which excludes amortization of intangibles, were $4.69 for 1997, an
increase of 17 percent from $4.02 in 1996. Return on average common equity was
16.69 percent in 1997, up 169 basis points from 15.00 percent in 1996.

Total revenues, the sum of net interest revenue and noninterest revenue, were
$14,797 million in 1997, an increase of $798 million, or 6 percent, from 1996.
Net interest income was $8,669 million in 1997, up $82 million, or 1 percent,
from 1996. BAC's net interest margin was 4.06 percent in 1997, compared with
4.23 percent in 1996. The change in net interest income reflects an increase in
loans through new originations offset by sales and securitizations and by a
decrease in the net interest margin. Noninterest income increased $716 million,
or 13 percent, from 1996 to $6,128 million in 1997. The increase in noninterest
income reflects an increase in servicing fees primarily due to the growth of
loan sales and securitizations, and the acquisition of Robertson, Stephens &
Company Group, L.L.C. (Robertson Stephens). Noninterest expense was $8,521
million in 1997, an increase of 2 percent, or $180 million from $8,341 million
in 1996. BAC effectively managed expenses by keeping the rate of expense growth
well below that of revenues.


--------------------------------------------------------------------------------
                              RATIO AND STOCK DATA
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION>
                                                                                Year Ended December 31
                                                                            1997         1996/a/          1995/a/
------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>               <C>                  
SELECTED FINANCIAL RATIOS
Expense-to-revenue/b/                                                      53.53%       54.85%            58.08%
Rate of return (based on net income) on:                                                                       
 Average common equity                                                     16.69        15.00             14.58
 Average total equity                                                      16.05        14.18             13.62
 Average total assets                                                       1.25         1.19              1.17
                                                                                                               
CAPITAL RATIOS                                                                                                 
Ratio of common equity to total assets                                      7.39         7.37              7.57
Ratio of average total equity to average total assets                       7.82         8.38              8.61 
Common dividend payout ratio                                               27.42        29.03             28.01

STOCK DATA
Book value per common share at year end                                   $27.94       $26.00            $23.95
Closing common stock price                                                    73           49 7/8            32 3/8
Number of common shares outstanding at year end/c/                   688,056,859  710,533,790       734,894,404

--------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Shares and per share amounts and stock prices have been restated to reflect
    a two-for-one stock split effective June 2, 1997.
/b/ Excludes net other real estate owned expense, amortization of intangibles,
    and expenses associated with trust preferred securities. Also excludes the
    effect of the following pre-tax items in 1997: a $246 million gain on the
    sale of Security Pacific Financial Services, Inc. (SPFS), charges of
    approximately $112 million associated with the decision to exit Midwest
    retail facilities, and in the third quarter of 1997, expenses connected with
    multiple legal matters, writedowns on corporate real estate, and
    contributions to BankAmerica Foundation totaling $140 million. In addition,
    excludes the effect of the following items in 1996: an $82 million pre-tax
    one-time Savings Association Insurance Fund (SAIF) assessment, a $280
    million pre-tax restructuring charge, and a $147 million nontaxable gain
    from the initial public offering of BA Merchant Services, Inc. (BPI) common
    stock.
/c/ There were 134,709 common stockholders of record at January 31, 1998.


                                                                              
                                                                              21
<PAGE>
 
BankAmerica Corporation 1997 Annual Report    

                               FINANCIAL REVIEW


--------------------------------------------------------------------------------
                             SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                                          Year Ended December 31
(dollar amounts in millions, except per share data)                      1997         1996         1995         1994         1993
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>          <C>          <C>          <C> 
OPERATING RESULTS
Interest income                                                     $  17,457    $  16,659    $  15,840    $  12,384    $  11,627
Interest expense                                                        8,788        8,072        7,378        4,842        4,186
------------------------------------------------------------------------------------------------------------------------------------
 Net interest income                                                    8,669        8,587        8,462        7,542        7,441

Provision for credit losses                                               950          885          440          460          803
Noninterest income                                                      6,128        5,412        4,546        4,135        4,261
Noninterest expense                                                     8,521        8,341        8,001        7,500        7,471
------------------------------------------------------------------------------------------------------------------------------------
 Income before income taxes                                             5,326        4,773        4,567        3,717        3,428

Provision for income taxes                                              2,116        1,900        1,903        1,541        1,474
------------------------------------------------------------------------------------------------------------------------------------
     Net Income                                                     $   3,210    $   2,873    $   2,664    $   2,176    $   1,954

PER SHARE DATA/a/
Earnings per common share/b/                                        $    4.45    $    3.72    $    3.28    $    2.70    $    2.41
Diluted earnings per common share/b/                                     4.32         3.65         3.24         2.68         2.39
Dividends declared per common share                                      1.22         1.08         0.92         0.80         0.70

BALANCE SHEET DATA AT YEAR END
Loans                                                               $ 167,111    $ 165,415    $ 155,373    $ 140,912    $ 126,556
Total assets                                                          260,159      250,753      232,446      215,475      186,933
Deposits                                                              172,037      168,015      160,494      154,394      141,618
Long-term debt                                                         13,922       15,785       15,328       15,428       14,115
Common equity                                                          19,223       18,471       17,599       15,823       14,165
Total equity                                                           19,837       20,713       20,222       18,891       17,144

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Per share amounts have been restated to reflect a two-for-one stock split
    effective June 2, 1997.
/b/ Reflects the adoption of Statement of Financial Accounting Standards No.
    128, "Earnings per Share" (SFAS No. 128) including the restatement of prior
    years.

Total loans at year-end 1997 were $167.1 billion, up $1.7 billion, or 1 percent,
from $165.4 billion at year-end 1996. Increases in the loan portfolio through
new originations were mostly offset by sales and securitizations. Average loans
in 1997 increased $7.6 billion, or 5 percent, from 1996.

Total nonaccrual assets were $899 million at year-end 1997, down $219 million,
or 20 percent, from year-end 1996. In addition, BAC's nonaccrual coverage ratio
(the allowance for credit losses to total nonaccrual assets) was 389 percent at
year-end 1997, up from 315 percent at December 31, 1996.

BAC continued to effectively redeploy its capital throughout 1997. During 1997,
the stock repurchase program was extended to allow the parent to repurchase an
additional $3 billion of its common stock and to redeem an additional $1 billion
of its preferred stock by the end of 1998. In 1997, BAC repurchased 31.7 million
shares of its common stock for $2,025 million, and redeemed $1,628 million of
its preferred stock. In addition, BAC continued to maintain capital ratios above
the regulatory "well-capitalized" levels. On October 1, 1997, BAC completed the
acquisition of Robertson Stephens, a San Francisco-based investment banking and
investment management firm. The acquisition of Robertson Stephens allows BAC to
offer a broader range of equity underwriting and other investment banking and
investment management services. BAC also established a relationship with D.E.
Shaw & Co., Inc., a private investment banking company, which significantly
enhances BAC's ability to offer equity-related products to its customers. Also
during 1997, BAC completed the sale of its consumer finance subsidiary, Security
Pacific Financial Services Inc. (SPFS), which resulted in a $246 million gain,
and the sales of certain rural Texas branches and its branch system in Hawaii,
which resulted in gains of $33 million. Furthermore, BAC announced decisions to
exit Midwest retail facilities and to sell its manufactured housing business,
which are expected to be completed in 1998.

--------------------------------------------------------------------------------
                               SUMMARY OF RESULTS
                   EXCLUDING AMORTIZATION OF INTANGIBLES/a/
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                              Year Ended December 31
(dollar amounts in millions, except per share data)      1997           1996           1995
---------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C> 
Net income excluding
 amortization of intangibles                           $3,474         $3,145         $2,946
Diluted cash earnings
 per common share/b/                                     4.69           4.02           3.62
Rate of return on average
 common equity                                          18.11%         16.52%         16.26%

----------------------------------------------------------------------------------------------
</TABLE> 
/a/ For purposes of this table, amortization amounts are related to those
    intangibles that are deducted from Tier 1 capital under regulatory
    guidelines. Amortization amounts excluded from this table totaled
    $264 million, $272 million, and $282 million for the years ended December
    31, 1997, 1996, and 1995, respectively.

/b/ Restated to be consistent with the requirements of SFAS No. 128 and a
    two-for-one stock split effective June 2, 1997.



22
<PAGE>
                                                                                
                                      BankAmerica Corporation 1997 Annual Report
 
                               FINANCIAL REVIEW 


As part of its continuing efforts to improve efficiency by eliminating redundant
functions and reducing costs, BAC combined several interstate affiliate banks
into Bank of America NT&SA (the Bank) during 1997. On January 1, 1997, Bank of
America (BofA) Alaska, N.A., BofA Arizona, BofA Nevada, BofA New Mexico, N.A.,
and BofA NW, National Association (formerly Seattle-First National Bank) were
merged into the Bank. On July 1, 1997, BofA Illinois and BofA Trust Company of
Florida, N.A. were merged into the Bank. During 1996, BofA Oregon and
BankAmerica National Trust Company were merged into the Bank.

In 1996, BAC completed the initial public offering (IPO) of 16,100,000 shares of
Class A Common Stock of BA Merchant Services, Inc. (ticker symbol "BPI" on the
New York Stock Exchange), a subsidiary of BAC, resulting in a $147 million
nontaxable gain. Also during 1996, as a result of decisions to implement a
number of changes in its business activities, BAC recorded a pre-tax
restructuring charge of $280 million. In addition, as a result of legislation to
recapitalize the Savings Association Insurance Fund (SAIF), BAC recognized a
charge of $82 million. For further information on the restructuring charge and
SAIF assessment, refer to Notes 27 and 28 of the Notes to Consolidated Financial
Statements on page 88, respectively.

Operating Leverage and Capital Management

BAC demonstrated effective operating leverage and capital management in both
1997 and 1996. Operating leverage is achieved when the rate of revenue growth
exceeds that of expenses. Effective capital management enhances operating
leverage when the growth in net income exceeds that of common shares outstanding
and preferred stock dividends. By increasing revenues, effectively managing
expenses, and taking strategic capital management steps, BAC realized increases
in net income applicable to common stock of 16 percent in 1997 compared with
1996 and 10 percent in 1996 over 1995. In addition, the rate of return on
average common equity increased 169 basis points in 1997 over 1996 and 42 basis
points in 1996 compared with 1995.

As shown in the table below, revenue for 1997 increased 6 percent from 1996
while noninterest expense increased only 2 percent. In 1996, revenue increased 8
percent while noninterest expense increased 4 percent from 1995. The average
number of diluted common shares outstanding decreased 2 percent for both 1997
over 1996 and 1996 compared with 1995. In addition, preferred stock dividends in
1997 decreased 46 percent from 1996 and 19 percent in 1996 over 1995. However,
the decreases in preferred stock dividends were partially offset by the
after-tax effect of expenses related to trust preferred securities.

--------------------------------------------------------------------------------
                    OPERATING LEVERAGE AND CAPITAL MANAGEMENT
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                                Percentage                              Percentage
(dollar amounts in millions, except per share data)         1997          1996      Change          1996          1995      Change
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>       <C>             <C>           <C>       <C> 
OPERATING LEVERAGE COMPONENTS
Net interest income                                     $  8,669      $  8,587           1%     $  8,587      $  8,462           1%
Noninterest income                                         6,128         5,412          13         5,412         4,546          19
------------------------------------------------------------------------------------------------------------------------------------
   Total revenue                                          14,797        13,999           6        13,999        13,008           8

Noninterest expense                                        8,521         8,341           2         8,341         8,001           4

Operating income/a/                                        6,276         5,658          11         5,658         5,007          13
Provision for credit losses                                  950           885           7           885           440         101
Provision for income taxes                                 2,116         1,900          11         1,900         1,903          --

CAPITAL MANAGEMENT COMPONENTS
Net income                                                 3,210         2,873          12         2,873         2,664           8
Preferred stock dividends                                    100           185         (46)          185           227         (19)
Net income applicable to common stock                      3,110         2,688          16         2,688         2,437          10
Average number of diluted common shares outstanding
   (in thousands)/c/                                     719,777       736,055/b/       (2)      736,055/b/    751,112/b/       (2)
Diluted earnings per common share/c/                    $   4.32      $   3.65/b/       18      $   3.65/b/   $   3.24/b/       13
Average common equity                                     18,635        17,926           4        17,926        16,716           7
Rate of return on average common equity                    16.69%        15.00%        169bp       15.00%        14.58%         42bp

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Represents income before the provisions for credit losses and income taxes.
/b/ Restated to reflect a two-for-one stock split effective June 2, 1997.
/c/ Reflects the adoption of SFAS No. 128 including the restatement of prior
    years. 
bp  Basis points.


                                                                              23
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW



RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is the difference between interest earned on assets and
interest incurred on liabilities. On a taxable-equivalent basis, net interest
income was $8,695 million in 1997, up $91 million from 1996. The increase
primarily resulted from growth in earning assets, partially offset by an
increase in the cost of funds. During 1997 and 1996, BAC securitized
approximately $2.1 billion and $1.5 billion, respectively, in credit card loans.
Excluding the effect of these credit card securitizations, taxable-equivalent
net interest income would have increased $256 million from 1996.


NET INTEREST INCOME
(in millions of dollars)

                1993      1994      1995      1996      1997
               ----------------------------------------------
               $7,463    $7,566    $8,487    $8,604    $8,695


Average earning assets totaled $214.3 billion in 1997, up $11.0 billion, or 5
percent, from 1996. The increase was largely attributable to growth in most
segments of the loan portfolio, partially offset by loan sales and
securitizations, as average loans increased $7.6 billion from 1996. In addition,
trading account assets rose $3.0 billion from 1996.

The net interest margin, which is the difference between interest income and
interest expense expressed as a percentage of average earning assets, was 4.06
percent, down 17 basis points from 1996. During the year ended December 31,
1997, the yield on average earning assets decreased 4 basis points, primarily
due to lower prevailing market rates. At the same time the cost of funds
increased, primarily in domestic interest-bearing deposits, the largest
component of interest-bearing liabilities. In addition, BAC has experienced a
shift in the mix of liabilities toward wholesale funding sources, including
foreign interest-bearing deposits and domestic purchased funds, which are more
costly than traditional core deposits. For more information, refer to the
Average Balances and Rates table on the following page. BAC's net interest
income and margin include the recognition of hedging with certain on- and
off-balance-sheet financial instruments. The recognition of hedging with
derivative financial instruments reduced BAC's net interest income results by 
approximately $95 million in 1997, compared with an approximate income of $5 
million in 1996.

--------------------------------------------------------------------------------
                     IMPACT OF CREDIT CARD SECURITIZATIONS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                       Year Ended December 31, 1997/a/
                               -------------------------------------------------
                                        Before
                                   Credit Card        Credit Card        
(dollar amounts in millions)   Securitizations    Securitizations      Reported
--------------------------------------------------------------------------------
<S>                            <C>                <C>                  <C>   
OPERATING RESULTS
Net interest income                   $  8,878          $   (209)      $  8,669
Credit and other card fees                 419               (41)           378
Other noninterest income                 5,571               179/b/       5,750
--------------------------------------------------------------------------------
  Total revenue                         14,868               (71)        14,797
                                                                    
Noninterest expense                      8,521                --          8,521
   Income before provision for                                      
     credit losses                       6,347               (71)         6,276
Provision for credit losses              1,089              (139)/c/        950
--------------------------------------------------------------------------------
   Income before income taxes         $  5,258          $     68       $  5,326
                                                                    
Net interest margin                       4.11%            (0.05)%         4.06%
                                                                    
BALANCE SHEET DATA                                                  
   AT YEAR END                                                      
Credit card loans                     $ 10,318          $  3,621       $  6,697
Total assets                           263,780             3,621        260,159
                                                                    
AVERAGE BALANCE                                                     
   SHEET DATA                                                       
Credit card loans                        9,902             2,115          7,787
Earning assets                         216,438             2,115        214,323
Total assets                           257,916             2,115        255,801
                                                                    
Net credit losses --                                                
   credit card portfolio                   612              (139)           473
                                                                    
SELECTED FINANCIAL RATIOS                                           
Annualized ratio of net credit losses                               
   on credit card loans to average                               
   credit card loans                      6.17%            (0.10)%         6.07%
Delinquent credit card loan ratio/d/      2.89             (0.04)          2.85

--------------------------------------------------------------------------------
</TABLE> 
/a/ Includes the effects of accumulated credit card securitizations of $3,621
    million at December 31, 1997.
/b/ Includes a $68 million gain, net of amortized cost, associated with the
    implementation of Statement of Financial Accounting Standards No. 125,
    "Accounting for Transfers and Servicing of Financial Assets and
    Extinguishments of Liabilities."
/c/ Represents charge-offs on the investor's share.
/d/ 60 days or more past due.


24
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report
 
                               FINANCIAL REVIEW

<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------
                                                    AVERAGE BALANCES AND RATES
------------------------------------------------------------------------------------------------------------------------------------

                                                                                        Year Ended December 31
                                                                         1997                    1996                   1995
                                                         ---------------------------------------------------------------------------
(dollar amounts in millions)                                Balance/a/     Rate/b/   Balance/a/     Rate/b/  Balance/a/    Rate/b/
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>        <C>            <C>       <C>          <C> 
ASSETS
Interest-bearing deposits in banks                           $   6,197     6.70%      $   5,717       7.93%   $   5,853      7.95%
Federal funds sold                                                 746     5.54             533       5.41          548      5.89
Securities purchased under resale agreements                    10,032     7.73          10,334       6.32        8,823      7.00
Trading account assets                                          15,538     7.96          12,541       8.01        9,106      8.18
Available-for-sale securities/c,d/                              11,934     7.03          11,383       7.45        9,768      7.83
Held-to-maturity securities/c/                                   3,850     7.63           4,347       7.42        7,192      7.29
Domestic loans:                                                                     
  Consumer--residential first mortgages                         35,260     7.38          37,572       7.47       35,407      7.06
  Consumer--residential junior mortgages                        14,898     8.46          14,264       8.59       13,832      9.05
  Consumer--credit card                                          7,787    14.56           8,837      14.53        8,230     14.95
  Other consumer                                                20,416     9.59          17,465       9.85       14,149      9.89
  Commercial and industrial                                     34,280     7.95          32,944       7.83       30,927      8.47
  Commercial loans secured by real estate                       12,653     8.93          11,508       8.84       10,586      9.04
  Financial institutions                                         3,175     5.30           2,815       4.40        2,511      5.69
  Lease financing                                                2,747     5.70           2,127       6.92        1,835      6.06
  Loans for purchasing or carrying securities                    1,945     7.55           1,270       6.78        1,303      7.02
  Construction and development loans secured by real estate      2,269    12.88           2,816      10.69        3,367     11.07
  Agricultural                                                   1,656     8.70           1,570       8.70        1,619      9.67
  Other                                                          1,511     6.17           1,176       6.39        1,394      6.56
------------------------------------------------------------------------------------------------------------------------------------
  Total domestic loans                                         138,597     8.52         134,364       8.56      125,160      8.73
Foreign loans                                                   27,429     7.56          24,087       7.73       21,754      8.24
------------------------------------------------------------------------------------------------------------------------------------
  Total loans/c/                                               166,026     8.36         158,451       8.44      146,914      8.65
  Total earning assets                                         214,323     8.16         203,306       8.20      188,204      8.43
Nonearning assets                                               45,010                   42,060                  42,641
Less: Allowance for credit losses                                3,532                    3,524                   3,672
-----------------------------------------------------------------------------------------------------------------------------------
  Total Assets                                               $ 255,801                $ 241,842               $ 227,173
-----------------------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY                                                
Domestic interest-bearing deposits:                                                
  Transaction                                                $   5,657     1.57%      $  12,205       1.22%   $  13,241      1.20%
  Savings                                                       11,757     2.06          12,872       2.05       13,550      2.08
  Money market                                                  39,918     2.78          28,772       3.14       29,070      2.99
  Time                                                          30,419     5.50          30,132       5.13       30,002      4.90
------------------------------------------------------------------------------------------------------------------------------------
  Total domestic interest-bearing deposits                      87,751     3.55          83,981       3.41       85,863      3.24
Foreign interest-bearing deposits:                                                  
  Banks located in foreign countries                            13,156     6.04          12,957       5.89       10,245      6.63
  Governments and official institutions                         10,802     5.47           9,579       5.23        6,845      5.80
  Time, savings, and other                                      21,260     6.08          19,058       6.47       16,131      6.60
------------------------------------------------------------------------------------------------------------------------------------
  Total foreign interest-bearing deposits                       45,218     5.92          41,594       6.00       33,221      6.44
  Total interest-bearing deposits                              132,969     4.36         125,575       4.27      119,084      4.13
Federal funds purchased                                          1,176     5.43           1,492       5.29        2,222      5.89
Securities sold under repurchase agreements                     11,583     6.99          11,702       5.94        9,110      6.38
Other short-term borrowings                                     17,911     6.13          14,448       6.11        9,301      6.77
Long-term debt                                                  14,665     6.97          15,396       6.86       15,761      7.06
------------------------------------------------------------------------------------------------------------------------------------
  Total interest-bearing liabilities                           178,304     4.93         168,613       4.79      155,478      4.75
Domestic noninterest-bearing deposits                           34,655                   34,415                  33,272
Foreign noninterest-bearing deposits                             1,643                    1,557                   1,630
Other noninterest-bearing liabilities                           19,344                   16,898                  17,238
------------------------------------------------------------------------------------------------------------------------------------
  Total liabilities                                            233,946                  221,483                 207,618
Trust preferred securities/e/                                    1,857                       90                      --
Stockholders' equity                                            19,998                   20,269                  19,555
------------------------------------------------------------------------------------------------------------------------------------
  Total Liabilities and Stockholders' Equity                 $ 255,801                $ 241,842               $ 227,173
Interest income as a percentage of average earning assets                  8.16%                      8.20%                  8.43%
Interest expense as a percentage of average earning assets                (4.10)                     (3.97)                 (3.92)
------------------------------------------------------------------------------------------------------------------------------------
  Net Interest Margin                                                      4.06%                      4.23%                  4.51%

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

</TABLE> 

/a/ Average balances are obtained from the best available daily, weekly, or
    monthly data.
/b/ Average rates are presented on a taxable-equivalent basis. The
    taxable-equivalent adjustments are based on a marginal tax rate of 40%.
/c/ Average balances include nonaccrual assets.
/d/ Refer to the table on page 32 of the Balance Sheet Review for more detail on
    available-for-sale and held-to-maturity securities.
/e/ Trust preferred securities represent corporation obligated mandatorily
    redeemable preferred securities of subsidiary trusts holding solely junior
    subordinated deferrable interest debentures of the corporation.

                                                                              
                                                                            25
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW

Noninterest Income
Noninterest income for 1997 was $6,128 million, an increase of $716 million, or
13 percent, from $5,412 million in 1996. The increase reflected growth in fees
and commissions, trading income, and other noninterest income.

<TABLE> 
<CAPTION> 

NONINTEREST INCOME
(in millions of dollars)

                Trading Income       Other Noninterest Income        Fees and Commissions     Total
                --------------       ------------------------        --------------------     -----
<S>             <C>                  <C>                             <C>                      <C> 
1996                 $630                    $1,416                        $3,366             $5,412
1997                 $692                    $1,575                        $3,861             $6,128
</TABLE> 
Fees and commissions, the largest component of noninterest income, increased
$495 million, or 15 percent, from 1996, reflecting BAC's continued expansion of
its fee-generating activities. The increase in loan fees and charges of $259
million was primarily attributable to higher loan servicing fees, mainly as a
result of growth in credit card securitizations as well as the effects of
implementing Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS No. 125). In addition, the increase in loan fees and charges
was partially related to higher revenues from late payment and overlimit charges
on credit card accounts. The growth in the "other" component of other fees and
commissions of $155 million was largely due to the acquisition of Robertson
Stephens and growth in ATM fees in 1997. Revenues earned in 1997 from deposit
account fees rose $48 million from 1996, mainly due to growth in fee-generating
retail accounts.

Trading income increased $62 million, or 10 percent, from 1996 and was primarily
attributable to improved trading activities in foreign exchange. However, the
overall increase in trading income was impacted by the volatile overseas market
toward the end of 1997. For more information on the functional components of
trading income, refer to Note 25 of the Notes to Consolidated Financial
Statements on pages 80 -- 86.

--------------------------------------------------------------------------------
                              NONINTEREST INCOME
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                       Year Ended December 31
  (in millions)                                       1997      1996       1995
--------------------------------------------------------------------------------
<S>                                                <C>        <C>       <C>  
FEES AND COMMISSIONS
 Deposit account fees:
  Retail                                            $1,086     $1,057     $  931
  Commercial                                           361        342        372
Credit and other card fees                             378        355        315
Trust fees:
  Corporate and employee benefit                         9         18         53
  Personal and other                                   246        211        247
Other fees and commissions:
  Loan fees and charges                                623        364        310
  Off-balance-sheet credit-related
    instrument fees                                    304        345        344
 Financial services fees                               252        216        189
 Mutual fund and
  annuity commissions                                   89        100         81
 Other                                                 513        358        345
--------------------------------------------------------------------------------
                                                     3,861      3,366      3,187

TRADING INCOME                                         692        630        527

OTHER NONINTEREST INCOME
 Private equity investment activities                  510        427        337
 Net gain on sales of loans                            249         89         24
 Net gain on sales of subsidiaries
  and operations                                       213        180         25
 Net gain on available-for-sale securities             116         61         34
 Gain on issuance of subsidiary's stock                 --        147         --
 Other income                                          487        512        412
--------------------------------------------------------------------------------
                                                     1,575      1,416        832
                                                    $6,128     $5,412     $4,546

--------------------------------------------------------------------------------
</TABLE> 


Other noninterest income for 1997 rose $159 million, or 11 percent, from 1996,
reflecting an overall increase in most categories as discussed in more detail
below.

Noninterest income related to net gain on sales of loans increased $160 million
from 1996, largely due to growth in sales of residential mortgages and increased
securitizations of manufactured housing loans. Noninterest income related to
private equity investment activities increased $83 million from 1996 due to
higher realized capital gains and partnership distributions. Net gain on
available-for-sale securities grew $55 million, primarily reflecting improved
realized gains from the sale of securities. In addition, net gain on sales of
subsidiaries and operations totaled $213 million in 1997, an increase of $33
million from 1996. The amount in 1997 included pre-tax gains of $246 million
associated with the sale of SPFS, $24 million from the Texas branch
divestitures, $23 million from the sale of retail branches in California, and $9
million from the sale of retail operations in Hawaii. The effect of these gains
was partially offset by charges of approximately $112 million for asset
dispositions, personnel expenses, and other costs associated primarily with the
decision to exit Midwest retail facilities.

26
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report
 
                             FINANCIAL REVIEW     


Net gain on sales of subsidiaries and operations for 1996 included pre-tax gains
of $82 million from the sale of a Hong Kong consumer and commercial finance
subsidiary, $50 million from the divestiture of BAC's ITSS business, and
$39 million from a reduction of BAC's equity interest in KorAm Bank. Also, 1996
included a nontaxable gain of $147 million from the IPO of BPI common stock.


Noninterest Expense

Noninterest expense was $8,521 million in 1997, up $180 million, or 2 percent,
from $8,341 million in 1996. The increase primarily reflected higher personnel
expense, partially offset by a decline in other noninterest expense.

NONINTEREST EXPENSE
(in millions of dollars)
<TABLE> 
<CAPTION> 
                Equipment       Occupancy       Other Noninterest Expense     Personnel      Total
                ---------       ---------       -------------------------     ---------      -----
<S>             <C>             <C>             <C>                           <C>            <C> 
1996              $702            $757                   $2,818                $4,064        $8,341
1997              $725            $753                   $2,763                $4,280        $8,521
</TABLE> 

Personnel expense, the largest component of noninterest expense, increased $216
million, or 5 percent, from 1996. The increase in personnel expense was
primarily associated with the acquisition of Robertson Stephens in 1997. In
addition, the increase reflected higher variable pay related to incentive plans,
base salaries, and other compensation, partially offset by lower staff levels.
BAC's staff level on a full-time-equivalent (FTE) basis was approximately 77,000
at December 31, 1997, down from approximately 78,000 at December 31, 1996. FTE
is a measurement equal to one full-time employee working a standard day. BAC had
approximately 90,500 employees, both full-time and part-time, at December 31,
1997, down from approximately 92,100 employees at year-end 1996.

Other noninterest expense decreased $55 million, or 2 percent, from 1996,
primarily due to a restructuring charge in 1996 and decreases in 1997 in
regulatory fees and related expenses, partially offset by an increase in
professional service fees and other expense.

STAFF LEVELS
(in thousands)
<TABLE> 
<CAPTION> 

                 Number of Employees       Full-time-equivalent staff
                 -------------------       --------------------------
       <S>       <C>                       <C> 
        1993            96.4                          79.2
        1994            98.6                          82.1
        1995            95.3                          79.9
        1996            92.1                          78.0
        1997            90.5                          77.0
</TABLE> 

BAC recorded a pre-tax restructuring charge in 1996 of $280 million as a result
of decisions to implement a number of streamlining measures in its business
activities. For more information regarding the restructuring charge, refer to
Note 27 of the Notes to Consolidated Financial Statements on page 88. The
decline in regulatory fees and related expenses of $94 million was primarily due
to the inclusion in 1996 of a one-time assessment of $82 million associated with
the recapitalization of the SAIF. For more information regarding this special
deposit assessment, refer to Note 28 of the Notes to Consolidated Financial
Statements on page 88. The decline in other noninterest expense was partially
offset by an increase in professional service fees of $54 million which was
mainly attributable to widespread increases in outside services. The increase in
other expense of $264 million was primarily due to expenses associated with
trust preferred securities of $144 million in 1997, an increase of $137 million
over the prior year. In addition, other expense in 1997 included increases in
charges associated with multiple legal matters and contributions to the
BankAmerica Foundation.


--------------------------------------------------------------------------------
                               NONINTEREST EXPENSE
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                       Year Ended December 31
(in millions)                                       1997        1996        1995
--------------------------------------------------------------------------------
<S>                                              <C>         <C>         <C> 
PERSONNEL
 Salaries                                         $3,572      $3,291      $3,309
 Employee benefits                                   708         773         718
--------------------------------------------------------------------------------
                                                   4,280       4,064       4,027

OCCUPANCY                                            753         757         738

EQUIPMENT                                            725         702         663

OTHER NONINTEREST EXPENSE
 Professional services                               398         344         313
 Communications                                      379         363         359
 Amortization of intangibles                         358         373         428
 Regulatory fees and related expenses                 29         123         176
 Restructuring charge                                 --         280          --
 Other expense                                     1,599       1,335       1,297
--------------------------------------------------------------------------------
                                                   2,763       2,818       2,573

                                                  $8,521      $8,341      $8,001

--------------------------------------------------------------------------------
</TABLE> 
                                                                              27
<PAGE>
 
BankAmerica Corporation 1997 Annual Report      

                               FINANCIAL REVIEW


Year 2000

BAC's noninterest expense for 1997 included approximately $90 million incurred
in connection with making its computer systems year 2000 compliant. BAC expects
to substantially complete this project by the end of 1998 and estimates its
total costs over the four year period 1997 - 2000 will be approximately $380
million. Included in this amount is $80 million for retention and incentive
payments. None of these costs, however, are expected to materially impact BAC's
results of operations in any one reporting period. In addition, a significant
portion of these costs are not expected to be incremental to BAC but instead
will constitute a reassignment of existing internal systems technology
resources. BAC believes that its plans for dealing with the year 2000 issue will
result in timely and adequate modifications of its systems and technology.

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures BAC undertakes, but also on the way in which the year
2000 issue is addressed by governmental agencies, businesses, and other entities
who provide data to, or receive data from, BAC, or whose financial condition or
operational capability is important to BAC as suppliers or customers. Therefore,
BAC is communicating with these parties to ensure they are aware of the year
2000 issue, to learn how they are addressing it, and to evaluate any likely
impact on BAC. It is possible that if all aspects of the year 2000 issues are
not adequately resolved by these parties, BAC's future business operations and,
in turn, its financial position and results of operations could be negatively
impacted. In addition, BAC's credit risk associated with its borrowers may
increase as a result of their individual year 2000 issues. As a result, BAC
expects that there may be increases in problem loans and credit losses in future
years. However, at this time, it is not possible to quantify the potential
impact of such situations.


Income Tax

BAC's effective income tax rates for 1997 and 1996 were 39.7 percent and 39.8
percent, respectively. For further information concerning the provisions for
federal, state, and foreign income taxes, refer to Note 22 of the Notes to
Consolidated Financial Statements on pages 74 -- 75. 

Comparison of 1996 with 1995

Net income in 1996 was $2,873 million, up 8 percent from $2,664 million in 1995,
and was primarily attributable to substantial growth in noninterest income.
Taxable-equivalent net interest income was $8,604 million in 1996, up $117
million from 1995, primarily due to growth in average earning assets of
$15.1 billion, or 8 percent, partially offset by a decrease in the net interest
margin. BAC's net interest margin for 1996 was 4.23 percent, down 28 basis
points from 1995.

The provision for credit losses increased $445 million, or 101 percent, from
1995.

Noninterest income for 1996 increased $866 million, or 19 percent, from
$4,546 million in 1995. Fees and commissions increased $179 million, or 6
percent, from 1995, primarily reflecting higher revenues from retail deposit
account fees, loan fees and charges, financial services fees, as well as credit
and other card fees, partially offset by a decrease in trust fees. Trading
income increased $103 million, or 20 percent, from 1995, and was primarily
attributable to growth in foreign exchange trading income as well as improved
performance in emerging markets, Latin America, Europe, and domestic debt
securities. Other noninterest income for 1996 rose $584 million, or 70 percent,
from 1995, reflecting higher net gain on sales of subsidiaries and operations, a
gain on the issuance of BPI stock, higher income related to private equity
investment activities, and increased net gain on sales of loans.

Noninterest expense was $8,341 million in 1996, up $340 million, or 4 percent,
from 1995, reflecting increases in personnel, occupancy, equipment, and other
expenses. Personnel expense increased $37 million, or 1 percent, from 1995,
largely due to expanded employee benefits as the result of retirement
enhancements that became effective January 1, 1996. A decrease in salaries,
largely attributable to reductions in staff levels, partially offset the
increase. Occupancy and equipment expense increased $58 million, or 4 percent,
from 1995. The increase was primarily due to higher depreciation expense on
equipment.

Other noninterest expense increased $245 million, or 10 percent, from 1995,
primarily due to the previously discussed restructuring charge. The increase was
partially offset by decreases in amortization of intangibles as well as
regulatory fees and related expenses. Amortization of intangibles decreased
$55 million, or 13 percent, from 1995, largely attributable to the impact of the
fourth-quarter 1995 adoption of Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights." Regulatory fees and related
expenses declined $53 million, primarily due to a reduction in Federal Deposit
Insurance Corporation assessment rates. Partially offsetting this reduction in
deposit insurance premiums was a one-time assessment of $82 million in 1996
associated with the recapitalization of the SAIF.

28
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW

Business Sectors

For reporting purposes, BAC segregates its operations into five primary business
or operating sectors. BAC determines its business sector results based on an
internal management reporting system that allocates certain revenues, expenses,
assets, and liabilities to each business. Furthermore, for internal business
sector monitoring, the unallocated allowance for credit losses and related
provision for credit losses are assigned to the businesses. Equity is assigned
to each business on a risk-adjusted basis taking into account goodwill and
tax-effected identifiable intangibles. While BAC manages its interest-rate risk
hedging activities centrally, the effects of hedging are generally allocated to
the businesses through a transfer pricing process. As a result, the effects of
hedging interest rate risk are reflected in the appropriate business sectors.

The information set forth in the table on pages 30 and 31 reflects the condensed
income statements and selected average balance sheet line items and financial
ratios by business sector. The information presented does not necessarily
represent the business sectors' financial condition and results of operations as
if they were independent entities. Results from prior periods are restated for
changes in sector composition and in allocation and assignment methodologies to
allow comparability. 


Consumer Banking

BAC's Consumer Banking Group served over 11 million households in 1997, which
gave it the largest customer base of any bank in the western U.S. Consumer
Banking provides a full array of deposit and loan products to individuals and
small businesses through about 1,800 full-service branches, close to 7,700 ATMs,
and telephone and other delivery channels.

Consumer Banking's net income for 1997 was up $360 million, or 33 percent, from
1996. Net interest income in 1997 decreased primarily due to loan sales and
securitizations in residential first mortgages and credit card receivables.
Noninterest income increased due to higher revenues from service charges on
deposit accounts and from ATM fees in California, larger gains on the sales of
residential first mortgages, and higher loan servicing revenue. The increase in
loan servicing revenue resulted primarily from credit card securitizations as
well as the effects of implementing SFAS No.125. Also contributing to
noninterest income was a $246 million gain associated with a sale of a consumer
finance subsidiary, SPFS, which was partially offset by charges of approximately
$112 million primarily associated with a decision to exit Midwest retail
facilities. Noninterest income for 1996 included an $82 million gain from the
sale of a Hong Kong consumer and commercial finance subsidiary and a $147
million nontaxable gain from the IPO of BPI common stock. Noninterest expense
for 1997 included charges connected with writedowns on corporate real estate and
contributions to the BankAmerica Foundation, while 1996's noninterest expense
included a $100 million restructuring charge and an $82 million one-time
assessment for the recapitalization of the SAIF. The provision for credit losses
for 1997 decreased $270 million from 1996 primarily due to the reduction of the
unallocated allowance assigned to Consumer Banking. Average loan outstandings
grew $1 billion, or 1 percent, from December 31, 1996, reflecting growth in
manufactured housing loans, consumer auto loans, and lease financing, while a
reduction in residential real estate loans partly offsets this increase.

Net income in 1996 was up $39 million, or 4 percent from 1995. Net interest
income increased primarily due to higher revenues from growth in average loan
balances, primarily the residential, consumer installment, and credit card
portfolios. Noninterest income for Consumer Banking increased $639 million due
to higher revenues from service fees and charges associated with deposit
accounts, increased gains on loan sales, and the aforementioned gains from the
IPO of BPI common stock and the sale of a Hong Kong subsidiary. Noninterest
expense increased $360 million primarily due to the aforementioned restructuring
charge and SAIF recapitalization. The provision for credit losses for Consumer
Banking in 1996 increased $450 million from 1995 primarily as a result of growth
in the consumer loan portfolio. 


U.S. Corporate and International Banking

U.S. Corporate and International Banking provides capital-raising services,
trade finance, cash management, investment banking, capital markets and credit
products, and financial advisory services to large public- and private-sector
institutions that are part of the global economy. BAC is one of the leading
U.S.-based providers of financial services to institutions conducting business
within the U.S. and across international boundaries, with offices in the U.S.
and 37 other countries and territories in North and South America, Asia, Europe,
Africa, and the Middle East.

U.S. Corporate and International Banking's net income for 1997 increased $10
million, or 1 percent, from 1996. Higher net interest and noninterest income
levels were offset by increases in noninterest expense and the provision for
credit losses. The increase in net interest income resulted from higher earning
asset balances. Noninterest income was up $273 million predominantly due to
increased fees and commissions from the newly acquired Robertson Stephens
coupled with improved foreign exchange and trading account profits, higher
securities gains, and increased gains on the sales of loans and other assets.
Lower commitment fees partially offset the increases in noninterest income. In
addition, noninterest income in 1996 included a $43 million gain on the
liquidation of an Australian subsidiary and a $39 million gain that resulted
from a reduction of BAC's equity interest in KorAm Bank, an Asian investment.
Noninterest expense increased in 1997 primarily due to expenses associated with
the acquisition of Robertson Stephens. Noninterest expense in 1996 included a
$130 million restructuring charge. The increase in the provision for credit
losses was primarily related to the volatile conditions in emerging markets
toward the end of 1997. These conditions also resulted in lower trading income
during the latter part of 1997.

Net income in 1996 for U.S. Corporate and International Banking increased $217
million from 1995. The $161 million increase in net interest income primarily
resulted from loan growth, especially in the foreign loan portfolio. Noninterest

                                                                              
29
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW



income was up $329 million from 1995, primarily due to higher trading income,
income related to global private equity activities and financial management
fees. Also reflected in the 1996 noninterest income are the aforementioned gains
on the liquidation of an Australian subsidiary and from a reduction of BAC's
equity interest in KorAm Bank. The 1995 amount included a $50 million gain on
the sale of an asset received in lieu of debt repayment. Noninterest expense
increased in 1996 due to the aforementioned restructuring charge and higher
group variable compensation, primarily resulting from higher incentive accruals
associated with trading activities. 


Middle Market Banking

Middle Market Banking provides a full range of financial products and services,
primarily in the West and the Midwest, targeting companies with annual revenues
between $5 million and $500 million. Included in this sector is a national
commercial finance company, BankAmerica Business Credit, Inc., that serves
mid-sized and large companies with specialized needs throughout the U.S. and in
Canada.

Middle Market Banking's net income for 1997 increased $8 million, or 2 percent,
from 1996. The increase in net interest income was primarily attributable to
higher loan volumes.

Net income in 1996 for Middle Market Banking increased $75 million from 1995,
primarily attributable to a reduction in the provision for credit losses,
reflecting an improvement in credit quality.


Commercial Real Estate Services

Commercial Real Estate Services provides credit and other financial services to
a variety of real estate market segments, including developers, investors,
pension fund advisors, real estate investment trusts, and property managers.
Regional clients are served throughout California and in ten other states.
National clients, such as publicly traded corporations and private entities, are
served through offices in California.

Commercial Real Estate Services' net income for 1997 increased $22 million, or
11 percent, from 1996, largely due to an increase in net interest income coupled
with an improvement in credit losses. Included in net interest income for 1997
was an interest recovery of $23 million from a single borrower. Improved credit
quality of commercial real estate loans caused the decrease in the provision for
credit losses.

Commercial Real Estate Services' net income for 1996 increased $9 million, or 5
percent, from 1995.



--------------------------------------------------------------------------------
                                BUSINESS SECTORS
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 
    

                                                                    Year Ended December 31/a/
                                   -------------------------------------------------------------------------------------------------
                                                                                                            U.S. Corporate and
                                                 Total                       Consumer Banking              International Banking
(dollar amounts in millions)          1997       1996       1995       1997       1996       1995       1997       1996       1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C> 
OPERATING RESULTS
Net interest income                $  8,669   $  8,587   $  8,462   $  5,455   $  5,529   $  5,239   $  1,573   $  1,464   $  1,303
Noninterest income                    6,128      5,412      4,546      3,031      2,675      2,036      2,409      2,136      1,807
Noninterest expense                   8,521      8,341      8,001      5,257      5,259      4,899      2,198      2,150      1,868
------------------------------------------------------------------------------------------------------------------------------------
  Income before the provisions for
   credit losses and income taxes     6,276      5,658      5,007      3,229      2,945      2,376      1,784      1,450      1,242
Provision for credit losses             950        885        440        643        913        463        359         12         37
Provision for income taxes            2,116      1,900      1,903      1,130        936        856        525        548        532
------------------------------------------------------------------------------------------------------------------------------------
  Net Income                          3,210      2,873      2,664      1,456      1,096      1,057        900        890        673
Preferred stock dividends               100        185        227         45         87        106         34         59         72
------------------------------------------------------------------------------------------------------------------------------------
  Net income attributable
   to common equity                $  3,110   $  2,688   $  2,437   $  1,411   $  1,009   $    951   $    866   $    831   $    601

SELECTED AVERAGE BALANCE
  SHEET COMPONENTS
Loans                              $166,026   $158,451   $146,914   $ 83,322   $ 82,366   $ 75,551   $ 45,860   $ 42,204   $ 40,041
Earning assets                      214,323    203,306    188,204     84,240     83,224     76,383     79,027     72,398     64,598
Total assets                        255,801    241,842    227,173     93,880     93,892     85,820    105,082     94,809     87,715
Deposits                            169,267    161,547    153,986     99,733     96,543     96,332     48,718     45,173     37,371
Common equity                        18,635     17,926     16,715      8,422      8,491      7,814      6,422      5,765      5,373

SELECTED FINANCIAL RATIOS
Return on average
  common equity                       16.69%     15.00%     14.58%     16.77%     11.90%     12.21%     13.48%     14.44%     11.22%
Expense-to-revenue/b/                 54.34      56.86      58.08      58.10      60.35      62.18      52.63      58.19      59.18

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


</TABLE> 

/a/ For comparability purposes, 1996 and 1995 amounts reflect BAC's business
    sector allocation methodologies at December 31, 1997.

/b/ Excludes net other real estate owned expense, amortization of intangibles,
    and expenses associated with trust preferred securities.

NM - Not meaningful.

30
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


Wealth Management

Wealth Management encompasses a number of strategically significant businesses
serving individuals and institutions with sophisticated financial planning and
management needs. The range of capabilities represented in Wealth Management
includes institutional investment management supporting BAC's corporate and
commercial banking relationships, private banking, investment management, and
trust services for high-net-worth clients both in the U.S. and internationally.

Wealth Management's net income increased $10 million, or 15 percent, for 1997
compared with 1996. Noninterest income increased primarily due to higher trust
fees. Noninterest expense was up during 1997 due to higher compensation and
consultant expenses.

Net income for Wealth Management in 1996 increased $20 million from 1995. The
increase primarily resulted from higher net interest income and noninterest
income partially offset by increased noninterest expense. The increase in net
interest income primarily reflected loan growth. Noninterest income increased
due to growth in mutual fund and annuity revenues as well as higher trust fees.
Noninterest expense increased primarily due to higher performance-based pay. 


All Other

This sector includes the results from corporate asset and liability management
activities (investment securities, federal funds purchased and sold,
institutional and brokered deposits and intermediate debt), along with any
residual differences between actual centrally-managed external hedging results
and the transfer of interest rate risk hedging to the appropriate business
sectors. Also included in this sector are the residual income and expenses
related to BAC's Institutional Trust and Securities Services (ITSS) business,
which BAC had substantially divested by the end of the first quarter of 1996.

This sector's net income for 1997 decreased $73 million from the amount reported
for the comparable period a year ago. Net interest income decreased $59 million
due to differences in risk management and risk transfer pricing methodologies.
The transfer pricing process used to allocate the effects of hedging to the
appropriate business sectors leaves residual differences that contribute to the
change in net interest income. Noninterest income for 1996 included a $50
million pre-tax gain associated with the divestiture of the ITSS business. The
increase in noninterest expense was primarily related to charges associated with
multiple legal matters in 1997. In addition, noninterest expense in 1996
included expenses associated with the ITSS business.


--------------------------------------------------------------------------------
                         BUSINESS SECTORS (CONTINUED)
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

                                                                            Year Ended December 31/a/
                                           -----------------------------------------------------------------------------------------
                                                                                                   Commercial Real Estate
                                                       Middle Market Banking                              Services                  
(dollar amounts in millions)                    1997           1996           1995           1997           1996           1995 
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>            <C>            <C>            <C> 
OPERATING RESULTS                
Net interest income                           $   917        $   866        $   836        $   438        $   389         $  406   
Noninterest income                                224            205            194             36             39             35   
Noninterest expense                               504            475            480            104            102            130   
------------------------------------------------------------------------------------------------------------------------------------
  Income before the provisions for  
    credit losses and income taxes                637            596            550            370            326            311   
Provision for credit losses                        --            (32)            21            (52)           (11)           (62)  
Provision for income taxes                        255            254            230            194            131            176   
------------------------------------------------------------------------------------------------------------------------------------
  Net Income                                      382            374            299            228            206            197   
Preferred stock dividends                          10             18             22              4              8             11   
------------------------------------------------------------------------------------------------------------------------------------
  Net income attributable           
    to common equity                          $   372        $   356        $   277         $  224        $   198         $  186   

SELECTED AVERAGE BALANCE         
  SHEET COMPONENTS                 
Loans                                         $21,996        $19,567        $17,621         $9,264        $ 9,712         $9,645   
Earning assets                                 22,063         19,612         17,629          9,296          9,730          9,662   
Total assets                                   25,258         22,638         21,065          9,650         10,056          9,900   
Deposits                                        7,742          7,048          7,264          2,409          2,067          1,592   
Common equity                                   1,915          1,783          1,585            691            735            827   
                                 
SELECTED FINANCIAL RATIOS        
Return on average                 
  common equity                                 19.44%         19.96%         17.57%         32.43%         26.95%         22.31%  
Expense-to-revenue/b/                           40.72          42.48          43.64          25.19          29.00          31.30   

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

<CAPTION> 

                                                                         Year Ended December 31/a/
                                           -----------------------------------------------------------------------------------------
                                                         Wealth Management                               All Other
(dollar amounts in millions)                    1997           1996           1995           1997           1996           1995 
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>            <C>            <C>            <C>            <C> 
OPERATING RESULTS                
Net interest income                           $   168        $   162        $   153        $   118        $   177        $   525
Noninterest income                                280            232            224            148            125            250
Noninterest expense                               316            279            288            142             76            336
------------------------------------------------------------------------------------------------------------------------------------
  Income before the provisions for  
    credit losses and income taxes                132            115             89            124            226            439
Provision for credit losses                        --              1              1             --              2            (20)
Provision for income taxes                         56             48             42            (44)           (17)            67
------------------------------------------------------------------------------------------------------------------------------------
  Net Income                                       76             66             46            168            241            392
Preferred stock dividends                           3              6              6              4              7             10
------------------------------------------------------------------------------------------------------------------------------------
  Net income attributable           
    to common equity                          $    73        $    60        $    40        $   164        $   234        $   382
                                  
SELECTED AVERAGE BALANCE         
  SHEET COMPONENTS                 
Loans                                         $ 4,450        $ 3,950        $ 3,470        $ 1,134        $   652        $   586
Earning assets                                  4,609          4,052          3,575         15,088         14,290         16,358
Total assets                                    5,161          4,586          4,151         16,770         15,861         18,522
Deposits                                        6,863          6,640          5,609          3,802          4,076          5,818
Common equity                                     477            438            405            708            714            711
                                 
SELECTED FINANCIAL RATIOS        
Return on average                 
  common equity                                 15.66%         14.01%         10.09%            NM             NM             NM
Expense-to-revenue/b/                           64.48          65.83          71.29             NM             NM             NM
------------------------------------------------------------------------------------------------------------------------------------


</TABLE> 

                                                                              31
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


Balance Sheet Review

Overview

At December 31, 1997, BAC's assets totaled $260.2 billion, up $9.4 billion from
year-end 1996. Growth in interest-earning assets, primarily trading account
assets and securities purchased under resale agreements, increased $3.3 billion
and $2.5 billion, respectively, from their 1996 levels. This increase in
interest-earning assets was largely funded by increases in securities sold under
repurchase agreements and federal funds purchased.

Total deposits increased $4.0 billion, or 2 percent, from year-end 1996.
Domestic deposits increased $4.4 billion while foreign deposits decreased $0.4
billion from year-end 1996. Interest-bearing domestic deposits increased $10.5
billion from 1996 primarily due to a $9 billion transfer from noninterest-
bearing deposits. The transfer occurred as part of an initiative to reduce
reserve requirements on noninterest-bearing deposits at the Federal Reserve
Bank. Excluding this transfer, interest-bearing and noninterest-bearing domestic
deposits would have increased by approximately $1.5 billion and $3 billion,
respectively.

For further information related to BAC's management of assets and liabilities,
as well as information on BAC's liquidity and capital, refer to the Risk
Management section on pages 44 -- 45 and the Liquidity Risk Management and
Capital Management sections on pages 49 -- 53.

Loan Portfolio Management

The Loan Portfolio Management section should be read in conjunction with the
credit quality and credit risk management sections. For information regarding
credit quality, refer to pages 38 -- 42. For information regarding credit risk
management, refer to page 44.

During 1997, increases in the total loan portfolio through new originations were
mostly offset by sales and securitizations. At December 31, 1997, BAC's loan and
lease portfolio totaled $167.1 billion, an increase of $1.7 billion from
year-end 1996. Increases that occurred in the domestic commercial loan and the
foreign loan portfolios were offset by a decline in domestic consumer loans, as
described more fully in the remainder of this section. The relative composition
of the loan portfolios has remained fairly constant, with domestic loans
comprising approximately 83 percent and 84 percent of the portfolio at year-ends
1997 and 1996, respectively.

--------------------------------------------------------------------------------
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES--AVERAGE BALANCES AND RATES
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                  YEAR ENDED DECEMBER 31 
                                                   1997                                          1996             
--------------------------------------------------------------------------------------------------------------------------
                                             Rate based     Rate based                     Rate based     Rate based 
                                                on fair   on amortized                        on fair   on amortized 
(dollar amounts in millions)         Balance/a/   value/b/        cost/b/       Balance/a/      value/b/        cost/b/ 
--------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>    <C>                   <C>        <C>           <C> 
AVAILABLE-FOR-SALE SECURITIES                                                                       
U.S. Treasury and other government                                                                                     
  agency securities                  $ 1,418       6.51%          6.48%         $ 1,440          6.72%          6.70%     
Mortgage-backed securities             7,000       6.85           6.88            6,305          6.83           6.82      
Other domestic securities                911       5.56           6.21              786          5.64           6.61      
Foreign securities                     2,605/c/    8.31/d/        8.05/d/         2,852/c/       9.69/d/        9.19/d/   
--------------------------------------------------------------------------------------------------------------------------
                                     $11,934       7.03%          7.05%         $11,383          7.45%          7.42%     

--------------------------------------------------------------------------------------------------------------------------
<CAPTION> 
                                                                        YEAR ENDED DECEMBER 31 
                                                             1995                         
-------------------------------------------------------------------------------------------------- 
                                                              Rate based          Rate based 
                                                                 on fair        on amortized      
(dollar amounts in millions)                    Balance/a/         value/b/             cost/b/           
---------------------------------------------------------------------------------------------------- 
<S>                                             <C>          <C>               <C> 
AVAILABLE-FOR-SALE SECURITIES                                                   
U.S. Treasury and other government                                              
  agency securities                             $ 1,659             6.49%               6.45%    
Mortgage-backed securities                        4,962             6.94                6.89     
Other domestic securities                           660             5.22                5.84     
Foreign securities                                2,487/c/         11.17/d/            10.10/d/  
-------------------------------------------------------------------------------------------------
                                                $ 9,768             7.83%               7.64%    

-------------------------------------------------------------------------------------------------
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Year Ended December 31,
                                                                       1997                   1996                   1995    
------------------------------------------------------------------------------------------------------------------------------------

(dollar amounts in millions)                                Balance/a/    Rate/b/    Balance/a/   Rate/b/    Balance/a/   Rate/b/ 
 ---------------------------------------------------------------------------------------------------------------------------------- 

<S>                                                       <C>            <C>        <C>          <C>        <C>          <C> 
HELD-TO-MATURITY SECURITIES
U.S. Treasury and other government agency securities           $     11      5.18%    $     33      4.95%      $   388      6.72%
Mortgage-backed securities                                        2,022      7.47        2,308      7.60         4,490      7.15
State, county, and municipal securities                             353      7.66          416      7.57           445      7.89
Other domestic securities                                            54      6.86           99      7.28           178      7.62
Foreign securities                                                1,410      7.89        1,491      7.15         1,691      7.62
------------------------------------------------------------------------------------------------------------------------------------
                                                                 $3,850      7.63%      $4,347      7.42%       $7,192      7.29%

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

</TABLE> 

/a/ Average balances are obtained from the best available daily, weekly, or
    monthly data.

/b/ Average rates are presented on a taxable-equivalent basis. The
    taxable-equivalent adjustments are based on a marginal tax rate of 40%.

/c/ Average balances include nonaccrual assets.

/d/ Rates reflect interest received on nonaccrual debt-restructuring par bonds.

32
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


DOMESTIC CONSUMER LOANS
Domestic consumer loan outstandings at year-end 1997 declined $6.1 billion, or 8
percent, from year-end 1996, primarily due to decreases in residential first
mortgages and credit card receivables resulting from loan sales and
securitizations. These declines were partially offset by an increase in other
installment loans. New originations of residential first mortgages for the year
amounted to $16 billion but were more than offset by the sale of $12.5 billion
of mortgages, $0.6 billion related to the sale of BofA Hawaii, and $8.6 billion
of pay-offs and other activities from the portfolio, resulting in a net decrease
of $5.7 billion for 1997. At December 31, 1997, approximately 71 percent of the
residential real estate loans were secured by properties in California, compared
with 70 percent in 1996. For more information on the portfolio by geographic
area and loan type, refer to the table on page 34.

At year-end 1997, the credit card loan portfolio decreased $2.0 billion from its
1996 level, mainly due to securitizations of approximately $2.1 billion of
credit card receivables during the year. Excluding the accumulated effects of
the credit card securitizations of $3.6 billion and $1.5 billion at December 31,
1997 and 1996, respectively, this portfolio would have increased by $140 million
from year-end 1996, primarily outside of California.

The increase in other installment loans at year-end 1997 from year-end 1996 was
largely due to increases in manufactured housing loans and auto loans and
leases. Growth in auto loans and leases resulted primarily from originations in
the Western states, augmented by an expansion of these loans and leases in the
Northeast, Southeast, and Midwest regions.

Delinquent domestic consumer loans that are 60 days or more past due decreased
$85 million from year-end 1996 reflecting a lower level of delinquencies in two
large portfolios: residential first mortgages and residential junior mortgages.
Partially offsetting this decrease was an increase in delinquencies related to
manufactured housing. At December 31, 1997, the delinquency ratio for the credit
card portfolio increased 49 basis points from the 1996 ratio to 2.85 percent.
This ratio increase correlates to the upward trend in charge-offs within the
credit card portfolio.

TOTAL LOAN OUTSTANDINGS BY GEOGRAPHIC AREA
<TABLE> 
<CAPTION> 

                                December 31, 1997       December 31, 1996
                                -----------------       -----------------
<S>                             <C>                     <C> 
Northern California                          9.0%                   10.7%
Central California                           5.4%                    8.0%
Southern California                         14.9%                   18.8%
Other Western States                        15.2%                   21.2%
Other U.S.                                  38.4%                   25.3%
Foreign                                     17.1%                   16.0%
</TABLE> 
--------------------------------------------------------------------------------
                               DOMESTIC CONSUMER
                        LOAN DELINQUENCY INFORMATION/a/
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                          December 31
(dollar amounts in millions)                   1997          1996          1995
--------------------------------------------------------------------------------
<S>                                           <C>          <C>           <C> 
DELINQUENT CONSUMER LOANS
Residential first mortgages                    $417          $477          $642
Residential junior mortgages                     44            62            90
Credit card                                     191           206           190
Other                                           137           129           100
--------------------------------------------------------------------------------
                                               $789          $874        $1,022
--------------------------------------------------------------------------------

DELINQUENT CONSUMER
   LOAN RATIOS/b/

Residential first mortgages                    1.31%         1.27%         1.76%
Residential junior mortgages                   0.30          0.42          0.67
Credit card                                    2.85          2.36          2.08
Other                                          0.66          0.67          0.62
-------------------------------------------------------------------------------
                                               1.06%         1.09%         1.36%
-------------------------------------------------------------------------------
</TABLE> 
/a/ 60 days or more past due.
/b/ Ratios represent delinquent balances expressed as a percentage of total
    loans for that loan category.

For further information regarding BAC's domestic consumer loan delinquencies
refer to the table above. 

DOMESTIC COMMERCIAL LOANS
Domestic commercial loan outstandings increased $5.8 billion, or 10 percent,
during 1997, reflecting growth in most commercial loan categories.

Commercial and industrial loans, the largest component of BAC's domestic
commercial loan portfolio, consists of loans made to large corporate and middle
market customers. At December 31, 1997, domestic commercial and industrial loans
totaled $36.6 billion, up $3.2 billion from year-end 1996. The increase in
commercial and industrial loans was primarily attributable to a combination of
BAC's successful efforts to diversify and expand its market share as well as to
increased loan demand from large corporate and middle market borrowers in
various industries throughout the U.S. Refer to the table on page 35 for more
information on commercial and industrial loans by industry type.

Included in BAC's commercial portfolio are mortgages on large commercial
properties, primarily in California, the Northwest, the Southwest, and the
Midwest states. At December 31, 1997, commercial loans secured by real estate
increased $0.4 billion from year-end 1996. Growth in this loan category resulted
from the improved California economy, increased expansion in the Northwest,
Southwest, and Midwest states and a general stabilization of the commercial real
estate market.

                                                                              33
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW

<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------------------------------------------------------------
                                                     LOAN OUTSTANDINGS
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                December 31
   (in millions)                                                       1997         1996         1995         1994         1993
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>            <C>          <C>         <C>          <C> 
DOMESTIC
Consumer:
   Residential first mortgages                                       $ 31,749     $ 37,459     $ 36,572     $ 33,818     $ 30,483
   Residential junior mortgages                                        14,847       14,743       13,777       13,589       12,847
   Other installment                                                   18,418       16,979       13,834       10,598        9,129
   Credit card/a/                                                       6,697        8,707        9,139        8,020        7,474
   Other individual lines of credit                                     1,937        1,948        1,847        1,736        1,901
   Other                                                                  461          401          319          403          215
------------------------------------------------------------------------------------------------------------------------------------
                                                                       74,109       80,237       75,488       68,164       62,049


COMMERCIAL:
   Commercial and industrial                                           36,602       33,404       32,745       28,814       20,486
   Loans secured by real estate                                        12,897       12,488       10,975       10,277        9,251
   Financial institutions                                               3,485        3,109        2,834        2,872        2,170
   Lease financing                                                      2,892        2,542        1,927        1,814        1,715
   Loans for purchasing or carrying securities                          2,668        1,941        1,458        1,529        3,090
   Construction and development loans
        secured by real estate                                          2,206        2,252        3,153        3,616        4,418
   Agricultural                                                         1,824        1,696        1,737        1,840        1,679
   Other                                                                1,896        1,270        1,574        1,623        1,478
------------------------------------------------------------------------------------------------------------------------------------
                                                                       64,470       58,702       56,403       52,385       44,287

                                                                      138,579      138,939      131,891      120,549      106,336


FOREIGN
   Commercial and industrial                                           18,484       16,394       15,003       13,496       11,448
   Banks and other financial institutions                               3,904        3,958        3,386        2,516        2,279
   Governments and official institutions                                  840          970        1,020          896        3,429
   Other                                                                5,304        5,154        4,073        3,455        3,064
------------------------------------------------------------------------------------------------------------------------------------
                                                                       28,532       26,476       23,482       20,363       20,220
   Total loans                                                        167,111      165,415      155,373      140,912      126,556

   Less: Allowance for credit losses                                    3,500        3,523        3,554        3,690        3,508
------------------------------------------------------------------------------------------------------------------------------------
                                                                     $163,611     $161,892     $151,819     $137,222     $123,048

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Excludes $3,621 million and $1,471 million of securitized credit card
    receivables at December 31, 1997 and December 31, 1996, respectively.


<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------------------------------------------
                         DOMESTIC CONSUMER LOANS BY GEOGRAPHIC AREA AND LOAN TYPE AS OF DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------------------------------
                                       Residential  Residential
                                             First       Junior  Manufactured                                 Other         Total
   (in millions)                         Mortgages    Mortgages       Housing         Auto  Credit Card     Consumer     Consumer
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>          <C>          <C>              <C>      <C>             <C>         <C> 
   California                              $23,161      $ 9,775        $  884       $3,010       $3,064       $2,135      $42,029
   Washington                                1,146        1,956           345        1,693        1,166          817        7,123
   Arizona                                     792        1,007           252          550          155           93        2,849
   Texas                                       729          104           673          839          232          114        2,691
   Oregon                                      844          566           147          240          201           97        2,095
   Other/a/                                  5,077        1,439         6,520        1,333        1,879        1,074       17,322
------------------------------------------------------------------------------------------------------------------------------------
                                           $31,749      $14,847        $8,821       $7,665       $6,697       $4,330      $74,109

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ No other state individually exceeded 2 percent of total domestic consumer 
loans.

34
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


--------------------------------------------------------------------------------
                    DOMESTIC COMMERCIAL AND INDUSTRIAL LOANS
                                BY INDUSTRY TYPE
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                 December 31

(in millions)                                               1997            1996
--------------------------------------------------------------------------------
<S>                                                     <C>             <C> 
Entertainment                                            $ 3,143         $ 2,974
Credit institutions and other finance                      2,437           2,794
Real estate                                                2,190           1,972
Energy                                                     2,033           1,395
Business services                                          1,909           1,431
Health care                                                1,905           1,847
Electronics                                                1,832           1,406
Motor vehicle -- wholesale/retail                          1,754           1,390
Agribusiness                                               1,621           1,388
Construction/contractors                                   1,364           1,285
Industrial machinery                                       1,313           1,026
Personal and food services                                 1,277           1,349
Primary metals                                             1,158           1,027
Forest products                                            1,141             984
Consumer beverages and food                                1,112           1,035
Department/specialty stores                                1,109           1,063
Grocery/drug stores                                          985             949
Utilities                                                    958           1,001
Telecommunications                                           908             697
Printing and publishing                                      814             762
Chemicals                                                    744             758
Other/a/                                                   4,895           4,871
--------------------------------------------------------------------------------
                                                         $36,602         $33,404
--------------------------------------------------------------------------------
</TABLE> 

/a/ For each period presented, no other industry type individually exceeded 
    2 percent of total domestic commercial and industrial loans.

    FOREIGN LOANS

    Total foreign loan outstandings increased $2.1 billion, or 8 percent, from
    year-end 1996, primarily in the commercial and industrial loan portfolio.
    Part of this increase is reflected in the growth of cross-border
    outstandings in Mexico during 1997 as shown in the table on the next page.
    This growth reflects the improvement in the Mexican economy and resulted
    from an active marketing effort with strong existing and newly developed
    relationships that enabled BAC to expand its client base and to further
    diversify portfolio risk over a broader base of customers and industries.

    RECENT INTERNATIONAL DEVELOPMENTS
   
    A number of countries in Asia, including Korea (discussed below), are
    experiencing difficulty due to a combination of structural problems and
    market reaction to increased awareness of those problems. While each
    country's situation is different, many share the common threads of: (1)
    government actions which restrain normal functioning of free markets in
    physical goods, capital or currencies, (2) perceived weakness of the banking
    systems, and (3) perceived overvaluation of the currencies. Because some
    individual and institutional sources of capital both within and outside of
    some of these countries have reacted to this situation by moving capital out
    of the countries or reducing the flow of capital into these countries, there
    are now liquidity problems as well as structural problems in some of these
    countries.

    These problems will cause some of BAC's customers to have difficulty
    repaying credit extensions. We anticipate some increase in problem loans
    which may be reflected in an increase in nonaccrual assets, provision for
    credit losses, and actual charge-offs. In addition, the economies of these
    countries will grow more slowly than had been generally expected and in some
    cases they will experience actual recession. This will make it more
    difficult for BAC to generate revenue from Asia. At year-end 1997 those
    effects on BAC were not substantial, but this situation may change.

    In addition, and closely related to the matters described above, the
    currency and securities markets related to these countries were far more
    volatile than usual. Such market conditions provide both increased
    opportunities for trading gains and increased risk of trading losses.

    It should be noted that Japan, while in a very different situation than many
    of the other countries, itself is experiencing slow growth, a strained
    banking system and much internal discussion as to the proper pace of market
    reform. As noted on pages 36 -- 37, BAC has considerable business in Japan.
    It is too soon to determine the ultimate impact on BAC's financial results
    from the ongoing developments in Japan.

    BAC management believes that if the industrialized countries continue to
    support orderly markets and structural reform through their individual
    actions and through supranational agencies, if the countries of Asia
    continue to implement structural reform, and if all countries avoid
    protectionist and isolationist policies and practices, this period of
    difficulty should end in approximately two years (with country by country
    variations) and the countries of Asia which have done best at the structural
    reforms will be stronger than before. BAC expects that Asia will remain an
    important market for the financial services which it provides and intends to
    remain active in that market. BAC has already adjusted its activities
    (including its borrower selection) in view of the risks and opportunities
    discussed above, and has increased its foreign credit reserves due to those
    risks as more fully discussed on pages 38-40. BAC will continue to adjust
    its activities on a country by country basis depending on managerial
    judgment of the likely developments in each country and will take such
    actions on credit reserves as is appropriate.

    Of the countries experiencing liquidity constraints, BAC had exposure to
    South Korea in excess of one percent of total assets as of December 31,
    1997. BAC's total cross-border outstandings to South Korea at December 31,
    1997 amounted to $2.8 billion and represented 1.09 percent of total assets.
    Included in these outstandings were $1 billion in short-term trade finance
    borrowings and $208 million in net local currency outstandings. Gross local
    currency outstandings were $229 million. In addition to the cross-border
    outstandings, BAC had derivative and foreign exchange instruments to South
    Korean counterparties whose fair value was $335 million, which was equal to
    its credit exposure, at December 31, 1997.

                                                                              35

<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


--------------------------------------------------------------------------------
   CROSS-BORDER OUTSTANDINGS EXCEEDING ONE PERCENT OF TOTAL ASSETS/a/b/c/d/
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Cross-Border
                                                                                                        Total          Outstandings
                                                            Public                     Private     Cross-Border     as a Percentage
(dollar amounts in millions)           December 31          Sector/e/      Banks/e/    Sector/e/   Outstandings     of Total Assets
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>               <C>             <C>          <C>          <C>               <C> 
SOUTH KOREA                                   1997          $    1        $1,193        $1,644           $2,838                1.09%
                                              1996              --         1,327         1,453            2,780                1.11
                                              1995             106         1,189         1,143            2,438                1.05

Mexico                                        1997           1,096           217         1,472            2,785                1.07
                                              1996             674           178           465            1,317                0.53
                                              1995             803           114           453            1,370                0.59

Japan                                         1997              10           596         2,020            2,626                1.01
                                              1996              23         1,285         1,852            3,160                1.26
                                              1995               7         2,253         2,546            4,806                2.07

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


</TABLE> 

/a/ Cross-border outstandings include the following assets, primarily in U.S.
    dollars, with borrowers or customers in a foreign country: loans, accrued
    interest, acceptances, interest-bearing deposits with other banks, trading
    assets, available-for-sale securities, held-to-maturity securities, other
    interest-earning investments, and other monetary assets. Local currency
    outstandings that are neither hedged nor funded by local currency borrowings
    are included in cross-border outstandings. Guarantees of outstandings of
    borrowers of other countries are considered outstandings of the guarantor.
    Loans made to, or deposits placed with, a branch of a foreign bank located
    outside the foreign bank's home country are considered loans or deposits
    with the country in which the foreign bank is headquartered. Outstandings of
    a country do not include amounts of principal or interest that are supported
    by written, legally enforceable guarantees by guarantors from other
    countries or the amount of outstandings to the extent that they are secured
    by tangible, liquid collateral held and realizable by BAC outside the
    country.

/b/ At December 31, 1997, total unfunded commitments of the countries listed,
    whose unfunded commitments exceeded 10 percent of their respective cross-
    border outstandings, were as follows: Mexico -- $1,133 million and 
    Japan -- $643 million.

/c/ Included in the cross-border outstandings of the countries listed are loans
    and other interest-bearing assets on nonaccrual status of $32 million for
    Mexico at December 31, 1996 and $17 million for Japan at December 31, 1995.

/d/ No country excluded from this table had cross-border outstandings between
    0.75 percent and 1.00 percent of total assets for any of the periods
    presented except as follows: Spain -- $2,571 million, Brazil -- $2,202
    million, and Canada -- $2,028 million at December 31, 1997, and $2,000
    million for Spain at December 31, 1996.

    Not included in cross-border outstandings with Mexico were par bonds issued
    by the government of Mexico with a face value of $1,228 million at December
    31, 1997 and $1,341 million at December 31, 1996 and 1995. The par bonds had
    a carrying value of $1,024 million, $1,202 million and $1,162 million at
    December 31, 1997, 1996, and 1995, respectively. At December 31, 1997, the
    par bonds had a total fair value of approximately $1,023 million. Certain of
    these par bonds were recorded in available-for-sale securities and carried
    at their fair value of $391 million at December 31, 1997, while the
    remainder of these par bonds were recorded in held-to-maturity securities at
    their amortized cost. Principal repayment of these par bonds is
    collateralized by zero-coupon U.S. Treasury securities that, at maturity in
    2019, will have a redemption value equal to the face value of the par bonds.
    At December 31, 1997, this collateral had a fair value of approximately $329
    million. Future interest payments for a rolling eighteen-month period are
    also collateralized by additional U.S. dollar-denominated securities
    permitted by the agreement. Mexico's cross-border outstandings also excluded
    additional loans of $30 million at December 31, 1997, 1996, and 1995, which
    were fully collateralized at maturity by separate zero-coupon U.S. Treasury
    securities.

/e/ Sector definitions are based on Federal Financial Institutions Examination
    Council instructions for preparing the Country Exposure Report.


    No cross-border outstandings to South Korea were reported as restructured at
    December 31, 1997, and there were no nonaccrual assets to South Korean
    borrowers at that date.

    During the fourth quarter of 1997, the government of South Korea and the IMF
    reached an agreement in which the IMF agreed to provide financial support in
    return for the government's implementation of monetary and other economic
    reforms. In addition, many of the country's commercial bank lenders agreed
    to roll over their debt. Both of these actions were an effort to relieve the
    country's short-term liquidity pressures.


--------------------------------------------------------------------------------
                      SUMMARY OF CROSS-BORDER OUTSTANDINGS
                                WITH SOUTH KOREA
--------------------------------------------------------------------------------


(in millions)                                                              1997
--------------------------------------------------------------------------------
Balance, beginning of year                                               $2,780
Net change in short-term cross-border
  outstandings                                                               94
Changes in long-term cross-border
  outstandings:
    New principal                                                            40
    Principal repayments                                                    (76)
--------------------------------------------------------------------------------
    Balance, end of year                                                 $2,838

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

    Subsequent to year-end 1997, South Korea reached an agreement in principle
    with a group of international creditors whereby international creditors will
    be able, on a voluntary basis, to exchange certain loans to South Korean
    financial institutions which mature in 1998 for new loans to those
    institutions. These new loans will be guaranteed by the South Korean
    government and will mature in one, two, or three years. At the date of the
    agreement in principle, a target date of the end of March was set for the
    exchange. BAC intends to use this program for the eligible loans which it
    holds.

    REGIONAL FOREIGN EXPOSURES

    Through its credit and market risk management activities, BAC has been
    devoting special attention to those countries that have been negatively
    impacted by increasing global economic pressures. This includes special
    attention to those Pacific Rim countries that are currently experiencing
    currency and other economic problems. For more information on BAC's risk
    management processes, refer to pages 44-49.

36
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW



--------------------------------------------------------------------------------
                           REGIONAL FOREIGN EXPOSURE
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

(in millions)                                                    Year Ended December 31, 1997
------------------------------------------------------------------------------------------------------------------------------------
                                                Cross-Border Loans/f/                                                 Other
                                   Total       -----------------------       Net Local                      ------------------------
                            Cross-Border                    Medium-and        Currency                                    Medium-and
Region/Country              Outstandings/a/    Short-Term    Long-Term    Outstandings/b/   Securities/c/   Short-Term/d/  Long-Term
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                <C>          <C>           <C>               <C>             <C>           <C> 
ASIA
China                            $   653           $  383       $    58         $    2          $   --          $  160        $   50
Hong Kong                          1,328              498           202            345              --             104           179
India                              1,191              142           212            546              --             268            23
Indonesia                            684              136           230             81              --             237            --
Japan                              2,626              205           207          1,442              --             722            50
Korea (South)                      2,838              691            87            208              --           1,727           125
Malaysia                             532              249            85            156              --              11            31
Pakistan                             351                2             6            312              --              31            --
Philippines                          571              184            67             --              50             254            16
Singapore                          1,107              322            54            624              --              64            43
Taiwan                               865              565           182             --              --             100            18
Thailand                             881              436           182            166              --              95             2
Other                                 73               50             8             10              --               5            --
------------------------------------------------------------------------------------------------------------------------------------
                                  13,700            3,863         1,580          3,892              50           3,778           537

CENTRAL AND EASTERN EUROPE
Russia Federation                    426               33             5             --               2             385             1
Other                                286               41            77             10              --             153             5
------------------------------------------------------------------------------------------------------------------------------------
                                     712               74            82             10               2             538             6

LATIN AMERICA
Argentina                          1,366              288           247            354             188             253            36
Brazil                             2,202              741           240            791              47             329            54
Chile                              1,567              339           742            476              --              --            10
Colombia                             584              112           287            144              19              15             7
Mexico                             3,839              803           831/e/         340           1,179             197           489
Venezuela                            385               73            --             --             256              37            19
Other                                138               --             4             --              87              46             1
------------------------------------------------------------------------------------------------------------------------------------
                                  10,081            2,356         2,351          2,105           1,776             877           616
  Total                          $24,493           $6,293        $4,013         $6,007          $1,828          $5,193        $1,159
------------------------------------------------------------------------------------------------------------------------------------

</TABLE> 

/a/ Includes the following assets, primarily in U.S. dollars, with borrowers in
    a foreign country: loans, accrued interest, acceptances, interest-bearing
    deposits in banks, trading account assets, available-for-sale and held-to-
    maturity securities, other interest-bearing investments, and other monetary
    assets. Amounts also include local currency outstandings that are not funded
    by local currency borrowings, and available-for-sale and held-to-maturity
    securities that are collateralized by U.S. Treasury securities. Amounts do
    not include unrealized gains on off-balance-sheet instruments which totaled
    $10,929 million for consolidated BAC. For the countries in this table, these
    gains totaled $3,429 million, including $1,429 and $527 million for Japan
    and Thailand, respectively. No other country individually exceeded $400
    million in total unrealized gains.

/b/ Represents local currency assets in a foreign country that are neither
    hedged nor funded by local currency borrowings. These amounts do not
    necessarily reflect the results of BAC's foreign currency management
    activities and therefore, BAC's net foreign exchange exposures in the
    respective currencies are typically significantly smaller. Total local
    currency liabilities for the countries in the table amounted to $6,017
    million, including $3,464 million for Hong Kong, $760 million for Taiwan,
    $514 million for India, $379 million for Singapore, and $262 million for
    Malaysia. No other country exceeded $200 million in local currency
    liabilities.

/c/ Amounts represent available-for-sale and held-to-maturity securities and
    include securities that are collateralized by U.S. Treasury securities as
    follows: Mexico -- $1,024 million, Venezuela -- $234 million, Philippines --
    $20 million, and Latin America Other -- $87 million. Held-to-maturity
    securities amounted to $1,141 million with a fair value of $1,165 million.

/d/ Includes the following assets with borrowers in a foreign country: accrued
    interest receivable, acceptances, interest-bearing deposits in banks,
    trading account assets, other interest-earning investments, and other short-
    term monetary assets.

/e/ Includes a $30 million loan that is collateralized by zero-coupon U.S.
    Treasury securities.

/f/ Total loans include nonaccrual loans of $110 million.


    In connection with its efforts to maintain a diversified portfolio, BAC
    limits its exposure to any one geographic region or country and monitors
    this exposure on a continuous basis. The table above sets forth selected
    cross-border regional exposures of BAC as of December 31, 1997, including
    net local currency assets. Exposure represents loans, securities including
    restructured debt, and other monetary assets, and also includes net local
    currency monetary assets that have not been funded through local currency
    borrowings. The table above is different than previous years' disclosures,
    which were limited to emerging market exposures. This new table was adopted
    to portray a more comprehensive picture of BAC's foreign exposures in
    selected regions.

    As part of its efforts to monitor these regional exposures, BAC manages its
    currency risks, including its local currency activities in these foreign
    countries. The result of this foreign currency management is that BAC's net
    unhedged position in any given foreign currency is typically significantly
    smaller than the amounts set forth as net local currency outstandings in the
    table. For more information regarding currency risks, refer to page 48.

                                                                              37
<PAGE>
 
BankAmerica Corporation 1997 Annual Report      

                               FINANCIAL REVIEW

<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------------------------------------------------------
                                                ALLOWANCE FOR CREDIT LOSSES
----------------------------------------------------------------------------------------------------------------------------
                                                                                   Year Ended December 31
   (in millions)                                                  1997         1996         1995         1994         1993
----------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>          <C>          <C>          <C> 
Balance, beginning of year                                      $3,523       $3,554       $3,690       $3,508       $3,921

CREDIT LOSSES
Domestic consumer:
 Residential first mortgages                                        21           42           49           49           23  
 Residential junior mortgages                                       47           70           74           88          104  
 Credit card                                                       511          463          386          382          488  
 Other installment                                                 395          354          174          164          200  
 Other individual lines of credit                                   88           79           69           59           90  
 Other                                                              23           15            9            8           10  
Domestic commercial:                                                                                                       
 Commercial and industrial                                         119          132          139           47          230  
 Loans secured by real estate                                       23           22           50           52           91  
 Financial institutions                                             --           45            1            2           18  
 Lease financing                                                     4            1            1            1            9  
 Loans for purchasing or carrying securities                        --           --            5           --            2  
 Construction and development loans secured by real estate           7           61           36           86          291  
 Agricultural                                                        1            2            3            8            7  
Foreign                                                             66           39           15           42           36  
----------------------------------------------------------------------------------------------------------------------------
 Total credit losses                                             1,305        1,325        1,011          988        1,599

CREDIT LOSS RECOVERIES
Domestic consumer:
 Residential first mortgages                                         1            1            1            4            1  
 Residential junior mortgages                                       14           17           16           18           14  
 Credit card                                                        38           37           41           54           53  
 Other installment                                                 156          163           72           73           85  
 Other individual lines of credit                                    8            9            9           11           12  
 Other                                                               5            4            3            3            3  
Domestic commercial:                                                                                                       
 Commercial and industrial                                          42           82           83           94          111  
 Loans secured by real estate                                        8           15           16           25           34  
 Financial institutions                                             79           --            5           16            2  
 Lease financing                                                     2            3            4            6            6  
 Loans for purchasing or carrying securities                         4            1           --           --           --  
 Construction and development loans secured by real estate          17           11           66           82           87  
 Agricultural                                                        3            4            7            8           10  
Foreign                                                             27           60           99          124           66  
----------------------------------------------------------------------------------------------------------------------------
 Total credit loss recoveries                                      404          407          422          518          484
 Total net credit losses                                           901          918          589          470        1,115
Provision for credit losses                                        950          885          440          460          803
Allowance related to mergers and acquisitions/a/                    --           --            3          241           12
Other net additions (deductions)                                   (72)/b/        2           10          (49)        (113)/c/
----------------------------------------------------------------------------------------------------------------------------
     Balance, End of Year                                       $3,500       $3,523       $3,554       $3,690       $3,508

----------------------------------------------------------------------------------------------------------------------------
</TABLE> 

/a/ Represents the addition of consummation date allowances for credit losses of
    Arbor National Holdings, Inc. in 1995, Continental and Liberty Bank of $238
    million and $3 million, respectively, in 1994, and First Gibraltar in 1993.
/b/ Includes allowance for credit losses associated with the sale of SPFS and
    BofA Hawaii of $60 million and $8 million, respectively.
/c/ Due to the transfer of certain assets net of their related allowance to
    other assets, the allowance for credit losses was reduced by $128 million
    during 1993 which included $88 million of regulatory-related allocated
    transfer risk reserve (ATRR). Subsequent to the transfer the allowance did
    not include any ATRR.


ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses at December 31, 1997 was $3,500 million, or 2.09
percent of total loan outstandings, compared with $3,523 million, or 2.13
percent, at December 31, 1996. Excluding outstandings in the residential first
mortgage loan portfolio and the portion of the allowance associated with these
outstandings, the ratios were 2.52 percent and 2.67 percent of loans at year-end
1997 and 1996, respectively. The ratio of the allowance for credit losses to
total nonaccrual assets was 389 percent at December 31, 1997, up from 315
percent at December 31, 1996.

The table on the bottom of page 39 shows the allocation of the allowance for
credit losses by loan type. This allocation is based on management's judgment of
potential losses in the respective loan portfolios. While management has
allocated the allowance to various portfolio segments, it is general in nature
and is available for the loan portfolio in its entirety.

38
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW

ALLOWANCE FOR CREDIT LOSSES AS A PERCENTAGE OF NONACCRUAL ASSETS

                1993     1994     1995     1996     1997
                ----------------------------------------
                122%     177%     188%     315%     389%

Management develops the allowance for credit losses using a "building block
approach" for various portfolio segments. Significant loans, particularly those
considered to be impaired, are individually analyzed, while other loans are
analyzed by portfolio segment. In establishing the allowance for the portfolio
segments, credit officers consider results obtained from statistical models
using historical loan performance data.

In part, the allowance amounts are calculated using migration models that are
based on historical loss experience. In addition, the credit officer responsible
for each portfolio segment makes adjustments based on qualitative evaluations of
individual classified assets, knowledge of portfolio segment conditions, and
on the officer's judgment of factors that are expected to influence the future
performance of the portfolio. These factors include geographic and portfolio
concentrations, new products or markets, evaluation of the changes in the
historical loss experience component, and projections of this component into the
current and future periods based on current knowledge and conditions.

The Composition of Allowance for Credit Losses table below displays how the
allowance for credit losses associated with special mention and classified
assets is determined by combining the historical loss experience component with
the credit management allocated component. The statistical model that BAC uses
in calculating the historical loss experience component reflects the portfolio
experience over a full economic cycle.

--------------------------------------------------------------------------------
                            COMPOSITION OF ALLOWANCE
                                FOR CREDIT LOSSES
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                  December 31
(in millions)                     1997      1996      1995      1994      1993
--------------------------------------------------------------------------------
<S>                             <C>       <C>       <C>       <C>       <C>   
Special mention
  and classified:
 Migration model
  benchmark                     $  353    $  349    $  506    $  516    $  475
 Qualitative credit
  management
  evaluation                       592       426       377       428       770
--------------------------------------------------------------------------------
    Total special mention
     and classified                945       775       883       944     1,245

Other:
  Domestic consumer              1,432     1,414     1,247     1,059     1,072
  Domestic commercial              282       252       229       223       151
  Foreign                          591       300       300       270       165
--------------------------------------------------------------------------------
    Total allocated              3,250     2,741     2,659     2,496     2,633
Unallocated                        250       782       895     1,194       875
--------------------------------------------------------------------------------
                                $3,500    $3,523    $3,554    $3,690    $3,508
--------------------------------------------------------------------------------
</TABLE> 

--------------------------------------------------------------------------------
             ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES BY LOAN TYPE/a/
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                         December 31  
                                     1997                 1996                 1995                 1994                 1993
                           ---------------------------------------------------------------------------------------------------------
                                         Percent              Percent              Percent              Percent              Percent
                                         of Loan              of Loan              of Loan              of Loan              of Loan
(dollar amounts in millions) Allowance  Category  Allowance  Category  Allowance  Category  Allowance  Category  Allowance  Category
------------------------------------------------------------------------------------------------------------------------------------

<S>                          <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C> 
Domestic consumer:
 Residential first mortgages  $   86        0.27%  $  110        0.29%  $  115        0.31%  $   91        0.27%  $   55      0.18%
 Residential junior mortgages    112        0.75      165        1.12      177        1.28      186        1.37      152      1.18
 Credit card                     411        6.13      385        4.42      394        4.31      344        4.29      425      5.69
 Other consumer                  822        3.95      755        3.91      561        3.51      438        3.44      440      3.91
Domestic commercial:                                                                                                              
 Commercial and industrial/b/    513        1.25      528        1.44      458        1.28      396        1.24      368      1.47
 Loans secured by real estate    189        1.46      208        1.67      140        1.28      166        1.62      165      1.78
 Financial institutions           11        0.32        4        0.12       10        0.37        6        0.21        8      0.38
 Lease financing                  32        1.11       45        1.79       48        2.51       51        2.81       48      2.81
 Construction and development                                                                                                     
  loans secured by real 
  estate                          48        2.16       73        3.26      293        9.28      389       10.76      611     13.83
 Agricultural                     21        1.15       43        2.53       35        1.99       38        2.07       39      2.30
Foreign                        1,005        3.52      425        1.61      428        1.82      391        1.92      322      1.59
Unallocated                      250          --      782          --      895          --    1,194          --      875        --
------------------------------------------------------------------------------------------------------------------------------------
                              $3,500        2.09%  $3,523        2.13%  $3,554        2.29%  $3,690        2.62%  $3,508      2.77%

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

</TABLE> 
/a/ Includes the allowance for credit losses on impaired loans of $81 million
    and $115 million at December 31, 1997 and 1996, respectively. While
    management has allocated the allowance to various portfolio segments, it is
    general in nature and is available for the loan portfolio in its entirety.
/b/ Includes the allowance for credit losses for commercial and industrial
    loans, loans for purchasing or carrying securities, and other commercial
    loans.

                                                                              39
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW



After an allowance has been established for the loan portfolio segments, credit
management determines an unallocated portion of the allowance for credit losses
after reviewing factors such as the general economic conditions, recognition of
specific regional and international geographic concerns, and trends in portfolio
growth. When events occur that allow credit management to more clearly identify
the risks in the portfolio, the unallocated portion of the allowance for credit
losses may be reallocated. The decline in the unallocated portion of the
allowance for credit losses in 1997 resulted from a reallocation to address
specific portfolio segments, primarily to the foreign component due to the
foreign transfer risk in Asia and emerging markets globally. See page 35 for
further discussion on recent international developments.

The special mention and classified loans referred to in the table on page 39
include all loans that have been internally risk rated as "special mention,"
"substandard," or "doubtful." Special mention assets are potentially weak, as
the borrower has begun to exhibit deteriorating trends, which if not corrected,
could jeopardize repayment of the loan and result in a "substandard"
classification.

Classified assets include those that are deemed "substandard" or "doubtful."
Substandard assets have a well-defined weakness, which if not corrected,
jeopardizes the full satisfaction of the debt. An asset classified as "doubtful"
has critical weaknesses that make full collection improbable. However, because
of pending events that may work to strengthen the asset, the amount and timing
of the possible loss cannot be determined. BAC's actual historical loss
experience since 1993 indicates ultimate loss rates for "special mention,"
"substandard," and "doubtful" loans of approximately 2 percent, 6 percent, and
34 percent, respectively.

Net credit losses totaled $901 million in 1997, a decrease of $17 million from
1996. The decrease related to the domestic commercial portfolio and was offset
by increases associated with the domestic consumer and foreign portfolios.

Domestic commercial net credit losses decreased $148 million from 1996,
reflecting a large recovery from a financial institution borrower as an outcome
of an asset sale, and an overall decrease in domestic commercial credit losses
of $109 million.

Domestic consumer net credit losses were $863 million in 1997, an increase of
$71 million from 1996. This increase was primarily in the consumer installment
and credit card categories. Growth in the consumer other installment portfolio,
primarily manufactured housing loans, resulted in higher charge-offs. Higher
levels of personal bankruptcy filings contributed to increased charge-offs in
the credit card portfolio.

Net credit losses in the foreign loan portfolio were $39 million in 1997, up $60
million from a net recovery of $21 million in 1996. This increase was primarily
due to credit losses of $48 million in Asia.

<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------------------------------------- 
                  NET CREDIT LOSSES (RECOVERIES) AS A PERCENTAGE OF AVERAGE LOAN OUTSTANDINGS                                   
--------------------------------------------------------------------------------------------------------------- 
                                                                           Year Ended December 31
                                                                1997      1996      1995      1994      1993
--------------------------------------------------------------------------------------------------------------- 
<S>                                                            <C>       <C>       <C>       <C>       <C>   
Domestic consumer:
 Residential first mortgages                                    0.06%     0.11%     0.14%     0.14%     0.07%
 Residential junior mortgages                                   0.22      0.37      0.42      0.53      0.67
 Credit card                                                    6.07      4.82      4.19      4.50      5.81
 Other installment                                              1.32      1.25      0.86      0.56      0.74
 Other individual lines of credit                               4.12      3.75      3.31      0.58      0.93
 Other                                                          4.34      3.56      1.84      1.25      2.69
Domestic commercial:
 Commercial and industrial                                      0.23      0.15      0.18     (0.20)     0.58
 Loans secured by real estate                                   0.12      0.08      0.32      0.29      0.59
 Financial institutions                                        (2.49)     1.58     (0.17)    (0.64)     0.80
 Lease financing                                                0.10     (0.11)    (0.16)    (0.30)     0.20
 Loans for purchasing or carrying securities                   (0.22)    (0.11)     0.36        --      0.11
 Construction and development loans secured by real estate     (0.46)     1.77     (0.89)     0.10      3.57
 Agricultural                                                  (0.15)    (0.14)    (0.23)       --     (0.23)
  Total domestic                                                0.62      0.70      0.54      0.50      1.09
 Foreign                                                        0.14     (0.09)    (0.39)    (0.44)    (0.16)
  Total loans                                                   0.54      0.58      0.40      0.37      0.89

---------------------------------------------------------------------------------------------------------------
</TABLE> 

40
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report
 
                                FINANCIAL REVIEW


--------------------------------------------------------------------------------
                                NONACCRUAL ASSETS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                             December 31
(in millions)             1997     1996         1995       1994       1993
--------------------------------------------------------------------------------
<S>                    <C>        <C>        <C>        <C>       <C>   
DOMESTIC LOANS
Consumer:
 Residential
  first mortgages       $  345      $ 354/a/  $  311     $  319     $  406
 Residential                                                         
  junior mortgages          43         59/a/      72         56         49
 Other                       5          2          2          7          4
Commercial:                                                         
 Commercial                                                          
  and industrial           150        241        511        420        457
 Loans secured                                                       
  by real estate           104        206        280        347        570
 Financial institutions     41         --         46          3         64
 Lease financing             5          1         --          1         18
 Construction and                                                    
  development loans                                                   
  secured by real estate    30         95        495        680      1,037
 Agricultural               18         28         29         31         49
-------------------------------------------------------------------------------
                           741        986      1,746      1,864      2,654
                                                                    
FOREIGN LOANS,                                                      
 PRIMARILY                                                           
 COMMERCIAL                156        109        142        215        232
Other interest-bearing                                              
 assets                 $    2         23          3          1         --
-------------------------------------------------------------------------------
                        $  899/b/  $1,118/b/  $1,891/b/  $2,080/b/  $2,886/b,c/

-------------------------------------------------------------------------------
</TABLE> 

/a/ Reflects the effect of a change in the past due period on nonaccrual loans,
    which is discussed in the Nonperforming Assets section.

/b/ Excludes certain nonaccrual debt-restructuring par bonds and other
    instruments that were included in available-for-sale and held-to-maturity
    securities of $0.3 million, $67 million, $62 million, and $441 million at
    December 31, 1997, 1996, 1995, and 1994 respectively. Also excludes certain
    other nonaccrual loans and other instruments issued by various governments
    of $1 million, $8 million, and $196 million at December 31, 1995, 1994, and
    1993 respectively, that were included in other assets at the lower of cost
    or fair value.

/c/ Excludes nonaccrual assets that were identified for accelerated disposition
    with carrying values prior to reclassification to other assets of $0.6
    billion at December 31, 1993. These nonaccrual assets were included in other
    assets at the lower of cost or fair value.


Nonperforming Assets

Nonperforming assets include assets that are on nonaccrual status and other real
estate owned (OREO). Total nonaccrual assets decreased $219 million, or 20
percent, from year-end 1996. This decrease reflected improvements in most
segments of the domestic loan portfolio, particularly in commercial and
industrial loans, construction and development loans secured by real estate, and
commercial loans secured by real estate. These improvements resulted primarily
from payments on nonaccrual loans. Other significant factors that contributed to
the decrease were the restoration of nonaccrual loans to accrual status and
charge-offs. Partially offsetting this overall decline was a large domestic
financial institution loan that was placed on nonaccrual status during the
second half of 1997 and an increase in foreign nonaccrual loans. The increase in
foreign nonaccrual loans was concentrated in Asia primarily due to the
previously discussed economic pressures in this area.

--------------------------------------------------------------------------------
                     ANALYSIS OF CHANGE IN NONACCRUAL ASSETS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                          December 31
(in millions)                                  1997          1996          1995
--------------------------------------------------------------------------------
<S>                                        <C>           <C>           <C> 
Balance, beginning of year                  $ 1,118       $ 1,891       $ 2,080

Additions:
 Loans placed on
  nonaccrual status                             582           505         1,432
 Leases acquired                                 --            34            --
 Other                                           --           144/a/         --

Deductions:
 Sales                                         (150)         (130)          (35)
 Restored to accrual status                    (178)         (360)         (399)
 Foreclosures                                    (9)          (25)         (113)
 Charge-offs                                   (134)         (237)         (188)
 Other, primarily payments                     (330)         (704)         (886)
--------------------------------------------------------------------------------
Balance, End of Year                        $   899       $ 1,118       $ 1,891

--------------------------------------------------------------------------------
</TABLE> 

/a/ Reflects the effect of a change in the past due period on nonaccrual loans,
    which is discussed in the Nonperforming Assets section.


During the fourth quarter of 1996, BAC changed the past due period for
nonaccrual residential real estate loans and consumer loans that were
collateralized by junior mortgages on residential real estate from 180 days to
90 days. As a result of this change, nonaccrual loans increased by $144 million,
while loans past due 90 days or more and still accruing interest decreased by
the same amount in the fourth quarter of 1996.

NONACCRUAL ASSETS AT YEAR END
(in millions of dollars)

                1993       1994      1995      1996      1997
                -----------------------------------------------
                $2,886     $2,080    $1,891    $1,118    $  899
                                                                              
                                                                            41
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW

<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------------------------------------
                           CASH INTEREST PAYMENTS ON NONACCRUAL ASSETS BY LOAN TYPE/a/
---------------------------------------------------------------------------------------------------------------------------
                                                                       December 31, 1997                                     
                                         ----------------------------------------------------------------------------------
                                          Contractual                        Cumulative     Nonaccrual         Book as a
                                            Principal     Cumulative   Interest Applied           Book     Percentage of
(dollar amounts in millions)                  Balance    Charge-offs       to Principal        Balance       Contractual
--------------------------------------------------------------------------------------------------------------------------- 
<S>                                       <C>            <C>           <C>                   <C>           <C>  
DOMESTIC
   Consumer:
     Residential first mortgages              $   346         $    1               $--            $345                99%  
     Residential junior mortgages                  43             --                --              43               100   
     Other consumer                                 7              2                --               5                71   
   Commercial:                                                                                                             
     Commercial and industrial                    472            278                44             150                32   
     Loans secured by real estate                 205             81                20             104                51   
     Financial institutions                        45              2                 2              41                91   
     Lease financing                                5             --                --               5               100   
     Construction and development                                                                                          
      loans secured by real estate                 49             16                 3              30                61   
     Agricultural                                  31              7                 6              18                58   
--------------------------------------------------------------------------------------------------------------------------- 
                                                1,203            387                75             741                62   
FOREIGN, PRIMARILY                                                                                                         
     COMMERCIAL                                   282            121                 5             156                55   
   Other interest-bearing assets                    2             --                --               2               100   
--------------------------------------------------------------------------------------------------------------------------- 
                                               $1,487           $508               $80            $899                60%   
   CASH YIELD ON AVERAGE TOTAL                                                               
     NONACCRUAL BOOK BALANCE                                                                 
--------------------------------------------------------------------------------------------------------------------------- 
<CAPTION> 
                                                Year Ended December 31, 1997
                                       --------------------------------------------------
                                                                Cash Interest 
                                          Average              Payments Applied
                                       Nonaccrual   -------------------------------------           
                                             Book   As Interest
(dollar amounts in millions)              Balance        Income     Other/b/    Total
------------------------------------------------------------------------------------------ 
<S>                                    <C>          <C>             <C>         <C> 
DOMESTIC
   Consumer:
     Residential first mortgages             $338           $16       $--         $16
     Residential junior mortgages              49             2        --           2
     Other consumer                             2            --        --          --
   Commercial:                                                             
     Commercial and industrial                193            10        12          22
     Loans secured by real estate             142            14         5          19
     Financial institutions                    14            12         1          13
     Lease financing                            4            --        --          --
     Construction and development                                          
      loans secured by real estate             60             8         2          10
     Agricultural                              22             4         2           6
------------------------------------------------------------------------------------------ 
                                              824            66        22          88
FOREIGN, PRIMARILY                                                         
     COMMERCIAL                                98             4         4           8
   Other interest-bearing assets                5            --        --          --
------------------------------------------------------------------------------------------ 
                                             $927           $70       $26         $96
   CASH YIELD ON AVERAGE TOTAL                                             
     NONACCRUAL BOOK BALANCE                                                    10.37%
------------------------------------------------------------------------------------------ 
</TABLE> 

/a/ Includes information related to all nonaccrual loans including those that
    are fully charged off or otherwise have a book balance of zero.

/b/ Primarily represents cash interest payments applied to principal. Also
    includes cash interest payments accounted for as credit loss recoveries,
    which are recorded as increases to the allowance for credit losses.



Loans past due 90 days or more and still accruing interest decreased $32 million
in 1997. Approximately 93 percent of these loans were from the domestic consumer
portfolio, of which 68 percent were from the credit card portfolio. The
decreases in the commercial loan sector were primarily due to loans being
restored to current status.

The improvement in BAC's credit quality during 1997 was also reflected in BAC's
nonperforming asset ratios. At December 31, 1997, the ratio of nonaccrual loans
to total loans was 0.54 percent, down from 0.66 percent at December 31, 1996. In
addition, the ratio of nonperforming assets (comprised of nonaccrual assets and
OREO) to total assets declined 17 basis points from year-end 1996 to 0.42
percent at December 31, 1997.


OREO, which is recorded in other assets, primarily includes properties acquired
through foreclosure or in full or partial satisfaction of loans. OREO was $205
million at December 31, 1997, an increase of $8 million from year-end 1996. At
year-ends 1997 and 1996, the aggregate fair value of properties included in OREO
represented approximately 114 percent and 123 percent, respectively, of their
net carrying value.

--------------------------------------------------------------------------------
                         LOANS PAST DUE 90 DAYS OR MORE
                           AND STILL ACCRUING INTEREST
--------------------------------------------------------------------------------
                                                       December 31
  (in millions)                          1997    1996    1995    1994    1993
--------------------------------------------------------------------------------

DOMESTIC
Consumer:
 Residential first mortgages             $ --    $ --/a/ $180    $133    $153   
 Residential junior mortgages              --      --/a/   12      23      23   
 Other consumer                           189     186     162     136     152   
                                                                               
Commercial:                                                                    
 Commercial and industrial                  7      29      20      25      20   
 Loans secured by real estate               4       5       1      54     138   
 Financial institutions                    --      --      16      16      --   
 Lease financing                           --      --       1       1      --   
 Construction and                                                              
  development loans                                                            
  secured by real estate                   --      12      --      38      86   
Agricultural                               --       1      --       8      --   
--------------------------------------------------------------------------------
                                          200     233     392     434     572   
FOREIGN                                     3       2      19       2       6   
--------------------------------------------------------------------------------
                                         $203    $235    $411    $436    $578   
--------------------------------------------------------------------------------

/a/ Reflects the effect of a change in the past due period on nonaccrual loans,
    which is discussed in the Nonperforming Assets section.

42
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW


Off-Balance-Sheet Financial Instruments

In the ordinary course of business, BAC enters into various types of
transactions that involve off-balance-sheet financial instruments. These include
credit-related financial instruments and, interest rate, foreign exchange,
equity, and credit derivative financial instruments.

Credit-Related Financial Instruments

Credit-related financial instruments include commitments to extend credit,
standby letters of credit, and commercial letters of credit. BAC makes
commitments to extend credit to a wide range of customers as part of its ongoing
lending operations. Additionally, BAC issues standby letters of credit to ensure
performance or financial obligations of customers. BAC generally enters into
commercial letters of credit to offer short-term financing and facilitate
domestic and foreign trade transactions for customers. 

Derivative Financial Instruments

BAC uses interest rate, foreign exchange, equity, and credit derivative
financial instruments in both its trading and asset and liability management
activities. BAC uses commodity derivative financial instruments solely in its
trading activities. Interest rate, foreign exchange, equity, credit, and
commodity derivative financial instruments include swaps, futures, forwards,
and option contracts, all of which derive their value from underlying interest
rates, foreign exchange rates, credit-related contracts, commodity values, or
equity instruments. Certain transactions involve standardized contracts executed
on organized exchanges, while others are negotiated over-the-counter (OTC), with
the terms tailored to meet the needs of BAC and its customers. At December 31,
1997, notional amounts for credit derivative financial instruments used in
trading or asset and liability management activities were insignificant.

In meeting the needs of its global customers, BAC uses its expertise to execute
transactions to aid these customers in managing their risk exposures to interest
rates, exchange rates, prices of securities, financial or commodity indices, and
credit. For example, a multinational consumer products company may choose to
manage the currency risks associated with the foreign countries in which it
operates. BAC will transact cross currency swaps or foreign exchange contracts
with the customer to meet this need. Counterparties to BAC's foreign exchange
and derivative transactions generally include U.S. and foreign banks, nonbank
financial institutions, corporations, domestic and foreign governments, and
asset managers.

BAC generates trading revenue by executing transactions to support customers'
risk management needs, by efficiently managing the positions that result from
these transactions, and by making markets in a wide variety of products. In its
trading activities, BAC primarily employs traditional or "plain-vanilla"
products, such as spot and forward foreign exchange contracts, exchange-traded
futures contracts, and conventional interest rate and cross-currency swaps, as
well as simple option structures which have the aforementioned items as the
underlying instruments, including interest rate caps, collars, and floors. Such
instruments are used by a wide variety of market participants in liquid
currencies and tenors, and accounted for more than 95 percent of all BAC
derivative financial instruments at December 31, 1997. The remainder of the
financial instruments either employed such products in less liquid currencies
and tenors, or involved nontraditional products or transactions -- typically
incorporating more complex option structures -- and were executed primarily to
meet unique customer needs.

In connection with BAC's own asset and liability management activities, it
primarily uses foreign exchange derivative financial instruments to manage the
foreign exchange risk associated with foreign-denominated firm commitments and
net capital exposures; interest rate derivative financial instruments to manage
the interest rate risk associated with its assets and liabilities, including
residential loans, deposits, and long-term debt; equity derivative financial
instruments to manage the price risk associated with fluctuations in the fair
value of marketable equity securities; and credit derivative financial
instruments to hedge credit risk. For an additional discussion of BAC's hedging
objectives and the strategies and financial instruments used to achieve such
objectives, refer to Notes 1 and 25 of the Notes to Consolidated Financial
Statements on pages 60 -- 65 and 80 -- 86, respectively.

Similar to on-balance-sheet financial instruments, such as loans and investment
securities, off-balance-sheet financial instruments expose BAC to various types
of risk. The Risk Management section that follows provides a discussion of these
risks.

                                                                              43
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW


Risk Management

Risk management is integral to BAC's operations and a key determinant of its
overall financial performance, since risk is inherent in most of BAC's business
activities. BAC applies various strategies to mitigate risks to which it is
exposed, namely credit, operational, market, and liquidity risks. These
strategies are discussed in the following sections.

Credit Risk Management

Credit risk is the possibility of loss from the failure of a borrower or
counterparty to fully perform under the terms of a credit-related contract.
Credit risk arises primarily from BAC's lending activities, as well as from
transactions involving other on- and off-balance-sheet instruments. Credit risk
also includes transfer risk, which is the repayment risk that occurs with
transactions subject to potential restrictions on the movement of funds across
borders. For example, although foreign customers possess adequate funds, their
local central banks may preclude them from exchanging their local currency for
the foreign currency (usually U.S. dollars) in which they agreed to repay their
obligations.

BAC's Credit Policy Committee (CPC) oversees all credit-related activities. The
CPC is responsible for managing BAC's overall credit exposure, and for
establishing credit policies, standards, and guidelines that define, quantify,
and monitor credit risk. The CPC also oversees compliance with established
credit limits and conducts reviews of industry, geographic region or country,
product, and individual borrower or counterparty exposure, together with reviews
of problem credits and credit losses. Furthermore, the CPC continually monitors
significant economic developments and internal shifts in strategic emphasis and
updates the credit risk management process accordingly. Managing credit risk
within the guidelines established by the CPC is the responsibility of all BAC
line officers involved in extending credit to customers. The primary focus of
managing credit risk is to evaluate the likelihood that a borrower or
counterparty will repay a loan from expected financial sources and to follow up
with appropriate action. When collateralized transactions are involved, this
includes ensuring that sufficient collateral is obtained at the outset and that
sufficient collateral margins are maintained.

In making credit recommendations and decisions, line officers are supported by
credit specialists within BAC who have expertise in specific areas, including
specialized industries, geographic regions, or types of products. The credit
risk management process is monitored on an ongoing basis by officers from BAC's
Corporate Credit Examination Services. The results of these monitoring
activities are reported to senior credit management and the Auditing and
Examining Committee of the Board of Directors. BAC makes substantial investments
in credit risk training to ensure competence among all credit officers and to
better serve customers' changing needs.

BAC also manages credit risk by diversifying both on- and off-balance-sheet
portfolios by industry, product, and geographic concentration. The extent of
diversification of the loan portfolio by geographic area and type of asset is
evident in the chart on page 33, and in the table on page 34. The
diversification in BAC's off-balance-sheet portfolio is discussed in Note 25 of
the Notes to Consolidated Financial Statements on pages 80-86.

OFF-BALANCE-SHEET CREDIT RISK

OTC derivative financial instruments introduce two additional elements of credit
risk: pre-settlement (or close-out) risk and settlement risk. Pre-settlement
risk arises from the possibility that a counterparty to a transaction is unable
to live up to the terms of its contract and BAC must write off the current
market value of the contract (that has already been recognized as an asset and
taken into income). Settlement risk occurs whenever BAC pays out funds or
delivers assets before it receives payment from the counterparty in the
transaction.

BAC mitigates both pre-settlement and settlement risk primarily by evaluating
the creditworthiness of its counterparties. BAC utilizes the same policies,
procedures, and internal credit risk rating system established for all
on-balance-sheet credit exposures. At December 31, 1997, approximately 88
percent of the derivative counterparties and 81 percent of the foreign exchange
counterparties with whom BAC had credit exposure had investment grade or
equivalent ratings. Considering only those counterparties with greater than $500
thousand of peak potential exposure, these percentages were 91 percent and 88
percent, respectively.

To mitigate pre-settlement risk further, BAC obtains collateral where
appropriate. In addition, BAC uses agreements that allow netting of multiple
transactions in the case of default, such as the internationally recognized
International Swap and Derivatives Association (ISDA) agreement and the
International Foreign Exchange Master Agreement (IFEMA). BAC's policy is to
execute legally enforceable netting agreements with its foreign exchange and
derivative customers whenever possible.

BAC reduces settlement risk through either novation netting (a mutual agreement
to substitute a new contract for two or more existing contracts that are then
discharged) or settlement netting (a contract to settle mutual obligations at
the net value of the individual contracts) arrangements, which may be included
as part of a master netting agreement.

BAC measures both current and potential future exposure when evaluating its
pre-settlement credit risk on foreign exchange and derivative contracts. Current
credit exposure is the amount of unrealized gain on the contract, or the amount
BAC would have the right to receive if a foreign exchange or derivative contract
was terminated on the date of evaluation. Potential credit exposure (at the 97.5
percent confidence level) is calculated based on the range of probable changes
in the contract's fair value over its remaining life, given the historical
pattern of market behavior.

44
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW


Current credit exposure, based on positive fair values of open OTC contracts at
December 31, 1997, and taking into account the effect of master netting
agreements and arrangements, was $4.1 billion for derivative counterparties and
$6.7 billion for foreign exchange counterparties, compared to $4.8 billion and
$2.7 billion, respectively, at year-end 1996. The increase in foreign exchange
credit exposure from year-end 1996 to 1997 was primarily due to the significant
decline in the value of several Asian currencies and a corresponding increase in
the fair market value of contracts where BAC was committed to pay these
currencies and receive U.S. dollars or another major currency. Disciplined
trading credit risk measurement and control procedures helped to limit BAC's
actual credit losses from pre-settlement risk, which were $20.8 million in 1997
compared to $1.4 million in 1996, despite the economic instability in Asia
during the fourth quarter of 1997. Losses due to settlement risk were limited to
$0.5 million in 1997. There were no settlement risk losses in 1996.

Potential credit exposure is an estimate based on a statistical analysis which
involves numerous assumptions and variables. The process involves simulation of
many scenarios for interest rates and exchange rates. Credit exposure for each
counterparty individually and for the total of all counterparties is determined
for each scenario on a series of future dates. At the 97.5 percent level of
confidence, it is estimated that total current credit exposure of $4.1 billion
in the derivative portfolio as of December 31, 1997 could potentially increase
to a peak of $5.2 billion in the third quarter of 1998. For the foreign exchange
trading portfolio, it is estimated that current exposure of $6.7 billion at
year-end could increase to $8.4 billion in the first quarter of 1998.

Operational Risk

Operational risk is the risk of unexpected losses attributable to human error,
systems failures, fraud, or inadequate internal controls and procedures.
Mitigating this risk are systems and procedures to monitor transactions and
positions, documentation of transactions, regulatory compliance review, and
periodic review by internal auditors. Reconciliation procedures are also in
place to ensure that systems capture critical data. In addition, BAC maintains
contingency systems for operations support in the event of natural disasters.

Market Risk 

OVERVIEW

Market risk is the potential of loss arising from adverse changes in market
rates and prices, such as interest rates (interest rate risk), foreign currency
exchange rates (foreign exchange risk), commodity prices (commodity risk) and
prices of equity securities (equity risk). As a financial institution that
engages in transactions involving a broad array of financial products, BAC is
exposed to interest rate risk, foreign exchange risk and, to a much less
significant extent, commodity and equity risk. Financial products that expose
BAC to market risk include securities, loans, deposits, debt, and derivative
financial instruments such as futures, forwards, swaps, options, and other
financial instruments with similar characteristics.

The BAC Asset, Liability, and Financial Management Committee (ALFI) has the
overall responsibility for managing market risk policies for BAC. This includes
all foreign and domestic trading and most nontrading activities. The members of
ALFI are senior executive officers who have principal decision-making
responsibilities for businesses throughout the BAC organization. The Market Risk
Committee (MRC), a subcommittee of ALFI, has delegated responsibility for
approving all global trading activities in all financial instruments, as well as
all foreign treasury activities. It also approves market risk limits for these
activities. The members of the MRC are senior line managers who are responsible
for trading and market risk management and senior corporate officers who are
responsible for accounting, treasury, and credit policies. The Auditing and
Examining Committee regularly reviews policies for managing market risk.

For purposes of exposition, BAC's market risk management activities are divided
into the two categories, trading and nontrading.

TRADING ACTIVITIES

BAC's trading activities include transactions involving derivatives, foreign
currency, and various types of securities. These activities principally expose
BAC to two major types of market risk -- interest rate risk and foreign exchange
risk. In addition, but to a much lesser extent, these activities expose BAC to
commodity risk and equity risk.

BAC manages its exposure to market risk in a variety of ways. First and
foremost, the MRC establishes and monitors various limits on trading activities.
These limits include product volume, gross and net positions, and value-at-risk
(VAR) and profit and loss simulation limits. Product volume limits establish
maximum aggregate amounts of specific types of derivatives, foreign exchange
contracts, and securities that BAC may hold in its trading account at any point
in time. Position limits restrict the gross and net amount of contracts that can
be held in the trading account in any specific maturity grouping. VAR measures
the potential loss in future earnings due to market rate movements within the
trading portfolio using proprietary models that are based on statistical
probability. VAR limits establish the maximum amount of potential loss computed
by the model that BAC is willing to assume at any point in time. Finally, BAC
uses profit and loss simulations to measure the potential for loss in various
segments of the trading portfolio resulting from specific and extremely adverse
scenarios. These scenarios are projected without regard to the statistical
probability of their occurrences. Loss simulation limits establish the maximum
amount of projected loss computed by the simulation that BAC is willing to
assume.

                                                                              45
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                                FINANCIAL REVIEW


--------------------------------------------------------------------------------
                         TRADING ACTIVITIES MARKET RISK/a/
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

                                                                    1997                                        1996
(in millions)                                    Average VAR    High VAR      Low VAR       Average VAR     High VAR      Low VAR
------------------------------------------------------------------------------------------------------------------------------------

<S>                                              <C>            <C>           <C>           <C>             <C>           <C> 
Based on Perfect Positive Correlation:
     Entire trading account                            $52.6       $70.0        $41.0             $41.8        $51.5        $31.9
     Interest rate                                      44.5        54.1         34.8              36.1         45.2         28.7
     Foreign currency                                    8.1        18.2          2.4               5.7         12.0          2.2
Based on Zero Correlation:
     Entire trading account                            $23.5       $30.4        $18.0             $17.5        $23.2        $14.1
     Interest rate                                      21.7        27.5         16.5              16.5         21.5         13.3
     Foreign currency                                    8.1        18.2          2.4               5.7         12.0          2.2
------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

/a/ The high and low for the entire trading account may not equal the sum of the
    individual components as the highs or lows of the components occurred on
    different trading days.

    On a day-to-day basis, BAC reduces the market risk to which it is exposed in
    the trading account by executing offsetting transactions with other
    counterparties. However, BAC may also retain, generally on a temporary
    basis, open or uncovered trading account positions in an effort to generate
    revenue by correctly anticipating future market conditions and customer
    demands or by taking advantage of price differentials among the various
    markets in which it operates.

    The day-to-day management of interest rate and foreign exchange risks takes
    place at a decentralized level within BAC's various trading centers. Limits
    established by the MRC are assigned to each trading center. In addition,
    documented trading policies and procedures define acceptable boundaries
    within which traders can execute transactions in their assigned markets.

    BAC uses a VAR methodology to measure the interest rate and foreign exchange
    risks inherent in its trading activities. Under this methodology, management
    models historical data to statistically calculate, with 97.5 percent
    confidence, the potential loss in earnings that BAC might experience if an
    adverse one-day shift in market prices was to occur. The instruments covered
    by the VAR methodology include derivative financial and foreign currency
    instruments, derivative commodity instruments, and financial assets and
    liabilities that are included in trading activities.

    BAC performs this VAR calculation for each major trading portfolio segment
    on a daily basis. It then calculates the combined VAR across these portfolio
    segments using two different sets of assumptions. The first calculation
    assumes that each portfolio segment experiences adverse price movements at
    the same time (i.e., the price movements are perfectly correlated). The
    second calculation assumes that these adverse price movements within the
    major portfolio segments do not occur at the same time (i.e., they are
    uncorrelated).

    The table above sets forth the calculated VAR amounts for 1997 and 1996. The
    amounts are calculated on a pre-tax basis and commodity and equity risks
    have not been included in the table due to their relative insignificance.

    BAC's trading risk profile is also depicted below in the histogram of daily
    trading-related revenue for 1997. The graph illustrates the number of days
    in 1997 in which BAC's trading-related revenue fell within a particular
    million-dollar increment. For example, the table shows that the daily
    trading revenue during 1997 amounted to between $3 million and $4 million 26
    times. In addition, daily trading-related revenue averaged $3.9 million per
    day for 1997. For purposes of the table, BAC's daily trading-related revenue
    excludes periodic adjustments to the allowance for counterparty default. The




<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
HISTOGRAM OF DAILY TRADING-RELATED REVENUE FOR 1997
(Bar chart in non-EDGAR version appears here)
--------------------------------------------------------------------------------
     Daily Revenue
in Millions of Dollars                                          Number of Days
--------------------------------------------------------------------------------
<S>                                                             <C>
-32                                                              1
-31 to -13                                                       0
-12                                                              1
-11                                                              1
-10                                                              0
 -9                                                              0
 -8                                                              1
 -7                                                              0
 -6                                                              2
 -5                                                              1
 -4                                                              2
 -3                                                              3
 -2                                                              4
 -1                                                              4
  0                                                              9
  1                                                             20
  2                                                             23
  3                                                             29
  4                                                             26
  5                                                             28
  6                                                             30
  7                                                             21
  8                                                             18
  9                                                             13
 10                                                              8
 11                                                              6
 12                                                              2
 13                                                              1
 14                                                              2
 15                                                              0
 16                                                              1
 17                                                              1
 18                                                              0
 19                                                              1
                                                              ----
                                                               259
</TABLE> 


46
<PAGE>
 
                                     BankAmerica Corporation 1997 Annual Report 

                               FINANCIAL REVIEW


shaded area in the histogram represents the 95 percent confidence interval
associated with this average daily revenue amount. Excluding a $32 million loss
incurred on a single day of extreme volatility in international emerging
markets, this confidence interval demonstrates BAC's overall success during the
year in controlling the volatility of its daily trading activities, reflecting
its diversified approach toward market risk management.


NONTRADING ACTIVITIES

BAC's nontrading banking activities encompass all activities that are not
accounted for as trading activities. These include lending, accepting deposits,
investing in securities, and issuing debt when needed to fund assets. 


Interest Rate Risk

The ALFI committee monitors BAC's nontrading interest rate risk monthly and sets
limits on allowable risk annually. Additionally, the ALFI committee annually
reviews and approves the underlying product and model assumptions used to
measure these risks. ALFI generally monitors three sources of interest rate risk
associated with BAC's nontrading banking activities: gap mismatches, options
risk, and index mismatches. ALFI measures these risks by calculating gap
mismatches and by estimating the economic value of assets and liabilities under
different interest rate scenarios. For risk management purposes, economic value
represents the present value of expected future cash flows on nontrading assets
and liabilities.

GAP MISMATCHES -- Gap mismatches result from timing differences in the repricing
of assets, liabilities and off-balance-sheet instruments (e.g., when BAC commits
to an interest rate on a loan before funding it). To further illustrate, if BAC
makes long-term fixed-rate loans and funds them with floating-rate deposits, a
gap mismatch is created because the repricing periods for the loans and the
deposits are different. In this example, in a rising rate environment, BAC is
exposed to interest rate risk because BAC could become obligated to pay more
interest on the deposits than BAC is receiving on the fixed-rate loans.

OPTIONS RISK -- Options risk commonly exists in BAC's retail banking products.
Examples include interest rate caps on adjustable rate mortgages, prepayment
rights on fixed-rate mortgage loans, and depositor rights to withdraw certain
deposits on demand. Whether interest rates move up or down, options risk
typically benefits BAC's customers while exposing BAC to loss through lower
revenues or higher costs. To further illustrate, if BAC has a fixed-rate
mortgage loan asset that it funds with a 7-year deposit, BAC will have losses if
rates rise. This is because the term of the mortgage loan is likely to be longer
than that of the deposit and new funding will be at higher rates. If rates fall,
BAC will have losses if the loan is refinanced and an asset with a lower rate is
acquired.

INDEX MISMATCH -- Index mismatch risk results when floating-rate assets and
liabilities are tied to different indices. If the indices do not move together,
BAC is exposed to loss. Examples of common indices in retail products are London
InterBank Offered Rate (LIBOR), prime rate, Federal Home Loan Bank 11th District
Cost of Funds rate, and U.S. Treasury rate indices.

ECONOMIC VALUE MEASUREMENT -- BAC measures its interest rate risk through a
statistical process referred to as a Monte Carlo simulation, which creates over
10,000 potential interest rate scenarios benchmarked to current observable
secondary market interest rates and option prices. In this Monte Carlo
simulation, BAC uses historical customer behavior patterns, observed under a
variety of interest rate scenarios, to model the effects on its products. These
historically based models of customer behavior are modified to the extent that
management believes behavior has changed due to new factors in the market.
Assets and liabilities covered in the models include: fixed- and adjustable-rate
mortgages, consumer installment loans and lines of credit, credit card
receivables, commercial mortgages, commercial and industrial loans and lines,
mortgage servicing assets, investment securities, transaction accounts, savings
accounts, money market accounts, time deposits, wholesale deposits, interest
rate swaps, futures, forward rate agreements, interest rate caps and floors, and
purchased options. Off-balance-sheet instruments are included in the models only
if they are used for hedging.

By modeling its products in these Monte Carlo scenarios, BAC can observe the
economic value of each product in each scenario. The aggregate economic value of
all products across these scenarios indicates a range of outcomes, from maximum
loss to maximum gain in economic value. BAC manages risk by limiting the amount
of economic value at risk at the 97.5 percent probability level and concentrates
its risk management efforts in reducing its loss exposure in the worst 2.5
percent of interest scenarios, limiting the amount of risk it will take at this
level.

BAC also measures its interest rate risk through a set of specific "rate shock"
scenarios. In the scenarios, interest rates are adjusted up or down in even
increments of 100 to 200 basis points (bp) over current rates and then held
constant. The table below sets forth BAC's changes in economic value in its
nontrading activities as of December 31, 1997, using the
above-described methods:


                     Modeled Pre-tax Sensitivity (in millions)
                    -------------------------------------------

                       Variance from          Variance from
   Rate Shock           Values using           Values using
   Scenario              Monte Carlo                Current
   (basis points)         Simulation           Market Rates
---------------------------------------------------------------
   +200                         $118                  $(140)
   +100                          285                    (99)
      0                          210                      0
   -100                          317                    134
   -200                          428                    274

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

                                                                            47
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


The first column represents the increments in the rate shock scenario. The
second column compares each rate shock scenario with the average economic value
generated from all Monte Carlo scenarios at that rate. Only U.S. dollar
denominated financial instruments are included in these scenarios. The third
column compares each rate shock scenario against values generated using current
interest rates. Both U.S. dollar and foreign currency denominated financial
instruments are included in this scenario. Foreign currency risks result
primarily from positions in Hong Kong dollars, Singapore dollars, and Indian
rupees. 

With reference to the values generated from the Monte Carlo scenarios, BAC has
positive economic value outcomes if interest rates remain within 200 basis
points of their December 31, 1997 levels. However, if interest rates move
outside that range, the potential for economic loss increases. With reference to
the values generated by current interest rates, BAC's economic value would be
adversely affected by rising interest rates.

Large interest rate movements negatively affect performance because of embedded
options in retail loan and deposit products. For example, interest rate caps on
adjustable-rate mortgages will hurt performance in sharply rising interest rate
environments, and lags in deposit repricing will hurt performance in sharply
falling interest rate environments. BAC does not have significant interest rate
risk from wholesale products since wholesale products are generally
floating-rate with clear contractual terms.

RISK MANAGEMENT -- BAC employs three primary risk management techniques to keep
interest rate risk within the limits approved by the ALFI committee. The first
technique is the use of interest rate swaps and investment portfolio purchases
or sales to reduce risk caused by gap and index mismatches. The second technique
is the purchase of interest rate caps and floors to reduce the option exposure
embedded in BAC's retail products. Finally, in products where BAC views that it
will be difficult to accurately model interest rate effects as a result of their
dependence on customer behavior, BAC may sell assets or curtail business
activity to limit exposure.

LIMITATIONS -- Interest rate risk modeling on nontrading retail products is
subject to numerous limitations. In addition, BAC recognizes that there are
numerous assumptions and estimates associated with modeling and actual results
could differ from these assumptions and estimates. BAC believes, however, that
it mitigates these uncertainties through close monitoring and by examining
assumptions on an ongoing basis. The continual risk management process should
reduce the impact of unanticipated risk exposures as assumptions are updated and
before the exposures create significant losses.


FOREIGN CURRENCY CAPITAL INVESTMENT RISK

BAC has made investments in a number of operations in foreign countries. The
capital invested in these operations is often denominated in foreign currencies
which exposes BAC to foreign currency risks. The foreign currency risks inherent
in these foreign capital investments are actively managed using the same VAR
methodology employed in the management of foreign currency risks in trading
activities. Limits on the VAR exposures that BAC is willing to accept in both
nontrading and trading activities are established by the MRC. (See the prior
discussion of Trading Activities on page 45 for details of risk management and
parameters of VAR methodology.)

BAC mitigates the foreign currency risks in nontrading activities by executing
offsetting transactions wherever practical. However, not all of the foreign
currency exposures can be offset due to restrictions in local regulations. In
addition, certain exposures are in currencies in which offsetting transactions
are available on an infrequent basis and/or at impractical costs. Nonetheless,
most of the nontrading foreign currency exposures are fully offset.

The table below sets forth the calculated VAR amounts for foreign currency
capital investment risk for each of the years 1997 and 1996. The amounts are
calculated on a pre-tax basis and represent the potential loss in earnings that
BAC might experience if an adverse one-day shift in foreign exchange rates was
to occur.


--------------------------------------------------------------------------------
                         FOREIGN CURRENCY VALUE AT RISK
                             IN CAPITAL INVESTMENTS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
(in millions)                                                    1997     1996
--------------------------------------------------------------------------------
<S>                                                             <C>      <C> 
Average                                                          $1.3     $1.8
High                                                              1.9      2.6
Low                                                               1.1      1.4

--------------------------------------------------------------------------------
</TABLE> 

EQUITY RISK

Through its private equity investment activities, BAC owns equity securities
that are subject to fluctuations in their market prices or values. Since these
market prices or values may fall below BAC's investment costs and thereby expose
BAC to the possibility of loss if the investments were sold, BAC is subject to
equity risk when conducting these activities. BAC's Global Equity Investment
group (GEI) is responsible for managing private equity investment activities and
the associated equity risk. Annually, GEI must provide a report of operations to
BAC's Board of Directors and receive approval from the Office of the Chairman
for its equity investment plans for the upcoming year. This approval establishes
an annual limit on BAC's commitment to new equity investments. In addition, a
separate limit denominated as a percentage of total equity exists, which
establishes a ceiling on the funded exposure of equity investment activities.
The annual investment limit is subject to additional approvals where
appropriate, such as that of the Bank's Country Risk Committee for individual
country exposure.

48
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


GEI has established internal authorities for approving all equity investing
activities. As the dollar amount of a transaction increases, the level of
management approval necessary also increases from an investment committee which
includes GEI's chief investment officer for smaller transactions, to the Group
Executive Vice President responsible for GEI, to ultimately an amount where the
approval by the President of the Global Wholesale Bank is required.

BAC's equity investments are segregated into two general categories; publicly
traded securities and private equity investments. Investments in publicly traded
securities represent less than 10% of BAC's equity investment portfolio. These
assets are classified as available-for-sale securities and reported at their
fair values with unrealized gains and losses included as a component of
shareholders' equity. Directly held publicly traded securities are reviewed
weekly while those positions owned indirectly through limited partnerships are
reviewed quarterly. The price risks in these assets are hedged, as considered
appropriate, with the purchase of exchange traded or OTC derivative contracts.

Private equity investments which do not have readily available market prices are
reported at historical cost and included in other assets. Private equity
investments represent more than 90% of BAC's equity securities portfolio.
Unrealized losses on these investments, that constitute a permanent decline in
value, are reported in the income statement. Directly held private equity
investments are reviewed by management on a semi-annual basis while those
indirectly held through limited partnerships are reviewed at least annually. In
addition to the individual reviews, management assesses the aggregate portfolio
semi-annually for geographic, industry, and individual investment
concentrations. A comparison of carrying value and estimated fair value is
likewise reviewed. 

Liquidity Risk Management

OVERVIEW
 
Liquidity risk is the possibility that BAC's cash flows may not be adequate to
fund operations and meet commitments on a timely and cost-effective basis. Since
liquidity risk is closely linked to both credit and market risk, many of the
previously discussed market risk limits, risk control mechanisms, and market and
product participation limitations also apply to the monitoring and managing of
liquidity risk.

The coordination of the relative maturities of assets and liabilities is
fundamental to the management of liquidity. BAC's ability to raise funds in
money and capital markets provides flexibility in managing liquidity and
mitigates the potential for liquidity risk. ALFI seeks to balance BAC's sources
and uses of funds while minimizing market exposure. In this capacity, ALFI
places limits on the level of investments in various assets and
off-balance-sheet instruments, as well as on funding levels for wholesale and
other deposits.

BAC manages its liquidity at both the parent and subsidiary levels. The parent
is funded primarily by debt and equity issuances, as well as by dividend and
interest income from its subsidiaries. BAC may issue common stock, preferred
stock, senior debt, including commercial paper, and subordinated debt from time
to time when market conditions are judged appropriate considering funding and
capital needs. For direct banking subsidiaries, the primary source of funding is
domestic retail deposits. Additional funding support is available to selected
banking subsidiaries through the issuance of bank notes and commercial paper.
Subsidiary funding is also available through lines of credit between banking
subsidiaries and the Bank and between nonbanking subsidiaries and the parent,
and from outside funding through notes, commercial paper, and securities sold
under repurchase agreements.

The liquid assets of BAC and of its subsidiaries consist of cash and due from
banks, interest-bearing deposits in banks, federal funds sold, securities
purchased under resale agreements, trading account assets, and
available-for-sale securities. Among the funding sources are core deposits,
foreign deposits, capital markets funds, and purchased money-market liabilities.
Core deposits include domestic interest- and noninterest-bearing retail
deposits, which historically have been a relatively stable source of funds to
BAC. Capital market funds include long-term debt, subordinated capital notes,
and common and preferred equity. Purchased money-market liabilities primarily
include foreign time deposits, federal funds purchased, securities sold under
repurchase agreements, and other short-term borrowings. The credit ratings of
BAC and its subsidiaries, as well as market conditions, generally influence the
cost and availability of funding sources. 


LIQUIDITY REVIEW 

The ongoing operations of BAC resulted in cash inflows of $2.2 billion and
$17.5 billion in 1997 and 1996, respectively, from deposits and short-term
borrowings. During the same periods, BAC's liquidity was enhanced by proceeds
from sales of loans, totaling $9.8 billion and $5.8 billion, respectively. These
loan sales consisted primarily of loans that were not originated or acquired
with the intent to sell but were sold due to various economic factors, including
changes in the maturity mix of BAC's assets and liabilities, liquidity demands,
regulatory capital considerations, and other similar factors.

During 1997 and 1996, loan sales included the securitization of credit card
receivables of $2.1 billion and $1.5 billion, respectively. In addition, total
sales, maturities, prepayments, and calls of securities exceeded total
purchases, resulting in cash inflows of $29 million and $608 million in 1997 and
1996, respectively.

Total loan originations and purchases exceeded total principal collections,
resulting in cash outflows of $11.9 billion and $17.8 billion in 1997 and 1996,
respectively. In addition, in 1997 and 1996, the parent paid dividends of $953
million and $965 million, respectively, to its preferred and common
stockholders. During the same periods, the parent repurchased common and
preferred stock for $3,667 million and $1,724 million, respectively. For
information concerning dividend and loan restrictions, refer to Note 30 of the
Notes to Consolidated Financial Statements on pages 88 -- 90.

                                                                            49
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


Capital Management

At December 31, 1997, stockholders' equity amounted to $19.8 billion, a decrease
of $0.9 billion from year-end 1996 primarily due to a decline in preferred stock
of $1.6 billion offset by an increase in common equity of $0.7 billion.

<TABLE> 
<CAPTION> 
Chart of Common and Total Stockholders' Equity
BankAmerica Corporation
1996 and 1997


              March 31,   June 30,     September 30,     December 31,     March 31,     June 30,     September 30,     December 31,
                1996        1996           1996             1996            1997         1997           1997              1997
              ---------------------------------------------------------------------------------------------------------------------
<S>            <C>         <C>            <C>               <C>             <C>            <C>           <C>               <C>   
Total 
Stockholder's 
Equity          20.2         20.1           20.5             20.7            20.1           20.4           19.9            19.8

Common 
Stockholders' 
Equity          17.7         17.9           18.3             18.5            18.5           18.8           19.1            19.2

</TABLE> 

In May 1997, BAC's stockholders approved a two-for-one stock split of its common
stock effective June 2, 1997. As a result of the stock split, each shareholder
of record at close of business on June 2, 1997 received one additional share of
common stock for each share of common stock then owned. In addition, the number
of authorized shares of common stock was increased from 700 million to 1.4
billion common shares, par value $1.5625 per share. A total of 387,314,462
shares of common stock were issued in connection with the split, including
37,364,985 shares associated with shares held in treasury. As a result of the
stock split, $605 million was reclassified from additional paid-in capital to
common stock. All references to the number of common shares and per common share
amounts have been restated to reflect the effects of the stock split.

In February 1997, BAC's Board of Directors amended its existing stock repurchase
program. The amended program authorized the parent to buy back up to an
additional $3 billion of its common stock by the end of 1998 and to buy back or
redeem up to an additional $1 billion of its preferred stock by the end of 1998.
At December 31, 1997, the remaining buyback and redemption authorities for
common stock and preferred stock under the current amended program totaled $1.8
billion and $0.2 billion, respectively.

Also, on February 2, 1998, BAC's Board of Directors increased the size of its
existing stock repurchase program and extended it through December 1999. The
amended program will enable the parent to buy back up to an additional $3.5
billion of its common stock and to redeem up to an additional $450 million of
preferred stock by the end of 1999.

Capital Review

BAC's preferred stock declined $1,628 million during 1997 resulting from the
redemption of all 11,250,000 outstanding shares of its 9% Cumulative Preferred
Stock, Series H, on January 15, 1997; all 14,600,000 outstanding shares of its
8 3/8% Cumulative Preferred Stock, Series K, on February 15, 1997; all 798,020
outstanding shares of its 8.16% Cumulative Preferred Stock, Series L, on July
13, 1997; all 696,847 outstanding shares of its 7 7/8% Cumulative Preferred
Stock, Series M, on September 30, 1997; and all 469,273 outstanding shares of
its 8 1/2% Cumulative Preferred Stock, Series N, on December 15, 1997. For
additional information regarding preferred stock, refer to Note 19 of the Notes
to Consolidated Financial Statements on pages 72 -- 73.

Common equity rose $752 million during 1997 primarily due to an increase in
retained earnings of $2.2 billion, partially offset by an increase in treasury
stock of $1.7 billion. During 1997, BAC repurchased 31.7 million shares of its
common stock at an average per-share price of $64.00, which reduced common
equity by $2,025 million. For additional information regarding the common stock
component of the stock repurchase program, refer to Note 16 of the Notes to
Consolidated Financial Statements on pages 71 -- 72.

The common stock repurchases and preferred stock redemptions described above
reflect BAC's strong capital position and commitment to return excess capital to
its shareholders. On February 2, 1998, BAC's Board of Directors declared an
increase in the quarterly dividend on common stock from $0.305 per share to
$0.345 per share. The dividend is payable on March 11, 1998 to shareholders of
record on February 20, 1998.


<TABLE> 
<CAPTION> 
Dividends Declared per Common Share
BankAmerica Corporation
1993 through 1997

                                             1993        1994        1995        1996        1997
                                             ---------------------------------------------------------
<S>                                          <C>         <C>          <C>         <C>         <C> 
Dividends declared per common share           $ 0.70      $ 0.80       $ 0.92      $1.08      $1.22      

</TABLE> 

In addition, in 1996, BAC introduced an employee stock option program, which
allows employees to buy shares of BAC common stock over several years at a grant
price set on the date of the grant. Under the program, beginning November 18,
1996, employees will be granted options every six months for the three
subsequent years. On November 18, 1996, May 19, 1997, and November 18, 1997,
employees were granted their 

50
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW

first, second, and third option awards through BAC's employee stock option
program. BAC is authorized to grant options to its employees for up to
70,200,000 shares of common stock. The diluted effects of options granted have
been included in the calculation of diluted earnings per common share.

The parent and its domestic banking subsidiaries are subject to risk-based
capital regulations. Bank regulatory authorities use these guidelines to
evaluate capital adequacy based on an institution's asset risk profile and
off-balance-sheet exposures, such as unused loan commitments, standby letters of
credit, and foreign exchange and derivatives contracts.

The Federal Reserve Board (FRB) has established guidelines that certain banking
organizations are required to maintain a minimum 8 percent total risk-based
capital ratio (the ratio of total capital divided by risk-weighted assets),
including a Tier 1 capital ratio of at least 4 percent. The risk-based capital
rules have been further supplemented by a leverage ratio, defined as Tier 1
capital divided by average total assets, after certain adjustments. The minimum
leverage ratio is 4 percent.

In accordance with BAC policy, BAC maintained capital ratios for both the parent
and its domestic banking subsidiaries above the regulatory well-capitalized
levels during 1997, 1996, and 1995. The minimum levels for well-capitalized
status are 10 percent for the total risk-based capital ratio, 6 percent for the
Tier 1 capital ratio, and 5 percent for the leverage ratio.

In 1996, the FRB announced that certain cumulative preferred securities having
the characteristics of trust preferred securities qualify as minority interest,
which is included in Tier 1 capital for bank holding companies. During the
fourth quarter of 1996, BAC issued $1,477 million of trust preferred securities
and during the first quarter of 1997, BAC issued an additional $396 million of
trust preferred securities.

At December 31, 1997, the calculation of BAC's risk-based capital amounts and
ratios includes its Section 20 securities broker/dealer subsidiary to reflect
the FRB's October 31, 1997 modifications to the risk-based capital regulations
that apply to bank holding companies engaged in securities underwriting and
dealing activities through Section 20 subsidiaries. Prior to October 31,1997,
amounts and ratios excluded the Section 20 subsidiary. At December 31, 1997,
BAC's Tier 1 and total risk-based capital ratios decreased 24 basis points and
23 basis points, respectively, from year-end 1996. These decreases were
primarily due to a $10.2 billion increase in risk-weighted assets combined with
the redemption of preferred stock for $1.3 billion. This redemption amount
excludes $0.3 billion of Series H Preferred Stock that was announced for
redemption in December 1996 and was reflected in the 1996 redemptions only for
risk-based capital purposes. The redemption was partially offset by the issuance
of $396 million of trust preferred securities and an increase in other minority
interest of $160 million. The ratios at December 31, 1996 represented a
temporary increase from targeted levels due to the issuance of trust preferred
securities. BAC's targeted Tier 1 risk-based capital ratio is approximately 7.30
percent. BAC's leverage ratio was 6.81 percent at December 31, 1997, down from
7.44 percent at year-end 1996. The decrease was primarily due to an increase in
average risk-weighted assets.

The table below, Tier 1 Capital Generation, indicates that BAC generated Tier 1
capital of $4,576 million, $5,013 million, and $3,577 million during the years
ended December 31, 1997, 1996, and 1995, respectively. These amounts were used
to pay dividends on common and preferred stock as well as to repurchase common
stock and redeem or buy back preferred stock. The remaining capital generated
was used to fund balance sheet growth and support off-balance-sheet activities,
resulting in net capital application of $495 million in 1997, and net capital
generation of $886 million and $104 million in 1996 and 1995, respectively.

For further information related to the Bank's regulatory capital requirements,
refer to Note 20 of the Notes to Consolidated Financial Statements on pages 
73 -- 74.


--------------------------------------------------------------------------------
                            TIER 1 CAPITAL GENERATION
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                       Year Ended December 31
(in millions)                                        1997       1996       1995
--------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>   
TIER 1 GENERATION
Net income                                        $ 3,210    $ 2,873    $ 2,664
Amortization of intangibles                           264        272        282
Common stock issuances and other                      546        302        631
Minority interest/a/                                  556      1,566         --
--------------------------------------------------------------------------------
  Total generation                                  4,576      5,013      3,577

TIER 1 APPLICATIONS
Common stock dividends                               (853)      (780)      (684)
Preferred stock dividends                            (100)      (185)      (227)
Common stock repurchased                           (2,025)    (1,351)      (926)
Preferred stock redeemed                           (1,347)      (680)      (206)
Preferred stock converted to common stock              --         --       (248)
--------------------------------------------------------------------------------
Total applications                                 (4,325)    (2,996)    (2,291)

Capital attributed to growth
  in risk-weighted assets                            (746)    (1,131)    (1,182)
--------------------------------------------------------------------------------
    Net capital generated (applied)               $  (495)   $   886    $   104

--------------------------------------------------------------------------------
</TABLE> 

/a/ Represents trust preferred securities and other minority interest of $396
    million and $160 million, respectively, at December 31, 1997 and $1,477
    million and $89 million, respectively, at December 31, 1996.

                                                                              51
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW


--------------------------------------------------------------------------------
     RISK-BASED CAPITAL, RISK-WEIGHTED ASSETS, AND RISK-BASED CAPITAL RATIOS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                                        December 31
(dollar amounts in millions)                                                 1997/a/       1996          1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>           <C> 
RISK-BASED CAPITAL
Common stockholders' equity                                             $  19,086     $  18,439     $  17,598
Qualified perpetual preferred stock                                           614         1,961         2,623
Minority interest/b/                                                        2,122         1,566            --
Less: Goodwill, nongrandfathered core deposit and other identifiable
 intangibles, and other deductions/cd/                                     (4,531)       (4,922)       (5,230)
------------------------------------------------------------------------------------------------------------------
   Tier 1 risk-based capital                                               17,291        17,044        14,991
Eligible portion of the allowance for credit losses                         2,879         2,758         2,566
Hybrid capital instruments                                                     71           142           214
Subordinated notes and debentures                                           6,357         6,169         5,798
Less: Other deductions/d/                                                      --          (184)         (153)
------------------------------------------------------------------------------------------------------------------
   Tier 2 risk-based capital                                                9,307         8,885         8,425
      Total                                                                26,598        25,929        23,416
Less: Investments in unconsolidated banking and finance subsidiaries/d/       (44)          (49)           --
------------------------------------------------------------------------------------------------------------------
      Total Risk-Based Capital                                          $  26,554     $  25,880     $  23,416
RISK-WEIGHTED ASSETS
Balance sheet assets:
      Trading account assets                                            $   6,826     $   6,022     $   3,506
      Available-for-sale and held-to-maturity securities                    5,103         5,121         5,007
      Loans                                                               142,044       139,412       132,504
      Other assets                                                         20,662        18,711        16,725
------------------------------------------------------------------------------------------------------------------
      Total balance sheet assets                                          174,635       169,266       157,742
Off-balance-sheet items:
      Unused commitments                                                   31,567        28,368        26,268
      Standby letters of credit                                            13,459        15,021        12,888
      Foreign exchange and derivative contracts                             5,623         4,662         4,530
      Other                                                                 4,421         2,166         2,567
------------------------------------------------------------------------------------------------------------------
      Total off-balance-sheet items                                        55,070        50,217        46,253
      Total Risk-Weighted Assets                                        $ 229,705     $ 219,483     $ 203,995

RISK-BASED CAPITAL RATIOS
     Tier 1 Capital Ratio                                                    7.53%         7.77%         7.35%
      Total Capital Ratio                                                   11.56         11.79         11.48

Leverage Ratio                                                               6.81          7.44          6.92

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

</TABLE> 

/a/ Includes the capital and assets of the parent's securities broker/dealer
    subsidiary to reflect the Federal Reserve Board's (FRB) October 31, 1997
    modifications to the risk-based capital regulations that apply to bank
    holding companies engaged in securities underwriting and dealing activities
    through Section 20 subsidiaries. Prior to 1997, amounts and ratios excluded
    the Section 20 subsidiary.
   
/b/ Represents trust preferred securities and other minority interest of $1,873
    million and $249 million, respectively, at December 31, 1997 and $1,477
    million and $89 million, respectively, at December 31, 1996.
   
/c/ Includes nongrandfathered core deposit and other identifiable intangibles
    acquired after February 19, 1992 of $636 million and $73 million,
    respectively, at December 31, 1997, $772 million and $67 million,
    respectively, at December 31, 1996, and $856 million and $78 million,
    respectively, at December 31, 1995. Also includes $8 million and $1 million,
    at December 31, 1996 and 1995, respectively, of the excess of the net book
    value over 90 percent of the fair value of mortgage servicing assets and
    credit card intangibles. There was no such excess amount at December 31,
    1997.
   
/d/ Reflects FRB's revisions to its risk-based capital regulations regarding the
    treatment of investments in unconsolidated banking and finance subsidiaries
    as a reduction in computing total capital. Prior to 1996, half of the amount
    was included in other deductions from Tier 1 Capital and half was included
    in other deductions from Tier 2 Capital.

52
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                               FINANCIAL REVIEW

--------------------------------------------------------------------------------
Risk-Based Capital Ratios (Bar chart in non-EDGAR version appears here)
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                1995          1996        1997
                                               ---------------------------------
<S>                                             <C>           <C>         <C> 
Tier 1                                           7.4%          7.8%       7.5% 
Total                                           11.5%         11.8%      11.6%
--------------------------------------------------------------------------------
</TABLE> 

Pending Accounting Standards

In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125). The FASB subsequently amended SFAS No. 125 in December 1996. As amended,
SFAS No. 125 applies to securities lending, repurchase agreements, dollar rolls,
and other similar secured financing transactions occurring after December 31,
1997 and to all other transfers and servicing of financial assets occurring
after December 31, 1996. The adoption of SFAS No. 125 did not and is not
expected to have a material effect on BAC's financial position or results of
operations.

In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 requires companies
to report and display comprehensive income and its components (revenues,
expenses, gains, and losses) in the financial statements. The adoption of SFAS
No.130, which will be implemented in the first quarter of 1998, will result in a
change in financial statement presentation and will not have an impact on BAC's
financial position or results of operations.

Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131), which is effective for financial statements for periods
beginning after December 15, 1997 and need not be applied to interim financial
statements in the initial year of its application. SFAS No. 131 establishes
standards for a more comprehensive disclosure about an enterprise's operating
segments. BAC plans to adopt SFAS No. 131 in the first quarter of 1998. The
adoption of SFAS No. 131 applies solely to disclosures and will not have an
impact on BAC's financial position or results of operations.




                                                                              53
<PAGE>
 
BankAmerica Corporation 1997 Annual Report 

                      CONSOLIDATED FINANCIAL STATEMENTS 

CONSOLIDATED FINANCIAL STATEMENTS 

Report of Management

The management of BankAmerica Corporation and its subsidiaries (BAC) has
responsibility for the preparation, integrity, and reliability of the financial
statements and related financial information contained in this annual report.
The financial statements were prepared in accordance with generally accepted
accounting principles and prevailing practices of the banking industry and
include necessary judgments and estimates by management.

Management has established and is responsible for maintaining an internal
control environment designed to provide reasonable assurance as to the integrity
and reliability of the financial statements, the protection of assets, and the
prevention and detection of fraudulent financial reporting. The internal control
environment includes: an effective financial accounting structure; a
comprehensive internal audit function; an independent auditing and examining
committee (the audit committee) of the Board of Directors; and extensive
financial and operating policies and procedures. BAC's management also fosters
an ethical climate supported by a code of conduct, appropriate levels of
management authority and responsibility, an effective corporate organizational
structure, and appropriate selection and training of personnel.

The Board of Directors, primarily through the audit committee, oversees the
adequacy of BAC's control environment. The audit committee, whose members are
neither officers nor employees of BAC, meets periodically with management,
internal auditors, credit examination officers, and the independent auditors to
review the functioning of each and to ensure that each is properly discharging
its responsibilities.

BAC's financial statements are audited by Ernst & Young LLP, BAC's independent
auditors, whose audit is made in accordance with generally accepted auditing
standards and includes such audit procedures as they consider necessary to
express the opinion in their report that follows. In addition, Ernst & Young LLP
reviews BAC's quarterly financial information. A review is substantially less in
scope than an audit in accordance with generally accepted auditing standards
and, accordingly, Ernst & Young LLP does not express an opinion on the quarterly
financial information. Ernst & Young LLP meets regularly with management as well
as the audit committee to discuss its audit and its findings as to the integrity
of the financial statements and the adequacy of the internal controls.

Management recognizes that there are inherent limitations in the effectiveness
of any internal control environment. However, management believes that, as of
December 31, 1997, BAC's internal control environment, as described above,
provided reasonable assurance as to the integrity and reliability of the
financial statements and related financial information.


/s/ DAVID A COULTER
-------------------------------------
David A. Coulter
Chairman and Chief Executive Officer



/s/ MICHAEL E. O'NEILL
-------------------------------------
Michael E. O'Neill
Vice Chairman and Chief Financial Officer



/s/ JOHN J. HIGGINS
-------------------------------------
John J. Higgins
Executive Vice President and Chief Accounting Officer



January 20, 1998


54
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report
 
                      CONSOLIDATED FINANCIAL STATEMENTS 


Report of Independent Auditors

Shareholders and Board of Directors
BankAmerica Corporation

We have audited the accompanying consolidated balance sheet of BankAmerica
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of BankAmerica Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BankAmerica
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.




/s/ ERNST & YOUNG LLP
------------------------------
Ernst & Young LLP

San Francisco, California
January 20, 1998


                                                                              55
<PAGE>
 
BankAmerica Corporation 1997 Annual Report     

                      CONSOLIDATED FINANCIAL STATEMENTS 
    

--------------------------------------------------------------------------------
                      CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
BankAmerica Corporation and Subsidiaries                                                           Year Ended December 31
(dollar amounts in millions, except per share data)                                       1997               1996               1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                <C>                <C> 
INTEREST INCOME
Loans, including fees                                                                  $13,872            $13,363            $12,707
Interest-bearing deposits in banks                                                         415                453                466
Federal funds sold                                                                          41                 29                 32
Securities purchased under resale agreements                                               776                653                618
Trading account assets                                                                   1,230              1,001                741
Available-for-sale and held-to-maturity securities                                       1,123              1,160              1,276
------------------------------------------------------------------------------------------------------------------------------------
  Total interest income                                                                 17,457             16,659             15,840

INTEREST EXPENSE
Deposits                                                                                 5,793              5,359              4,923
Federal funds purchased                                                                     64                 79                131
Securities sold under repurchase agreements                                                810                695                581
Other short-term borrowings                                                              1,099                883                630
Long-term debt                                                                           1,022              1,056              1,113
------------------------------------------------------------------------------------------------------------------------------------
  Total interest expense                                                                 8,788              8,072              7,378

  Net interest income                                                                    8,669              8,587              8,462

Provision for credit losses                                                                950                885                440
------------------------------------------------------------------------------------------------------------------------------------
  Net interest income after provision for credit losses                                  7,719              7,702              8,022

NONINTEREST INCOME
Deposit account fees                                                                     1,447              1,399              1,303
Credit and other card fees                                                                 378                355                315
Trust fees                                                                                 255                229                300
Other fees and commissions                                                               1,781              1,383              1,269
Trading income                                                                             692                630                527
Private equity investment activities                                                       510                427                337
Net gain on sales of loans                                                                 249                 89                 24
Net gain on sales of subsidiaries and operations                                           213                180                 25
Net gain on available-for-sale securities                                                  116                 61                 34
Gain on issuance of subsidiary's stock                                                      --                147                 --
Other income                                                                               487                512                412
------------------------------------------------------------------------------------------------------------------------------------
  Total noninterest income                                                               6,128              5,412              4,546

NONINTEREST EXPENSE
Salaries                                                                                 3,572              3,291              3,309
Employee benefits                                                                          708                773                718
Occupancy                                                                                  753                757                738
Equipment                                                                                  725                702                663
Professional services                                                                      398                344                313
Communications                                                                             379                363                359
Amortization of intangibles                                                                358                373                428
Regulatory fees and related expenses                                                        29                123                176
Restructuring charge                                                                        --                280                 --
Other expense                                                                            1,599              1,335              1,297
------------------------------------------------------------------------------------------------------------------------------------
  Total noninterest expense                                                              8,521              8,341              8,001

  Income before income taxes                                                             5,326              4,773              4,567

Provision for income taxes                                                               2,116              1,900              1,903
------------------------------------------------------------------------------------------------------------------------------------
    Net Income                                                                         $ 3,210            $ 2,873            $ 2,664

Net income applicable to common stock                                                  $ 3,110            $ 2,688            $ 2,437
Earnings per common share                                                                 4.45               3.72               3.28
Diluted earnings per common share                                                         4.32               3.65               3.24
Dividends declared per common share                                                       1.22               1.08               0.92

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
See notes to consolidated financial statements.



56
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

--------------------------------------------------------------------------------
                           CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
BankAmerica Corporation and Subsidiaries                                                                           December 31
(dollar amounts in millions)                                                                                 1997              1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>               <C> 
ASSETS
Cash and due from banks                                                                                 $  14,280         $  16,223
Interest-bearing deposits in banks                                                                          5,862             5,708
Federal funds sold                                                                                            105               134
Securities purchased under resale agreements                                                                9,774             7,275
Trading account assets                                                                                     15,551            12,205
Available-for-sale securities                                                                              12,786            12,113
Held-to-maturity securities (market value: 1997 - $3,744; 1996 - $3,920)                                    3,667             4,138

Loans                                                                                                     167,111           165,415
Less: Allowance for credit losses                                                                           3,500             3,523
------------------------------------------------------------------------------------------------------------------------------------
  Net loans                                                                                               163,611           161,892

Customers' acceptance liability                                                                             3,561             2,861
Accrued interest receivable                                                                                 1,570             1,441
Goodwill, net                                                                                               3,822             3,938
Identifiable intangibles, net                                                                               1,374             1,616
Unrealized gains on off-balance-sheet instruments                                                          10,929             7,682
Premises and equipment, net                                                                                 3,880             3,987
Other assets                                                                                                9,387             9,540
------------------------------------------------------------------------------------------------------------------------------------
    Total Assets                                                                                        $ 260,159         $ 250,753

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
  Interest-bearing                                                                                      $  94,495         $  84,133
  Noninterest-bearing                                                                                      33,704            39,694
Deposits in foreign offices:
  Interest-bearing                                                                                         42,326            42,732
  Noninterest-bearing                                                                                       1,512             1,456
------------------------------------------------------------------------------------------------------------------------------------
  Total deposits                                                                                          172,037           168,015

Federal funds purchased                                                                                     3,751             2,176
Securities sold under repurchase agreements                                                                11,159             7,644
Other short-term borrowings                                                                                15,702            17,566
Acceptances outstanding                                                                                     3,563             2,861
Accrued interest payable                                                                                      978               879
Unrealized losses on off-balance-sheet instruments                                                         10,502             7,633
Other liabilities                                                                                           6,835             6,004
Long-term debt                                                                                             13,922            15,785
------------------------------------------------------------------------------------------------------------------------------------
  Total liabilities                                                                                       238,449           228,563

Corporation obligated mandatorily redeemable preferred securities of subsidiary
  trusts holding solely junior subordinated deferrable interest debentures of the
  corporation (trust preferred securities)                                                                  1,873             1,477

STOCKHOLDERS' EQUITY
Preferred stock                                                                                               614             2,242
Common stock, par value $1.5625 (authorized: 1997 and 1996 - 1,400,000,000 shares;
  issued: 1997 - 774,697,520 shares; 1996 - 774,592,574 shares)                                             1,210               605
Additional paid-in capital                                                                                  7,974             8,467
Retained earnings                                                                                          13,726            11,500
Net unrealized gain on available-for-sale securities                                                          137                32
Common stock in treasury, at cost (1997 - 86,640,661 shares; 1996 - 64,058,784 shares)                     (3,824)           (2,133)
------------------------------------------------------------------------------------------------------------------------------------
  Total stockholders' equity                                                                               19,837            20,713

    Total Liabilities and Stockholders' Equity                                                          $ 260,159         $ 250,753

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
See notes to consolidated financial statements.



                                                                              57
<PAGE>

BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

--------------------------------------------------------------------------------
                      CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
BankAmerica Corporation and Subsidiaries                                                             Year Ended December 31
(in millions)                                                                                    1997         1996         1995
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>         <C>          <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                                      $ 3,210     $  2,873     $  2,664
Adjustments to net income to arrive at net cash provided (used) by operating activities:        
     Provision for credit losses                                                                    950          885          440
     Net gain on sales of loans and subsidiaries and operations                                    (462)        (269)         (49)
     Depreciation and amortization                                                                  870          896          879
     Provision for deferred income taxes                                                            694          605          268
     Change in assets and liabilities net of effects from acquisitions and pending dispositions:
      (Increase) decrease in accrued interest receivable                                           (129)          17           (9)
      Increase in accrued interest payable                                                           99           31           17
      Increase in trading account assets                                                         (3,346)      (2,689)      (2,685)
      Increase (decrease) in current income taxes payable                                           375          (29)         265
     Deferred fees received from lending activities                                                 170          240          142
     Increase in loans held for sale                                                             (1,145)        (622)        (880)
     Other, net                                                                                    (265)      (2,981)       1,683
---------------------------------------------------------------------------------------------------------------------------------
     Net cash provided (used) by operating activities                                             1,021       (1,043)       2,735

CASH FLOWS FROM INVESTING ACTIVITIES
Activity in available-for-sale securities:
     Sales proceeds                                                                               1,968        1,985        2,509
     Maturities, prepayments, and calls                                                           4,992        5,805        5,722
     Purchases                                                                                   (7,400)      (7,661)      (7,416)
Activity in held-to-maturity securities:
     Maturities, prepayments, and calls                                                             911        1,111        2,514
     Purchases                                                                                     (442)        (632)        (976)
Proceeds from loan sales and securitizations                                                      9,834        5,776        1,982
Purchases of loans                                                                                 (690)      (2,555)      (1,711)
Purchases of premises and equipment                                                                (663)        (665)        (649)
Proceeds from sales of other real estate owned                                                      330          432          525
Acquisitions, net of cash acquired                                                                 (100)          --           --
Net cash provided (used) by:                                                                     
     Loan originations and principal collections                                                (11,186)     (15,269)     (14,429)
     Interest-bearing deposits in banks                                                              26           53          472
     Federal funds sold                                                                              29          587          (81)
     Securities purchased under resale agreements                                                (2,499)      (2,313)         297
Other, net                                                                                           80          542          138
---------------------------------------------------------------------------------------------------------------------------------
     Net cash used by investing activities                                                       (4,810)     (12,804)     (11,103)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt                                                          1,690        3,719        2,588
Principal payments and retirements of long-term debt and subordinated capital notes              (3,139)      (2,965)      (2,652)
Net proceeds from issuance of trust preferred securities                                            396        1,477           --
Proceeds from issuance of common stock                                                               --           83          151
Proceeds from issuance of treasury stock                                                            223           99           --
Preferred stock redeemed                                                                         (1,628)        (391)        (206)
Treasury stock purchased                                                                         (2,039)      (1,333)        (926)
Common stock dividends                                                                             (853)        (780)        (684)
Preferred stock dividends                                                                          (100)        (185)        (227)
Net cash provided (used) by:                                                                    
     Deposits                                                                                     4,022        7,580        6,100
     Federal funds purchased                                                                      1,575       (2,984)       1,877
     Securities sold under repurchase agreements                                                  3,515        1,261          878
     Other short-term borrowings                                                                 (1,864)       9,939        2,282
Other, net                                                                                          (54)         216          (87)
---------------------------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                                                    1,744       15,736        9,094
Effect of exchange rate changes on cash and due from banks                                          102           22            8
---------------------------------------------------------------------------------------------------------------------------------
     Net increase (decrease) in cash and due from banks                                          (1,943)       1,911          734
Cash and due from banks at beginning of year                                                     16,223       14,312       13,578
---------------------------------------------------------------------------------------------------------------------------------
      Cash and Due from Banks at End of Year                                                    $14,280      $16,223      $14,312

---------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
See notes to consolidated financial statements.

58
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

--------------------------------------------------------------------------------
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
BankAmerica Corporation and Subsidiaries                                                                Year Ended December 31
(in millions)                                                                                       1997         1996        1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>          <C>          <C>  
PREFERRED STOCK
Balance, beginning of year                                                                       $  2,242     $  2,623     $  3,068
Preferred stock redeemed                                                                           (1,628)        (381)        (197)
Convertible preferred stock converted to common stock                                                  --           --         (248)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year                                                                               614        2,242        2,623

COMMON STOCK
Balance, beginning of year                                                                            605          602          581
Common stock issued                                                                                    --            3           21
Issuance of 387,314,462 shares of common stock to effect a two-for-one common stock split             605           --           --
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year                                                                             1,210          605          602

ADDITIONAL PAID-IN CAPITAL
Balance, beginning of year                                                                          8,467        8,328        7,743
Common stock issued                                                                                    29          142          594
Issuance of 387,314,462 shares of common stock to effect a two-for-one common stock split            (605)          --           --
Preferred stock redeemed                                                                               --          (18)          (9)
Treasury stock issued in excess of cost                                                                83           15           --
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year                                                                             7,974        8,467        8,328

RETAINED EARNINGS
Balance, beginning of year                                                                         11,500        9,606        7,854
Net income                                                                                          3,210        2,873        2,664
Common stock dividends                                                                               (853)        (780)        (684)
Preferred stock dividends                                                                            (100)        (185)        (227)
Foreign currency translation adjustments, net of related income taxes                                 (31)         (14)          (1)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year                                                                            13,726       11,500        9,606

NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES
Balance, beginning of year                                                                             32            1         (326)
Valuation adjustments, net of related income taxes                                                    105           31          327
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year                                                                               137           32            1

COMMON STOCK IN TREASURY, AT COST
Balance, beginning of year                                                                         (2,133)        (938)         (29)
Treasury stock purchased                                                                           (2,025)      (1,351)        (926)
Treasury stock issued                                                                                 362          173           29
Other                                                                                                 (28)         (17)         (12)
-----------------------------------------------------------------------------------------------------------------------------------
   Balance, end of year                                                                            (3,824)      (2,133)        (938)
     Total Stockholders' Equity                                                                  $ 19,837     $ 20,713     $ 20,222

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

See notes to consolidated financial statements.

                                                                              59
<PAGE>

BankAmerica Corporation 1997 Annual Report

                       CONSOLIDATED FINANCIAL STATEMENTS


Notes to Consolidated Financial Statements


1    Significant Accounting Policies

The consolidated financial statements of BankAmerica Corporation and
subsidiaries (BAC) are prepared in conformity with generally accepted accounting
principles and prevailing practices of the banking industry. The statements also
reflect specialized industry accounting practices of certain nonbanking
subsidiaries that may differ from those used by banking subsidiaries. The
following is a summary of the significant accounting and reporting policies used
in preparing the consolidated financial statements. 

Financial Statement Presentation

The consolidated financial statements of BAC include the accounts of BankAmerica
Corporation (the parent) and companies in which more than 50 percent of the
voting stock is owned directly or indirectly by the parent, including Bank of
America NT&SA (the bank), and other banking and nonbanking subsidiaries. The
revenues, expenses, assets, and liabilities of the subsidiaries are included in
the respective line items in the consolidated financial statements after
elimination of intercompany accounts and transactions.

The consolidated statement of cash flows depicts the change in cash and due from
banks as disclosed in the consolidated balance sheet. Cash flows from hedging
transactions are classified in the same category as the cash flows from the
items being hedged.

Certain amounts in prior periods have been reclassified to conform to the
presentation in the current year. Additionally, as explained in Note 18 on page
72, all references to the number of common shares and per common share amounts
have been restated to reflect the effects of a stock split effective June 2,
1997. 

Use of Estimates in the Preparation of Financial Statements

The preparation of the consolidated financial statements of BAC requires
management to make estimates and assumptions that affect reported amounts. These
estimates are based on information available as of the date of the financial
statements. Therefore, actual results could differ from those estimates. 

Trading Account Assets

Trading account assets, which are generally held for the short term in
anticipation of market gains and resale, are carried at their fair values.
Realized and unrealized gains and losses on trading account assets are included
in trading income.

Available-for-Sale and Held-to-Maturity Securities

BAC's securities portfolios include U.S. Treasury and other government agency
securities, mortgage-backed securities, state, county, municipal, and foreign
government securities, equity securities and corporate debt securities.

Debt securities for which BAC has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. Debt
securities that BAC may not hold to maturity and marketable equity securities
are classified as available-for-sale securities unless they are considered to be
part of trading-related activities. Available-for-sale securities are reported
at their fair values, with unrealized gains and losses included on a net-of-tax
basis as a separate component of stockholders' equity. Securities for which no
market values were available are stated at cost.

Dividend and interest income, including amortization of premiums and accretion
of discounts, for both securities portfolios are included in interest income.

Realized gains and losses generated from sales of available-for-sale securities
are recorded in net gain on available-for-sale securities and are computed using
the specific identification method. Any decision to sell available-for-sale
securities is based on various factors, including movements in interest rates,
changes in the maturity mix of assets and liabilities, liquidity demands,
regulatory capital considerations, or other similar factors. 

Loans

Loans are generally carried at the principal amount outstanding net of unearned
discounts. Interest income on discounted loans is generally recognized using
methods that approximate the interest method, which provides a level rate of
return over a loan's term.

Loans, other than those originated or acquired with the intent to sell, may be
sold prior to maturity due to various economic factors, including significant
movements in interest rates, changes in the maturity mix of assets and
liabilities, liquidity demands, regulatory capital considerations, or other
similar factors. All loans that are held for sale are recorded at the lower of
cost or fair value. The fair value of loans held for sale represents the cash
price anticipated to be received for the loans in a current sale.

Loans are generally placed on nonaccrual status when full payment of principal
or interest is in doubt, or when they are past due 90 days as to either
principal or interest. During the fourth quarter of 1996, BAC changed the past
due period for nonaccrual residential real estate loans and consumer loans that
are collateralized by junior mortgages on residential real estate from 180 days
to 90 days. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. If management determines that

60
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


ultimate collectibility of principal is in doubt, cash receipts on nonaccrual
loans are applied to reduce the principal balance. Senior management may grant a
waiver from nonaccrual status if a past due loan is well secured and in the
process of collection. A nonaccrual loan may be restored to accrual status when
all principal and interest amounts contractually due, including arrearages, are
reasonably assured of repayment within a reasonable period, and there has been a
sustained period of payment performance by the borrower in accordance with the
contractual terms of the loan.

BAC provides equipment financing to its customers through a variety of lease
arrangements. Direct financing leases are carried at the aggregate of lease
payments receivable plus estimated residual value of the leased property, less
unearned income. Unearned income on direct financing leases is amortized over
the lease terms by methods that approximate the interest method. Leveraged
leases, which are a form of financing lease, are carried net of nonrecourse
debt. Unearned income on leveraged leases is amortized over the lease terms by
methods that approximate the interest method. 

Allowance for Credit Losses

The allowance for credit losses is a reserve for estimated credit losses and
other credit-related charges. Actual credit losses and other charges, net of
recoveries, are deducted from the allowance for credit losses. Other charges to
the allowance include amounts related to loans of subsidiaries and operations
sold and to loans which were either sold or transferred to other assets pending
disposition. A provision for credit losses, which is a charge against earnings,
is added to the allowance based on a quarterly assessment of the portfolio.
While management has attributed reserves to various portfolio segments, the
allowance is general in nature and is available for the credit portfolio in its
entirety.

BAC generally evaluates a loan for impairment when it is placed on nonaccrual
status and all or a portion is internally risk rated as substandard or doubtful.
BAC measures impairment of loans when it is probable that all amounts, including
principal and interest, will not be collected in accordance with the contractual
terms of the loan agreement. The amount of impairment and any subsequent changes
are recorded as a change in the allocation of the allowance for credit losses.
Substantially all of BAC's impaired loans are on nonaccrual status.

BAC uses one of three methods to measure loan impairment depending on the
circumstances surrounding the loan; present value of a loan's expected future
cash flows, fair value of the collateral, or the loan's observable market value.
The present value of a loan's expected future cash flows is the most widely used
method and is calculated using the loan's effective interest rate based on the
original contractual terms. When foreclosure or liquidation is probable or when
the primary source of repayment is provided by real estate collateral,
impairment is measured based upon the fair value of the collateral less
estimated selling and disposal costs. When quoted market prices are available,
impairment is based on the loan's observable market value less estimated selling
and disposal costs. 

Premises and Equipment

Premises, equipment, and leasehold improvements are carried at cost, less
accumulated depreciation and amortization computed on a straight-line basis over
the estimated useful lives of the respective assets or the terms of the leases.
Net gains and losses on disposal or retirement of premises and equipment are
included in other income. 

Other Real Estate Owned

Other real estate owned (OREO), which is recorded in other assets, includes
properties acquired through foreclosure or in full or partial satisfaction of
the related loan, former premises no longer used in business operations, and
properties that are nonperforming acquisition, development, and construction
arrangements. OREO also includes loans where BAC has obtained physical
possession of the related collateral.

OREO is carried at the lower of fair value, net of estimated selling and
disposal costs, or cost. Fair value adjustments are made at the time that real
estate is acquired through foreclosure or when full or partial satisfaction of
the related loan is received. These fair value adjustments are treated as credit
losses. Changes in estimated selling and disposal costs, routine holding costs,
subsequent declines in fair values, and net gains or losses on disposal of
properties classified as OREO are included in other expense as incurred.

Goodwill and Identifiable Intangibles

Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets associated with BAC's merger and acquisition
transactions. Goodwill is amortized on a straight-line basis generally over 25
years.

Core deposit intangibles (CDI) represent the intangible value of depositor
relationships resulting from deposit liabilities assumed in acquisitions and are
amortized using an accelerated method based on the expected runoff of the
related deposits.

Other identifiable intangibles consist primarily of credit card intangibles
(CCI), which represents the intangible value of credit card customer
relationships resulting from customer balances acquired. Other identifiable
intangibles are amortized using accelerated methods over their estimated periods
of benefit.

                                                                              61
<PAGE>

BankAmerica Corporation 1997 Annual Report
 
                       CONSOLIDATED FINANCIAL STATEMENTS


Goodwill and identifiable intangibles are assessed quarterly for other-than-
temporary impairment. Should such an assessment indicate that the value of
goodwill may be impaired, an evaluation of the recoverability would be performed
prior to any writedown of the assets. If the net book value of identifiable
intangibles were to exceed their respective undiscounted future net cash flows,
identifiable intangibles would be written down to their respective undiscounted
future net cash flows.

Mortgage Servicing Assets

Mortgage servicing assets (MSA) are capitalized when acquired either through the
purchase or origination of mortgage loans that are subsequently sold or
securitized with the servicing rights retained. The capitalized MSA are
assessed, on a periodic basis, for impairment based on the fair value of those
rights. For this analysis, the MSA are stratified based on one or more
predominant risk characteristics and any resulting impairment is recognized
through a valuation allowance for each impaired stratum. For purposes of
measuring impairment, BAC stratifies its MSA by loan type, investor type, and
interest rate to reflect the predominant risk characteristics. BAC then uses a
fair valuation model which incorporates assumptions used by market participants
in estimating future net servicing income based on estimates of the cost of
servicing per loan, the discount rate, float value, an inflation rate, ancillary
income per loan, prepayment speeds and default rates.

MSA are included in other assets and are amortized as an offset to other fees
and commissions in proportion to and over the period of estimated net servicing
income. The accounting for MSA is in accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS No. 125), which BAC
adopted in 1997. The adoption of SFAS No. 125 did not have a material effect on
BAC's financial position or results of operations.

Investments in Affiliates, Joint Ventures, and Other Entities

Investments in affiliates, joint ventures, and other entities are recorded in
other assets. Investments in affiliates, which are generally 20- to
50-percent-owned companies, and joint ventures are generally accounted for by
the equity method. BAC's share of net income or loss from these investments is
recorded in other income. Gains or losses resulting from issuances of stock by
equity affiliates that change BAC's percentage of ownership are recognized at
the issue date and are also recorded in other income. Dividends are recorded as
a reduction of the carrying value of the investment when received.

Investments in other entities (less than 20-percent-owned companies) that are
not represented by marketable securities are generally carried at cost less
writedowns for declines in value that are judged to be other than temporary.
These valuation losses are recorded in other income when identified. Dividends
are recorded in other income when received. 

Derivative Financial Instruments

BAC uses interest rate, foreign exchange, equity, and credit derivative
financial instruments in both its trading and asset and liability management
activities. BAC uses derivative commodity instruments solely in its trading
activities. At December 31, 1997, BAC's notional amounts for credit derivative
financial instruments were not material.

TRADING ACTIVITIES

Interest rate derivative financial instruments used in BAC's trading activities
consist primarily of swaps and options. Foreign exchange financial instruments
include spot, futures, forward, swap, and option contracts. Credit derivative
financial instruments include credit default swaps and total rate of return
swaps. Commodity derivative financial instruments include commodity futures,
forwards, swaps, and options. All derivative financial instruments used in
trading activities are carried at fair value. Fair value for these instruments
is determined based on readily available market prices or by using pricing
models where no market price is available. Any realized and unrealized gains and
losses resulting from adjusting these instruments to fair value are recognized
immediately in trading income.

Interest rate, foreign exchange, credit, and commodity derivative financial
instruments used for trading activities, and their related gains and losses, are
reported in the consolidated balance sheet in unrealized gains (losses) on
off-balance-sheet instruments, in the consolidated statement of operations in
trading income, and in the consolidated statement of cash flows in cash flows
from operating activities. However, unrealized gains and losses with the same
counterparty are netted on the balance sheet to the extent allowed when
contracts are executed under legally enforceable master netting agreements.

ASSET AND LIABILITY MANAGEMENT ACTIVITIES

BAC uses various types of derivative financial instruments to manage its
interest rate and foreign currency exposures through specific strategies that
involve the hedging of future cash flows or of market values. When hedging
future cash flow exposures, the accrual method of accounting is used. Under the
accrual method, each net payment due to or owed under the derivative financial
instrument is recognized in net income during the period to which the
payment/receipt relates; there is no recognition on the balance sheet for
changes in the derivative's fair value. When hedging market value exposures, BAC
uses the deferral or fair value methods.

62
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                       CONSOLIDATED FINANCIAL STATEMENTS


Under the deferral method, gains or losses from the derivative financial
instrument are deferred on the balance sheet and recognized in net income in
conjunction with the recognition of the hedged item. Under the fair value
method, the derivative financial instrument is carried on the balance sheet at
fair value with changes in that value recognized in net income or stockholders'
equity in conjunction with the designated hedged item.

Hedge criteria include demonstrating how the hedge will reduce risk, identifying
the asset, liability, firm commitment, or anticipated transaction being hedged,
and citing the time horizon being hedged.

Deferral Method

BAC uses the deferral method when the carrying value of the hedged item is other
than fair value and the market value of the hedging instrument fulfills the
objectives of the hedge strategy. 

INTEREST RATE CONTRACTS -- BAC accounts for futures and forward rate agreements
using the deferral method. Under the deferral method, risk reduction is assessed
at the enterprise level. For interest rate futures, hedge effectiveness is
assessed at the inception of the hedge and on an ongoing basis. There must be a
clear economic relationship between the price of the hedged item and the futures
contract and a high level of correlation between these prices during relevant
prior periods. If a high level of correlation is not being achieved on an
ongoing basis, hedge accounting will be terminated. For forward rate agreements,
hedge effectiveness at the inception of the hedge and on an ongoing basis is
assessed by matching the basis and terms of the hedging instruments with those
of the underlying exposure.

Deferred gains and losses on interest rate contracts used for hedging are
reported as adjustments to the carrying values of the hedged loans, deposits,
and long-term debt. The amortization of deferred gains and losses is reported in
the corresponding interest income and interest expense accounts. Initial margin
deposits related to exchange-traded instruments are reported in other assets.

BAC hedges anticipated transactions involving the replacement of deposits with
interest-bearing deposits using interest rate futures contracts. Realized and
unrealized gains and losses on these transactions are deferred and included in
the measurement of the subsequent transaction. For a hedge of an anticipated
transaction to qualify for hedge accounting, it must be probable that the
transaction will occur and the significant characteristics and expected terms of
the transaction must be identified.

FOREIGN EXCHANGE CONTRACTS -- To qualify for hedge accounting, a foreign
exchange contract must reduce risk at the level of the specific transaction.
Realized and unrealized gains and losses on instruments that hedge firm
commitments are deferred and included in the measurement of the subsequent
transaction; however, losses are deferred only to the extent of expected gains
on the future commitment. Realized and unrealized gains and losses on
instruments that hedge net capital exposure are recorded in stockholders' equity
as foreign currency translation adjustments.

Accrual Method

BAC uses the accrual method when the cash flows generated from the hedging
instrument fulfill the objectives of the hedge strategy. Under the accrual
method, interest income or expense on the hedging instrument is accrued and
recorded as an adjustment to the interest income or expense related to the
hedged item.

BAC accounts for certain interest rate swaps and purchased interest rate option
contracts (caps and floors) using the accrual method. Each of these hedging
instruments must reduce risk at the level of the specific transaction with
effectiveness expected at the inception of the hedge and on an ongoing basis.
For each of these hedging instruments, hedge effectiveness is assessed by
matching the basis and terms of the hedging instruments with those of the
underlying exposure. If a high level of correlation is not being achieved, hedge
accounting will be terminated.

Interest income or expense on derivative financial instruments accounted for
using the accrual accounting method is reported in interest income -- loans,
interest expense -- deposits, and interest expense -- long-term debt. Premiums
paid for interest rate options are deferred as a prepaid expense and are
amortized to interest income over the term of the option.

                                                                              63
<PAGE>

BankAmerica Corporation 1997 Annual Report
 
                      CONSOLIDATED FINANCIAL STATEMENTS 


Fair Value Method

BAC uses the fair value method when the market value of the hedging instrument
fulfills the objectives of the hedge strategy, and the carrying value of the
hedged item is fair value. Market value for these instruments is determined
based on readily available market prices or by using pricing models where no
market price is available. Under the fair value method, realized and unrealized
gains and losses on both the hedged item and hedging instrument are recognized
throughout the period. Realized and unrealized gains and losses on the hedging
instrument are reflected in the same line as the hedged item.

BAC accounts for certain interest rate swaps and purchased equity option
contracts designated as hedges of available-for-sale debt and equity securities,
respectively, using the fair value method. Each of these hedging instruments
must reduce risk at the level of the specific transaction, with effectiveness
expected at the inception of the hedge and on an ongoing basis. There must be a
clear economic relationship between the price of the available-for-sale security
and the interest rate swap or equity instrument underlying the purchased equity
option contract as well as a high level of correlation between these prices
during relevant prior periods. If a high level of correlation is not being
achieved, hedge accounting will be terminated. Changes in the market values of
the interest rate swaps, exclusive of net interest accruals, are reported in
stockholders' equity on a net-of-tax basis. The accrual of interest payable and
interest receivable on the interest rate swaps is reported in interest income --
available-for-sale securities. Changes in the market values of the purchased
equity options, exclusive of the time value of the option, are reported in
stockholders' equity on a net-of-tax basis. The time values of the options are
deferred as a prepaid expense and are amortized to interest income for
available-for-sale securities over the term of the option.

The following policies are followed for all derivative financial instruments
qualifying for hedge accounting treatment. If at any time a derivative financial
instrument no longer qualifies for hedge accounting treatment, it must be
adjusted to fair value on a prospective basis and any deferred gain or loss
associated with the hedging instrument is amortized over the original hedge
period. When an anticipated transaction is no longer likely to occur, any
deferred gain or loss associated with the hedging instrument is recognized
immediately in the income or expense account related to the hedged item. If the
item being hedged matures or is sold, extinguished, or terminated, hedge
accounting is terminated. In this situation, any deferred gain or loss
associated with the hedging instrument is treated as part of the carrying value
of the item being hedged and, therefore, considered in calculating the gain or
loss on the matured, sold, extinguished, or terminated item. If the related
derivative contract is not terminated, it must be accounted for at market value
on a prospective basis.

Foreign Currency Translation

Assets, liabilities, and operations of foreign branches and subsidiaries are
recorded based on the functional currency of each entity. For the majority of
the foreign operations, the functional currency is the local currency, in which
case the assets, liabilities, and operations are translated, for consolidation
purposes, at current exchange rates from the local currency to the reporting
currency, the U.S. dollar. The resulting gains or losses are reported as a
component of retained earnings within stockholders' equity on a net-of-tax
basis. When the foreign entity is not a free-standing operation or is in a
hyperinflationary economy, the functional currency used to measure the financial
statements of a foreign entity is the U.S. dollar. In these instances, the
resulting gains and losses are included in other income. 

Provision for Income Taxes

The parent files a consolidated U.S. federal income tax return and consolidated
or combined returns for certain states, including California. State, local, and
foreign income tax returns are filed according to the taxable activity of each
unit.

The liability method of accounting is used for income taxes. Under the liability
method, deferred tax assets and liabilities are recognized for the expected
future tax consequences of existing differences between financial reporting and
tax reporting bases of assets and liabilities, as well as for operating losses
and tax credit carryforwards, using enacted tax laws and rates. Deferred tax
expense represents the net change in the deferred tax asset or liability balance
during the year. This amount, together with income taxes currently payable or
refundable for the current year, represents the total income tax expense for the
year.

64
<PAGE>

                                      BankAmerica Corporation 1997 Annual Report
 
                      CONSOLIDATED FINANCIAL STATEMENTS 


Stock-Based Employee Compensation Plans

BAC accounts for compensation expense related to stock-based compensation plans
using the intrinsic value method. Under the intrinsic value method, compensation
expense is determined based on the excess, if any, of the market prices of BAC's
common stock at the measurement dates over the exercise prices of the awards
under those plans. 

Earnings per Common Share

Effective December 15, 1997, BAC adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 establishes
new requirements for computing and presenting earnings per share. Under the new
requirements, the method previously used to compute earnings per share is
changed and all prior periods presented must be restated to conform to meet the
new requirements. The new requirements eliminate primary earnings per share and
earnings per common share, assuming full dilution, and require the presentation
of earnings per common share and diluted earnings per common share. As a result,
under the new requirements, earnings per common share excludes any dilutive
effect of stock options and warrants. Also, the dilutive effect of stock options
and warrants used to compute diluted earnings per common share is based on the
average market price of BAC's common stock for the period.

2    Nature of Operations

BAC, through its subsidiaries, provides banking and various other financial
services throughout the U.S. and in selected international markets to consumers
and business customers, including corporations, governments, and other
institutions. BAC segregates its operations into five major business sectors --
Consumer Banking, U.S. Corporate and International Banking, Middle Market
Banking, Commercial Real Estate Services, and Wealth Management, ranked, for the
purpose of the following discussion, in order of their contribution to net
income in 1997.

Consumer Banking provides a full array of deposit and loan products to
individuals and small businesses through traditional and in-store branches,
ATMs, telephones, personal computers, and other delivery channels throughout
nine western states. It also provides credit card, home mortgage, manufactured
housing financing, and consumer financing products throughout the U.S., and a
range of consumer banking products and services in Hong Kong, Macau, India,
Taiwan, Singapore, and the Philippines.

U.S. Corporate and International Banking provides credit and capital-raising
services, trade finance, cash management, investment banking, capital markets
products, and financial advisory services to large public- and private-sector
institutions that are part of the global economy. It has offices in the U.S. and
37 other countries and territories in North and South America, Asia, Europe,
Africa, and the Middle East.

Middle Market Banking provides a full range of financial products and services
throughout the West and the Midwest to businesses with annual revenues between
$5 million and $500 million.

Commercial Real Estate Services provides credit and other financial services to
a variety of real estate market segments, including developers, investors,
pension fund advisors, real estate investment trusts, and property managers.
Regional clients are served throughout California and in eight other states.
National clients, such as publicly traded corporations and private entities, are
served through offices in California.

Wealth Management encompasses a number of strategically significant businesses
serving individuals and institutions with sophisticated financial planning and
management needs. The range of capabilities represented in Wealth Management
include institutional investment management supporting BAC's corporate and
commercial banking relationships, private banking, investment management, and
trust services for high-net-worth clients both in the U.S. and internationally.

3    Supplemental Disclosure of Cash Flow Information

During the years ended December 31, 1997, 1996, and 1995, BAC made interest
payments on deposits and other interest-bearing liabilities of $8,689 million,
$8,039 million, and $7,361 million, respectively, and made income tax payments
of $1,114 million, $1,324 million, and $1,342 million, respectively.

During the years ended December 31, 1997, 1996, and 1995, there were
foreclosures of loans with carrying values of $219 million, $360 million, and
$520 million, respectively. Loans made to facilitate the sale of OREO totaled
$12 million, and $8 million during the years ended December 31, 1996, and 1995,
respectively.

                                                                              65
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


4    Acquisition

On October 1, 1997, BAC acquired Robertson, Stephens & Company Group, L.L.C.
(Robertson Stephens), a San Francisco-based investment banking and investment
management firm. The acquisition involved a cash transaction consisting of an
initial payment of $245 million to the equity-owning partners of Robertson
Stephens, up to $225 million of compensation over a three-year period to certain
Robertson Stephens equity-owning partners, subject to continued employment, and
up to $70 million to be distributed from a cash retention pool as compensation
in the form of awards vesting over a four-year period. The acquisition was
accounted for by the purchase method of accounting.


5    Restrictions on Cash and Due from Banks

BAC's banking subsidiaries are required to maintain reserves with the Federal
Reserve Bank. Reserve requirements are based on a percentage of deposit
liabilities. The average reserves required for 1997 and 1996 were $2,920 million
and $3,740 million, respectively.


6    Securities Purchased Under Resale Agreements and Securities Sold Under 
Repurchase Agreements

BAC enters into purchases and sales of securities, primarily U.S. government and
federal agency, under agreements to resell and repurchase substantially
identical securities. In 1997, the yearly averages of securities purchased under
resale agreements and securities sold under repurchase agreements, based on
daily balances, were $10 billion and $11.6 billion, respectively, and the
maximum amounts outstanding at any month end during the year were $13.2 billion
and $15.1 billion, respectively.

During 1997, the underlying securities purchased under resale agreements were
delivered into BAC's account at the Federal Reserve Bank of San Francisco or
into a third-party custodian's account that recognizes BAC's rights and interest
in these securities.


7    Available-For-Sale and Held-to-Maturity Securities and Trading Activities

The following is a summary of available-for-sale and held-to- maturity
securities:

<TABLE> 
<CAPTION> 

------------------------------------------------------------------------------------------
                                                   Available-for-Sale Securities
                                         -------------------------------------------------
                                                          Gross        Gross
                                         Amortized   Unrealized   Unrealized        Fair
(in millions)                                 Cost        Gains       Losses       Value
------------------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>            <C> 
DECEMBER 31, 1997
U.S. Treasury and other government
  agency securities                        $ 1,435      $    33      $     2     $ 1,466
Mortgage-backed securities                   7,359          151            3       7,507
Foreign governments                          1,930            3           78       1,855
Equity securities                              330          114           10         434
Corporate and other debt securities          1,503           22            1       1,524
------------------------------------------------------------------------------------------
                                           $12,557      $   323      $    94     $12,786

DECEMBER 31, 1996
U.S. Treasury and other government
  agency securities                        $ 1,505      $     6      $    17     $ 1,494
Mortgage-backed securities                   6,591           70           39       6,622
Foreign governments                          2,365           36          132       2,269
Equity securities                              177          121            1         297
Corporate and other debt securities          1,421           13            3       1,431
------------------------------------------------------------------------------------------
                                           $12,059      $   246      $   192     $12,113

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

<CAPTION> 

                                                     Held-to-Maturity Securities
                                         -------------------------------------------------
                                                          Gross        Gross
                                         Amortized   Unrealized   Unrealized        Fair
(in millions)                                 Cost        Gains       Losses       Value
------------------------------------------------------------------------------------------
<S>                                      <C>         <C>          <C>            <C> 
DECEMBER 31, 1997
U.S. Treasury and other government 
  agency securities                        $    16      $    --      $    --     $    16
Mortgage-backed securities                   1,877           41            2       1,916
State, county, and municipal securities        306           13            1         318
Foreign governments                          1,105           51           35       1,121
Corporate and other debt securities            363           18            8         373
------------------------------------------------------------------------------------------
                                            $3,667       $  123       $   46      $3,744

DECEMBER 31, 1996
U.S. Treasury and other government
  agency securities                         $   19       $   --       $   --      $   19
Mortgage-backed securities                   2,163           31           15       2,179
State, county, and municipal securities        423           14            6         431
Foreign governments                          1,160            9          261         908
Corporate and other debt securities            373           21           11         383
------------------------------------------------------------------------------------------
                                            $4,138       $   75       $  293      $3,920

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

</TABLE> 

66
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


During the years ended December 31, 1997, 1996 and 1995, BAC sold available-for-
sale securities for aggregate proceeds of $1,968 million, $1,985 million, and
$2,509 million, respectively. These sales resulted in gross realized gains of
$127 million, $91 million, and $268 million, and gross realized losses of $11
million, $30 million, and $234 million in 1997, 1996, and 1995, respectively.

The following is a summary of the contractual maturities of available-for-sale
debt securities at December 31, 1997. These amounts exclude equity securities,
which have no contractual maturities:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                      Amortized            Fair
(in millions)                                              Cost           Value
--------------------------------------------------------------------------------
<S>                                                   <C>             <C> 
Due in one year or less                                $  1,275        $  1,289
Due after one year through five years                       718             713
Due after five years through ten years                    2,015           2,057
Due after ten years                                       8,219           8,293
--------------------------------------------------------------------------------
                                                       $ 12,227        $ 12,352
</TABLE> 
--------------------------------------------------------------------------------

   The following is a summary of the contractual maturities of held-to-maturity
securities at December 31, 1997:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                      Amortized            Fair
(in millions)                                              Cost           Value
--------------------------------------------------------------------------------
<S>                                                   <C>             <C> 
Due in one year or less                                $    295        $    296
Due after one year through five years                       285             290
Due after five years through ten years                      830             855
Due after ten years                                       2,257           2,303
--------------------------------------------------------------------------------
                                                       $  3,667        $  3,744
</TABLE> 
--------------------------------------------------------------------------------

Certain securities, such as mortgage-backed securities, may not become due at a
single maturity date. Those mortgage-backed securities with no specified
maturities are included as having contractual maturities of greater than ten
years for purposes of the tables above. Issuers may have the right to call or
prepay obligations with or without call or prepayment penalties. This right may
cause actual maturities to differ from the contractual maturities presented in
the summaries above.

Certain assets were pledged to collateralize U.S. government and public
deposits, trust and other deposits, and repurchase agreements. These assets,
primarily trading, available-for-sale, and held-to-maturity securities, had
carrying values of $15,052 million and $11,477 million at December 31, 1997 and
1996, respectively.

During the year ended December 31, 1997, trading income included a net
unrealized holding loss of $15 million. For the years ended December 31, 1996
and 1995, trading income included net unrealized holding gains on trading
securities of $1 million and $37 million, respectively. These amounts exclude
the net unrealized trading results of the parent's securities
broker/dealer subsidiary (Section 20 subsidiary).

During the fourth quarter of 1995, the Financial Accounting Standards Board
allowed financial statement preparers a one-time opportunity to reassess the
classifications of securities accounted for under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." As a result of this reassessment, BAC reclassified $2.1
billion of held-to-maturity securities to available-for-sale securities. In
connection with this reclassification, gross unrealized gains of $28 million and
gross unrealized losses of $42 million were recorded in available-for-sale
securities and in stockholders' equity (on a net-of-tax basis).

8    Other Debt Restructurings

Restructured loans as described in Note 9 of the Notes to Consolidated Financial
Statements on the following page exclude other debt restructurings totaling
$1,384 million and $1,685 million at December 31, 1997 and 1996, respectively,
with countries that were experiencing liquidity problems at the time of
restructuring. These amounts include securities and loans received in connection
with formal debt restructurings. The majority of these instruments are
classified as either available-for-sale or held-to-maturity securities.

Included in other debt restructurings at December 31, 1997 and 1996, were $1,228
million and $1,456 million, respectively, of par bonds issued by the governments
of Mexico and Venezuela in 1990, and the government of Uruguay in 1991. The face
values of these par bonds at December 31, 1997 and 1996 were $1,494 million and
$1,607 million, respectively. The majority of the Mexican par bonds have a fixed
annual interest rate of 6.25 percent, and the Venezuelan and Uruguayan par bonds
both have fixed annual interest rates of 6.75 percent. The principal of all of
these par bonds is collateralized by zero-coupon U.S. Treasury securities, which
at maturity, will have redemption values equal to the face values of the par
bonds. The market value of the par bonds totaled $1,260 million at December 31,
1997. The fair value of the U.S. Treasury securities collateralizing the
principal of the par bonds totaled $394 million at December 31, 1997.

Also included in the aggregate other debt restructurings discussed above were
$156 million and $229 million at December 31, 1997 and 1996, respectively,
related to other restructuring transactions with borrowers in Venezuela, Poland,
the Philippines, Mexico, Brazil, Ecuador and Panama.

Interest income foregone on these other debt restructurings was not significant
in 1997 or 1996.

                                                                              67
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


9    Loans

Loans are presented net of unearned income of $2,534 million and $1,636 million
at December 31, 1997 and 1996, respectively.

The following is a summary of loans:

--------------------------------------------------------------------------------
                                                                 December 31
(in millions)                                                 1997          1996
--------------------------------------------------------------------------------
DOMESTIC
Consumer:
 Residential first mortgages                              $ 31,749      $ 37,459
 Residential junior mortgages                               14,847        14,743
 Other installment                                          18,418        16,979
 Credit card                                                 6,697         8,707
 Other individual lines of credit                            1,937         1,948
 Other                                                         461           401
--------------------------------------------------------------------------------
                                                            74,109        80,237
Commercial:
 Commercial and industrial                                  36,602        33,404
 Loans secured by real estate                               12,897        12,488
 Financial institutions                                      3,485         3,109
 Lease financing                                             2,892         2,542
 Loans for purchasing or carrying securities                 2,668         1,941
 Construction and development loans
  secured by real estate                                     2,206         2,252
 Agricultural                                                1,824         1,696
 Other                                                       1,896         1,270
--------------------------------------------------------------------------------
                                                            64,470        58,702

                                                           138,579       138,939
FOREIGN
Commercial and industrial                                   18,484        16,394
Banks and other financial institutions                       3,904         3,958
Governments and official institutions                          840           970
Other                                                        5,304         5,154
--------------------------------------------------------------------------------
                                                            28,532        26,476

                                                          $167,111      $165,415

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

The following is a summary of loans considered to be impaired and the related
interest income:

--------------------------------------------------------------------------------
                                                                 December 31
(in millions)                                                 1997          1996
--------------------------------------------------------------------------------
Recorded investment in impaired loans
 not requiring an allowance for credit losses/a/              $259         $ 412
Recorded investment in impaired loans requiring 
 an allowance for credit losses                                480           439
--------------------------------------------------------------------------------
    Total recorded investment in impaired loans/b/            $739         $ 851
--------------------------------------------------------------------------------
                                                             December 31
                                                     1997       1996        1995
--------------------------------------------------------------------------------
Average recorded investment in impaired loans        $760     $1,120      $1,361
Interest income recognized/c/                          50         50          80

--------------------------------------------------------------------------------
/a/ These loans do not require an allowance for credit losses since the values
    of the impaired loans equal or exceed the recorded investments in the loans.
/b/ These amounts were evaluated using the following measurement methods: For
    1997, $363 million was evaluated using the present value of the loan's
    expected future cash flows and $376 million using the fair value of the
    collateral. For 1996, $403 million was evaluated using the present value of
    the loan's expected future cash flows, $422 million using the fair value of
    the collateral, and $26 million using the loan's observable market value.
/c/ All interest income recognized on these loans is recorded when cash is
    received.
 
Restructured loans, excluding the other debt restructurings described in Note 8
of the Notes to Consolidated Financial Statements on page 67, were $274 million
and $302 million at December 31, 1997 and 1996, respectively. Interest income
foregone on these loans was not significant in 1997 or 1996.

Previously restructured loans of $40 million and $29 million were on nonaccrual
status at December 31, 1997 and 1996, respectively.

10     Allowance for Credit Losses

The following is a summary of changes in the allowance for credit losses. This
reconciliation reflects activity related to all loans. The allowance for credit
losses on impaired loans was $81 million at December 31, 1997.

--------------------------------------------------------------------------------
                                                       Year Ended December 31
(in millions)                                       1997       1996        1995
--------------------------------------------------------------------------------
Balance, beginning of year                        $3,523     $3,554      $3,690

Credit losses                                      1,305      1,325       1,011
Credit loss recoveries                               404        407         422
--------------------------------------------------------------------------------
 Net credit losses                                   901        918         589
Provision for credit losses                          950        885         440
Other net additions (deductions)                     (72)/a/      2          13
--------------------------------------------------------------------------------
  Balance, End of Year                            $3,500     $3,523      $3,554

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

/a/ Includes allowance for credit losses associated with the sale of SPFS and
    Bank of America Hawaii of $60 million and $8 million, respectively.

68
<PAGE>
 
                                      

                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


11     Premises and Equipment

The following is a summary of premises and equipment:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                                 December 31
(in millions)                                                1997          1996
--------------------------------------------------------------------------------
<S>                                                       <C>           <C> 
Premises, including capitalized leases                     $2,790        $3,060
Equipment and furniture, including capitalized leases       3,210         3,072
Leasehold improvements                                      1,228           888
Land                                                          466           489
--------------------------------------------------------------------------------
                                                            7,694         7,509

Less: Accumulated depreciation and amortization             3,814         3,522
--------------------------------------------------------------------------------
                                                           $3,880        $3,987
--------------------------------------------------------------------------------
</TABLE> 

Depreciation and amortization expense for the years ended December 31, 1997,
1996, and 1995 was $586 million, $593 million, and $552 million, respectively.

12     Deposits

The aggregate amount of time deposit accounts exceeding $100,000, was
approximately $46,686 million and $50,182 million at December 31, 1997 and 1996,
respectively.

At December 31, 1997, the scheduled maturities for time deposits were as
follows:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
(in millions)
--------------------------------------------------------------------------------
<S>                                                                    <C> 
Due in 1998                                                             $63,662
Due in 1999                                                               2,812
Due in 2000                                                               1,286
Due in 2001                                                                 520
Due in 2002                                                                 481
Thereafter                                                                  264
--------------------------------------------------------------------------------
                                                                        $69,025
</TABLE> 
--------------------------------------------------------------------------------

13       Long-Term Debt

The following is a summary of long-term debt. The maturity distribution is based
upon contractual maturities or earlier dates due to call notices issued.

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                December 31
                                   1997                             1996
                      ----------------------------------------------------------
                          Various         Various
                       Fixed-Rate   Floating-Rate
                             Debt            Debt
(in millions)         Obligations     Obligations       Total       Total
--------------------------------------------------------------------------------
<S>                  <C>           <C>                <C>          <C>  
THE PARENT
Senior Debt:
 Due in 1997              $    --        $     --   $      --      $1,692
 Due in 1998                  219             133         352         352
 Due in 1999                  215             392         607       1,960
 Due in 2000                   16           1,580       1,596       1,596
 Due in 2001                  718             932       1,650       1,650
 Due in 2002                  109             706         815         316
 Thereafter                   205             291         496         502
--------------------------------------------------------------------------------
                            1,482           4,034       5,516       8,068
Subordinated Debt:
 Due in 1998                   52              --          52          53
 Due in 2000                  417              --         417         419
 Due in 2001                  776              30         806         812
 Due in 2002                1,837              26       1,863       1,860
 Thereafter                 3,587             323       3,910       3,015
--------------------------------------------------------------------------------
                            6,669             379       7,048       6,159

Total parent                8,151           4,413      12,564      14,227

SUBSIDIARIES
Senior Debt:
 Due in 1997                   --              --          --          15
 Due in 1998                  223              42         265         213
 Due in 1999                    3              --           3          --
 Due in 2000                   --              79          79          84
 Due in 2001                   --              --          --         420
 Due in 2002                  142              --         142          --
 Thereafter                    28              47          75           9
--------------------------------------------------------------------------------
                              396             168         564         741
Subordinated Debt:
 Due in 1997                   --              --          --          19
 Due in 1998                   10              --          10          10
 Due in 1999                   11              --          11          11
 Due in 2000                   12              --          12          12
 Due in 2001                  308              --         308         309
 Thereafter                   100              --         100         101
--------------------------------------------------------------------------------
                              441              --         441         462
Total subsidiaries            837             168       1,005       1,203
--------------------------------------------------------------------------------
                          $ 8,988         $ 4,581     $13,569     $15,430
 
--------------------------------------------------------------------------------
</TABLE>
BAC's fixed-rate long-term debt of $8,988 million at December 31, 1997 matures
at various dates through 2015. At both December 31, 1997 and 1996, the interest
rates on fixed-rate long-term debt ranged from 5.55% to 11.50%. These
obligations were denominated primarily in U.S. dollars.

                                                                              69
<PAGE>
 
BankAmerica Corporation 1997 Annual Report                      

                      CONSOLIDATED FINANCIAL STATEMENTS 


BAC has entered into off-balance-sheet financial instruments, primarily interest
rate swaps, with notional amounts of approximately $4 billion and $7 billion at
December 31, 1997 and 1996, respectively, to change its interest rate exposure
from fixed to floating rate. At December 31, 1997 and 1996, the weighted average
interest rates on fixed-rate long-term debt, including the effects of interest
rate swaps, were 7.66% and 7.33%, respectively.

BAC's floating-rate long-term debt of $4,581 million at December 31, 1997
matures at various dates through 2003. The majority of the floating rates are
based on three- and six-month London InterBank Offer Rate (LIBOR). At December
31, 1997 and 1996, the interest rates on floating-rate long-term debt ranged
from 5.75% to 7.91% and from 5.26% to 7.54%, respectively. These obligations
were denominated primarily in U.S. dollars.

BAC has entered into off-balance-sheet financial instruments, primarily futures,
with notional amounts of approximately $1 billion and $6 billion at December 31,
1997 and 1996, respectively, to reduce the interest rate risk by shortening the
repricing profile on floating-rate debt that reprices within one year. At
December 31, 1997 and 1996, the weighted average interest rates on floating-rate
long-term debt were 6.07% and 5.74%, respectively. The effect of futures on
floating rate long-term debt interest rates was not material.

At December 31, 1997 and 1996, $2,837 million and $3,702 million, respectively,
of long-term debt was redeemable at par at the option of the parent on dates
ranging from February 27, 1998 through February 21, 2001.

At December 31, 1997, BAC had a $1.65 billion long-term line of credit that
expires in 2001. There were no draw-downs at December 31, 1997, and the interest
rate on draw-downs is based on current prime or LIBOR rates.

14       Subordinated Capital Notes

The following is a summary of subordinated capital notes as recorded on the
Balance Sheet included in long-term debt by the parent. These notes are
subordinate to senior indebtedness of the parent and qualify as Tier 2
risk-based capital under 

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                               December 31
(in millions)                                              1997            1996
--------------------------------------------------------------------------------
<S>                                                     <C>              <C> 
9.75% Notes due 1999                                       $254            $256
Auction Rate Notes due 1999                                  99              99
--------------------------------------------------------------------------------
                                                           $353            $355

--------------------------------------------------------------------------------
</TABLE> 

Federal Reserve Board guidelines for assessing capital
adequacy.

Effective May 17, 1996, the Auction Rate Notes bear interest as follows: $1
million bears interest at a fixed rate of 6.647% per annum, while the remaining
$98 million bears interest at a floating rate of 0.50% over LIBOR per annum
through the maturity date.

At the option of the parent, the Auction Rate Notes may be exchanged for common
stock, perpetual preferred stock, or other capital securities acceptable to the
Federal Reserve Board having a market price equal to the principal amount of the
notes or, under certain circumstances, may be redeemed in whole or in part for
cash. As of December 31, 1997, proceeds from issuances of common and preferred
stock of $350 million have been dedicated to fully retire or redeem subordinated
capital notes.


15       Corporation Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Junior Subordinated Deferrable Interest
Debentures of the Corporation (Trust Preferred Securities)

The trust preferred securities are issued by trusts all of whose outstanding
common securities are owned by the parent. Such common securities represent an
aggregate liquidation amount equal to 3 percent of the total capital of each
trust. The sole assets of the trusts are Junior Subordinated Deferrable Interest
Debentures of the parent (the Debentures). In addition, the parent has entered
into an expense agreement with each trust obligating the parent to pay any
costs, expenses or liabilities of the trust, other than obligations of the trust
to pay amounts due pursuant to the terms of the trust preferred securities. Each
issue of the Debentures has an interest rate equal to the corresponding trust
preferred securities distribution rate. The parent has the right to defer
payment of interest on the Debentures at any time or from time to time for a
period not exceeding the extension period described in the table below with
respect to each deferral period, provided that no extension period may extend
beyond the stated maturity of the relevant Debentures. During any such extension
period, distributions on the trust preferred securities will also be deferred
and the parent's ability to pay dividends on its common and preferred stock will
be restricted. The Debentures are redeemable prior to stated maturity at the
parent's option during the redemption periods at the redemption prices described
below plus accrued interest to the redemption dates. The trust preferred
securities are subject to mandatory redemption upon repayment of the related
Debentures at their stated maturity dates or their earlier redemption at a
redemption price equal to their liquidation amount plus accrued distributions
to the date fixed for redemption and the premium, if any, paid by the parent
upon concurrent repayment of the related Debentures.

The parent has issued guarantees for the payment of distributions and payments
on liquidation or redemption of the trust preferred securities, but only to the
extent of funds held by the relevant trust. The guarantees are junior
subordinated obligations of the parent. In 1997 and 1996, distributions and
amortization of deferred issuance costs on all trust preferred securities
totaling $144 million and $7 million, respectively, were included in noninterest
expense in the consolidated statement of operations.

70
[CAPTION] 
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

<TABLE> 
<CAPTION> 

---------------------------------------------------------------------------------------------------------------------------
                                      Aggregate    Aggregate
                                    Liquidation  Liquidation    Aggregate
                                      Amount of    Amount of    Principal        Stated       Per Annum         Interest
                                Trust Preferred       Common    Amount of   Maturity of   Interest Rate          Payment    
(dollar amounts in thousands)        Securities   Securities   Debentures    Debentures   of Debentures            Dates    
---------------------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>           <C>          <C>           <C>                <C> 
NAME OF TRUST

BankAmerica Institutional Capital A    $450,000     $ 13,918   $  463,918      12/31/26           8.07%      6/30, 12/31      
                                                                                                                 
BankAmerica Institutional Capital B     300,000        9,279      309,279      12/31/26           7.70       6/30, 12/31           
                                                                                                                 
BankAmerica Capital I                   300,000        9,279      309,279      12/31/26/d/        7.75       3/31, 6/30, 
                                                                                                             9/30, 12/31 
BankAmerica Capital II                  450,000       13,918      463,918      12/15/26           8.00       6/15, 12/15 
                                                                                                                 
BankAmerica Capital III                 400,000       12,372      412,372       1/15/27          LIBOR       1/15, 4/15, 
                                                                                             plus 0.57%      7/15, 10/15 

---------------------------------------------------------------------------------------------------------------------------
     Total                           $1,900,000/g/  $ 58,766   $1,958,766
---------------------------------------------------------------------------------------------------------------------------

<CAPTION> 

----------------------------------------------------------------------------              
                                           Extension          Redemption    
(dollar amounts in thousands)                 Period              Period    
----------------------------------------------------------------------------              
<S>                                    <C>                   <C> 
NAME OF TRUST                      

BankAmerica Institutional Capital A         10 semi-         On or after               
                                      annual periods           12/31/06/ab/  
BankAmerica Institutional Capital B         10 semi-         On or after                
                                      annual periods           12/31/06/bc/        
BankAmerica Capital I                    20 quarters         On or after            
                                                                12/20/01/e/              
BankAmerica Capital II                      10 semi-         On or after                
                                      annual periods            12/15/06/bf/        
BankAmerica Capital III                  20 quarters         On or after            
                                                                1/15/02/e/                     
----------------------------------------------------------------------------              

----------------------------------------------------------------------------
</TABLE> 
/a/ The Debentures may be redeemed on or after December 31, 2006 and prior to
    December 31, 2007 at 104.0350% of the principal amount, and thereafter at
    prices declining to 100% on December 31, 2016 and thereafter.
/b/ The parent may redeem the Debentures prior to the indicated redemption
    period upon the occurrence of certain events relating to tax treatment of
    the related trust or the Debentures or relating to capital treatment of the
    trust preferred securities at a redemption price calculated by a formula,
    which redemption price shall be at least equal to the principal amount of
    the Debentures.
/c/ The Debentures may be redeemed on or after December 31, 2006 and prior to
    December 31, 2007 at 103.7785% of the principal amount, and thereafter at
    prices declining to 100% on December 31, 2016 and thereafter.
/d/ At the option of the parent, the stated maturity may be shortened to a date
    not earlier than December 20, 2001 or extended to a date not later than
    December 31, 2045, in each case if certain conditions are met.
/e/ The parent may redeem the Debentures (i) during the indicated redemption
    period or (ii) upon the occurrence of certain events relating to tax
    treatment of the trust or the Debentures or relating to capital treatment of
    the trust preferred securities, prior to the indicated redemption period, in
    each case, at a redemption price of 100% of the principal amount.
/f/ The Debentures may be redeemed on or after December 15, 2006 and prior to
    December 15, 2007 at 103.9690% of the principal amount, and thereafter at
    prices declining to 100% on December 15, 2016 and thereafter.
/g/ Excludes $27 million of deferred issuance costs.

The table above is a summary of the outstanding trust preferred securities
and Debentures.

The parent's obligations under each series of Debentures, the related junior
subordinated indenture, the related trust agreement, the related expense
agreement, and the related guarantee taken together constitute a full and
unconditional guarantee by the parent of each trust's obligations under the
relevant trust preferred securities.

The parent is required by the Federal Reserve to maintain certain levels of
capital for bank regulatory purposes. The Federal Reserve has determined that
certain cumulative preferred securities having the characteristics of trust
preferred securities qualify as minority interest, which is included in Tier 1
capital for bank holding companies. Such Tier 1 capital treatment, together with
the parent's ability to deduct, for federal income tax purposes, interest
payable on the related Debentures, provide the parent with a more cost-effective
means of obtaining capital for bank regulatory purposes than if the parent were
to issue preferred stock.

During 1997 and 1996, the trusts issued trust preferred securities, net of
deferred issuance costs, of $396 million and $1,477 million, respectively.

16     Stock Repurchase Program

During the first quarter of 1997, BAC's Board of Directors amended the existing
stock repurchase program. The amended program authorized the parent to buy back
up to an additional $3 billion of its common stock by the end of 1998 and to buy
back or redeem up to an additional $1 billion of its preferred stock by the end
of 1998.

During the year ended December 31, 1997, the parent repurchased 31.7 million
shares of its common stock under the amended stock repurchase program at an
average per-share price of $64.00. These transactions reduced stockholders'
equity by $2,025 million.

During the year ended December 31, 1996, the parent repurchased 34 million
shares of its common stock under the amended and prior stock repurchase programs
at an average per-share price of $39.70. These transactions reduced
stockholders' equity by $1,351 million.

During the year ended December 31, 1995, the parent repurchased 33.2 million
shares of its common stock in connection with a prior program at an average per-
share price of $26.92, which reduced stockholders' equity by $894 million.

During the year ended December 31, 1997, the parent redeemed preferred stock
under the amended stock repurchase program, reducing stockholders' equity by
$1,628 million.

                                                                              71
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


During the year ended December 31, 1996, the parent redeemed preferred stock
under the amended and prior stock repurchase programs, reducing stockholders'
equity by $399 million. During the year ended December 31, 1995, the parent
redeemed preferred stock under a prior stock repurchase program, reducing
stockholders' equity by $206 million. 

The remaining buyback and redemption authorities for common and preferred stock
totaled $1.8 billion and $0.2 billion, respectively, at December 31, 1997.


17     Preferred Share Purchase Rights and Common Stock Warrants

On April 11, 1988, the Board of Directors of the parent declared a dividend of
one preferred share purchase right (a Right) for each outstanding share of the
parent's common stock as of April 22, 1988 (the Rights Agreement). While the
Rights Agreement is in effect, every share of common stock issued before the
Rights become effective also represents a Right. Each Right entitles the holder
to buy from the parent, until the earlier of April 22, 1998 or the redemption of
the Rights, one two-hundredth of a share of Cumulative Participating Preferred
Stock, Series E, at an exercise price of $25.00 per Right (subject to
adjustment). The Rights will not be exercisable or transferable apart from the
parent's common stock until certain events occur pertaining to a person or group
acquiring or announcing the intention to acquire 20 percent or more of the
parent's outstanding common stock. Under specified circumstances, all of which
relate to a potential acquisition of the parent, a Right may: (i) become a right
to purchase shares of an acquiring company at half of the then-market price,
(ii) become a right to purchase the parent's common stock at half of the
then-market price or (iii) be exchanged by the parent for one share of common
stock or one two-hundredth of a share of Preferred Stock, Series E, or an
equivalent preferred share. The Board of Directors may redeem the Rights at a
price of $0.0005 per Right (rounded as to each holder to the nearest $0.01) at
any time prior to the acquisition by a person or group of 20 percent or more of
the outstanding common stock of the parent. Under other specified conditions,
the Rights may be automatically redeemed. The Rights are excluded from the
computation of earnings per common share. Certain adjustments were made in
accordance with the terms of the Rights to reflect a two-for-one stock split
effective June 2, 1997.

At December 31, 1996, common stock warrants outstanding totaled 105,546, which
were exercised prior to or expired on October 22, 1997. These warrants gave the
holder the right to purchase shares of common stock of the parent at a price of
$8.75 per share, subject to adjustment in certain events. The number of warrants
and the purchase price have been restated to reflect a two-for-one stock split
effective June 2, 1997.


18     Stock Split

On May 22, 1997, the stockholders of BAC approved a two-for one stock split,
along with an increase in the authorized number of shares of common stock from
700 million to 1.4 billion shares. The stock split was effective for
stockholders of record at the close of business on June 2, 1997. The stock split
did not cause any changes in the common stock's stated par value per share of
$1.5625 or in total stockholders' equity. A total of 387,314,462 shares of
common stock were issued in connection with the split, including 37,364,985
shares associated with shares held in treasury. As a result of the stock split,
$605 million was reclassified from additional paid-in capital to common stock.


19     Preferred Stock

The parent is authorized to issue, in one or more series, 70,000,000 shares of
preferred stock. The parent's outstanding preferred shares are nonvoting except
in certain limited circumstances. Dividends are cumulative and are payable
quarterly on February 28, May 31, August 31, and November 30. The shares are
redeemable at the option of the parent during the redemption period and at the
redemption price per share noted in the following table plus accrued and unpaid
dividends to the redemption date. Holders of the preferred shares have dividend
and liquidation preferences senior to those of holders of the parent's common
stock.

On January 15, 1997, the parent redeemed all 11,250,000 outstanding shares of
its 9% Cumulative Preferred Stock, Series H, reducing stockholders' equity by
$281 million. The redemption price was equal to the stated value of $25.00 per
share, plus accrued and unpaid dividends of $0.28125 per share.

On February 15, 1997, the parent redeemed all 14,600,000 outstanding shares of
its 8 3/8% Cumulative Preferred Stock, Series K, reducing stockholders' equity
by $365 million. The redemption price was equal to the stated value of $25.00
per share, plus accrued and unpaid dividends of $0.44201 per share.

Additionally in 1997, the parent redeemed the following Cumulative Preferred
Stock series, each share represented by depositary shares (representing a
one-twentieth interest in a corresponding share of preferred stock) at a price
of $500.00 per share of preferred stock on the dates indicated: 8.16% Series L,
798,020 preferred shares, July 13, 1997; 7 7/8% Series M, 696,847 preferred
shares, September 30, 1997; and 8 1/2% Series N, 469,273 preferred shares,
December 15, 1997. These redemptions reduced stockholders' equity by
$982 million. As to the accrued dividend per share of preferred stock paid at
the redemption date, the following per share amounts were paid to the holders of
record: Series L, $4.76; Series M, $3.1718; and Series N, $1.6528.

72
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

<TABLE> 
<CAPTION> 

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

                                Original             Shares                   Dividend 
                                  Shares     Outstanding at  Stated Value    Per Share                             Redemption Price
   Preferred Stock Series         Issued  December 31, 1997     Per Share    Per Annum        Redemption Period           Per Share
------------------------------------------------------------------------------------------------------------------------------------

<S>                            <C>        <C>                <C>             <C>           <C>                     <C> 
   Cumulative Adjustable:
     Series A                  5,178,000          5,178,000      $  50.00     $   3.25/a/     On or after 11/30/87      $  50.00
     Series B                  3,546,100          3,546,100        100.00         6.00/b/     On or after 2/28/88         100.00

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 

/a/ For the Cumulative Adjustable Preferred Stock, Series A, the dividend is
    adjusted quarterly, and is 2.0% lower than the highest of three U.S.
    Treasury rates, but is no lower than 6.5% and no greater than 14.5% per
    annum.

/b/ For the Cumulative Adjustable Preferred Stock, Series B, the dividend is
    adjusted quarterly, and is 4.0% lower than the highest of three U.S.
    Treasury rates, but is no lower than 6.0% and no greater than 12.0% per
    annum.

On March 31, 1996, the parent redeemed all 400,000 outstanding preferred shares
of its 11% Preferred Stock, Series J. This transaction reduced stockholders'
equity by $218 million. The shares were represented by 8 million depositary
shares, each representing a one-twentieth interest in a corresponding share of
preferred stock. The redemption price was $527.50 per share of preferred stock.

On April 16, 1996, the parent redeemed all 7,250,000 outstanding shares of its
9 5/8% Cumulative Preferred Stock, Series F, reducing stockholders' equity by
$181 million. The redemption price was equal to the stated value of $25.00 per
share, plus accrued and unpaid dividends of $0.30747 per share.

The table above summarizes the shares of preferred stock outstanding at December
31, 1997.

20     Capital Requirements

The parent and its domestic banking subsidiaries are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can result in certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on BAC's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
BAC's banking subsidiaries must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices. The
quantitative measures established by regulation to ensure capital adequacy
require financial institutions to maintain minimum amounts and ratios, as set
forth in the table on page 74, of total and Tier I capital to risk-weighted
assets and of Tier I capital divided by average total assets. The table
presented on page 74 includes BAC and its largest banking subsidiary, Bank of
America NT&SA, at December 31, 1997 and 1996. At December 31, 1997, the
calculation of BAC's risk-based capital amounts and ratios includes its
securities broker/dealer subsidiary to reflect the Federal Reserve Board's
October 31, 1997 modifications to the risk-based capital regulations that apply
to bank holding companies engaged in securities underwriting and dealing
activities through Section 20 subsidiaries. At December 31, 1996, amounts and
ratios excluded the effects of its Section 20 subsidiary. At December 31, 1996,
this exclusion reduced Tier 1 capital by $137 million, and total risk-based
capital by $339 million. This resulted in reducing the Tier 1 capital ratio and
total risk-based capital ratio by 1 basis point and 6 basis points,
respectively.

During 1997, Bank of America (BofA) Illinois, BofA Alaska, N.A., BofA Arizona,
BofA Nevada, BofA New Mexico, N.A., BofA Trust Company of Florida, N.A., and
BofA NW, National Association (BANW) were merged into the bank and are reflected
in its December 31, 1997 risk-based capital components. The bank's 1996 risk-
based capital amounts and ratios did not include these respective subsidiaries.
Capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.

As of December 31, 1997 and 1996, all of BAC's depository institution
subsidiaries met the well-capitalized requirements under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, a
financial institution must maintain minimum total risk-based capital, Tier I
risk-based capital, and leverage ratio as set forth in the table on the next
page. There are no conditions or events that have occurred since December 31,
1997 that management believes would change these categorizations.

On an ongoing basis, BAC evaluates and modifies its mix of capital sources,
including debt, equity, and off-balance-sheet financing arrangements, taking
into consideration various factors. Such factors include regulatory capital
targets, as well as the cost of capital, which are influenced by prevailing
interest rates and credit risk. BAC's capital mix may vary from time to time in
response to changes in these factors.

                                                                              73
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

<TABLE> 
<CAPTION> 

----------------------------------------------------------------------------------------------------------------------------------
                                     Risk-Based Capital--Actual and Minimum Amounts and Ratios
----------------------------------------------------------------------------------------------------------------------------------
                                                December 31, 1997                                 December 31, 1996
                                --------------------------------------------------------------------------------------------------
                                       Total          Tier 1                            Total             Tier 1
                                    Risk-Based      Risk-Based         Leverage       Risk-Based        Risk-Based      Leverage
(dollar amounts in millions)          Capital         Capital            Ratio         Capital            Capital        Ratio
----------------------------------------------------------------------------------------------------------------------------------
                                  Amount  Ratio    Amount   Ratio   Amount   Ratio   Amount Ratio     Amount  Ratio   Amount Ratio
----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>      <C>     <C>      <C>     <C>      <C>     <C>     <C>      <C>      <C>     <C>    <C> 
BANKAMERICA CORPORATION
Actual                           $26,554  11.56%  $17,291   7.53%   $17,291  6.81%  $25,880  11.79%  $17,044  7.77%  $17,229  7.44%
Minimum adequately capitalized    18,376   8.00     9,188   4.00     10,159  4.00    17,559   8.00     8,779  4.00     9,257  4.00
Minimum well capitalized          22,971  10.00    13,782   6.00     12,698  5.00    21,948  10.00    13,169  6.00    11,571  5.00

BANK OF AMERICA NT&SA
Actual                            23,576  11.28    15,660   7.49     15,660  6.93    16,521  10.96    10,701  7.10    10,701  6.18
Minimum adequately capitalized    16,722   8.00     8,361   4.00      9,036  4.00    12,064   8.00     6,032  4.00     6,922  4.00
Minimum well capitalized          20,903  10.00    12,542   6.00     11,294  5.00    15,080  10.00     9,048  6.00     8,652  5.00

----------------------------------------------------------------------------------------------------------------------------------
 </TABLE> 

21   Lease Commitments

BAC leases certain premises and equipment under noncancelable agreements
expiring between the years 1998 and 2035.

The following is a summary of future minimum rental commitments for
noncancelable leases at December 31, 1997, which do not include minimum sublease
rental income of $6 million for capital leases and $102 million for operating
leases: 


--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                           Capital Operating
  (in millions)                             Leases    Leases
--------------------------------------------------------------------------------
<S>                                        <C>     <C> 
  1998                                      $    6 $    283
  1999                                           6      264
  2000                                          75      238
  2001                                           4      216
  2002                                           4      202
  Thereafter                                    12    1,209
--------------------------------------------------------------------------------
  Total minimum lease payments                $107   $2,412

  Amount representing interest                 (32)
----------------------------------------------------
  Present Value of Net Minimum
  Capital Lease Payments                     $  75

--------------------------------------------------------------------------------
</TABLE> 
Total rental expense was $366 million in 1997, $375 million in 1996, and
$359 million in 1995.


22     Income Taxes

The significant components of the provision for income taxes are as follows:

--------------------------------------------------------------------------------
                                              Year Ended December 31
(in millions)                        1997               1996          1995
--------------------------------------------------------------------------------

PROVISION FOR (BENEFIT FROM)
   INCOME TAXES
Current:
   Federal                        $   763            $   869        $1,091
   State and local                    139                161           305
   Foreign                            520                265           239
--------------------------------------------------------------------------------
                                    1,422              1,295         1,635
Deferred:                                                  
   Federal                            516                419           268
   State and local                    184                175            29
   Foreign                             (6)                11           (29)
-------------------------------------------------------------------------------
                                      694                605           268
-------------------------------------------------------------------------------
                                   $2,116             $1,900        $1,903

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

74
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


The significant components of deferred income tax assets and liabilities at
December 31, 1997 and 1996 are as follows:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                            December 31
  (in millions)                                        1997            1996
--------------------------------------------------------------------------------
<S>                                                <C>              <C> 
DEFERRED INCOME TAX ASSETS
Allowance for credit losses                         $ 1,475          $ 1,534
Accrued expenses                                        209              237
Tax carryovers/a/                                        67               84
Other                                                   462              528
Valuation allowance for deferred                          
   income tax assets/a/                                 (67)             (75)
--------------------------------------------------------------------------------
   Total deferred income tax assets                   2,146            2,308
                                                            
DEFERRED INCOME TAX LIABILITIES
Lease financing                                      (2,166)          (1,698)
Identifiable intangible assets                         (464)            (545)
Securities valuation                                   (428)            (483)
Employee benefit plans                                 (119)            (205)
Accumulated tax depreciation in excess of                    
   book depreciation                                   (187)            (227)
Deferred gains and installment sales                   (169)            (122)
Mortgage servicing assets                              (154)             (59)
Other                                                  (370)            (187)
------------------------------------------------------------------------------
   Total deferred income tax liabilities             (4,057)          (3,526)
------------------------------------------------------------------------------
     Net Deferred Income Tax Liabilities            $(1,911)         $(1,218)

------------------------------------------------------------------------------
</TABLE> 

/a/ The valuation allowance for deferred income tax assets relates primarily to
    net operating loss carryovers of foreign subsidiaries and pre-acquisition
    tax carryovers associated with the Security Pacific Corporation and
    Continental Bank Corporation mergers. Utilization of these carryovers is
    subject to various limitations. The valuation allowance was established
    since BAC may not realize all of the tax benefit of these carryovers as a
    result of the related limitations. If BAC determines that it will realize
    the pre-acquisition carryover tax benefits in the future, the corresponding
    reduction in the valuation allowance will decrease goodwill instead of tax
    expense.

    Management believes that BAC will fully realize its total deferred income
    tax assets as of December 31, 1997 based upon BAC's recoverable taxes from
    prior carryback years, its total deferred income tax liabilities, and its
    current level of operating income.

    The valuation allowance for deferred income tax assets was $67 million and
    $75 million at December 31, 1997 and 1996, respectively. In the future, the
    recognition of deferred tax assets subject to the valuation allowance may
    result in a reduction to goodwill of up to $25 million.

    The reconciliation of the provision for income taxes computed at the U.S.
    statutory income tax rate to pretax income is as follows:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                 Year Ended December 31
                                            1997          1996         1995
--------------------------------------------------------------------------------
<S>                                        <C>           <C>          <C> 
Federal statutory income tax rate            35%           35%          35%
State and local income taxes,                                 
   net of federal tax effect                  4             5            5
Other, net                                    1            --            2
--------------------------------------------------------------------------------
  Effective Tax Rate                         40%           40%          42%

--------------------------------------------------------------------------------
</TABLE> 

In 1997 and 1996, deferred tax liabilities of $86 million and $21 million,
respectively, relating to net unrealized gains on available-for-sale securities
were recorded directly to stockholders' equity.

At December 31, 1997, federal income taxes had not been provided on $350
million of undistributed earnings of foreign subsidiaries earned prior to 1987
that have been reinvested for an indefinite period of time. If the undistributed
earnings were distributed, credits for foreign taxes paid on such earnings and
for the related foreign withholding taxes payable upon remittance, would be
available to offset $70 million of the $150 million resulting tax expense.
Subsequent to 1986, federal taxes are provided on earnings of foreign
subsidiaries as a result of a tax law change.

BAC provided tax expense of $46 million, $24 million, and $13 million on net
securities gains in 1997, 1996, and 1995, respectively.

23     Employee Benefit Plans

Defined Benefit Plans

During 1997, the majority of salaried U.S. employees within BAC were covered
under the BankAmerica Pension Plan (the Pension Plan), a defined benefit cash
balance plan.

Pension Plan benefits are based on length of service, level of compensation, and
a specified interest rate. Effective January 1, 1996, the benefit formula of the
Pension Plan was amended so that eligible participants accrue benefits called
pay-based credits, of 7 percent of annual qualified earnings over one-half of
the Social Security wage base. Contributions are made by BAC and are based on
actuarial computations of the amount sufficient to fund the current service cost
plus amortization of the unfunded actuarial accrued liability. Contributions are
determined in accordance with Internal Revenue Service funding requirements and
are invested in diversified portfolios.

BAC maintains certain nonqualified, nonfunded defined benefit retirement plans.
The related retirement benefits are paid from BAC's assets. Certain non-U.S.
employees within BAC are covered by noncontributory defined benefit pension
plans that BAC funds based primarily on local laws. The assumptions used in
computing the present value of the accumulated benefit obligation, the projected
benefit obligation, and net pension expense for the non-U.S. plans are
substantially consistent with those assumptions used for the U.S. plans, given
local conditions.

                                                                              75
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

The following is a reconciliation between the funded status of all defined
benefit plans and amounts included in BAC's consolidated balance sheet:

--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                            December 31
  (in millions)                                        1997            1996
--------------------------------------------------------------------------------
<S>                                                  <C>             <C> 
PREPAID PENSION COST
  Plan assets at fair value, primarily listed
   stocks and bonds                                   $3,669          $3,385
  Less: Actuarial present value of projected
   benefit obligation                                  3,206           2,971
--------------------------------------------------------------------------------
  Plan assets in excess of projected                   
    benefit obligation                                   463             414
Unrecognized net loss                                     87             151
Unrecognized prior service cost                           33              41
Unrecognized net transition obligation                    15              15
Additional minimum liability                              (2)             (3)
--------------------------------------------------------------------------------
  Prepaid Pension Cost                               $   596         $   618


ACTUARIAL PRESENT VALUE
  OF BENEFIT OBLIGATION
Vested benefit obligation                             $2,843          $2,697
Accumulated benefit obligation                         3,124           2,902

--------------------------------------------------------------------------------
</TABLE> 

The following is a summary of the components of net pension expense:
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                    Year Ended December 31
(in millions)                                    1997       1996       1995
--------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C> 
Service cost -- benefits earned
 during the year                               $   91     $   85      $  98
Interest cost on projected benefit obligation     207        188        200
Net amortization and deferral                     283        195        399
Effect of actual return on plan assets           (520)      (408)      (631)
--------------------------------------------------------------------------------
     Net Pension Expense                       $   61     $   60      $  66

--------------------------------------------------------------------------------
</TABLE> 

A summary of the assumptions used in computing the present value of the
accumulated benefit obligation, the present value of the projected benefit
obligation, and the net pension expense for the U.S. plans follows. The discount
rate used in determining benefit obligations at year end reflects the
approximate yield on high quality fixed-income securities taking into account
the duration of the projected benefit obligation. The discount rate used in
determining net pension expense is based on assumptions used for the previous
year-end measurement of the benefit obligation.

<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                1997        1996        1995
--------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C> 
Discount rate in determining expense            7.25%       6.50%       8.50%
Discount rate in determining benefit
 obligations at year end                        6.50        7.25        6.50
Rate of increase in future compensation
 levels for determining expense/a/                NA        5.00        5.50
Rate of increase in future compensation
 levels for determining benefit obligations
 at year end/a/                                   NA          NA        5.00
Expected long-term rate of return
 on assets                                      8.50        8.00        9.75
Account growth interest rate in
 determining expense                            6.75        6.00        6.75
Account growth interest rate in
 determining benefit obligations at year end    6.00        6.75        6.00

--------------------------------------------------------------------------------
</TABLE> 

/a/ Rates are attributable to the Seafirst Corporation Retirement Plan (the
    Seafirst Plan) since this is the only U.S. defined benefit final average pay
    plan as of January 1, 1995. Effective December 31, 1995, the Seafirst Plan
    was merged into the Pension Plan.

NA - Not applicable

Defined Contribution Plans

During 1997, the majority of salaried U.S. employees within BAC were eligible
to participate in the BankAmerica 401(k) Investment Plan (the 401(k) Plan). This
plan provides tax-deferred investment opportunities to salaried employees who
have completed a required length of service. Employees may contribute to the
plan up to certain limits prescribed by the Internal Revenue Service. A portion
of these contributions is matched by BAC. Contributions are invested at the
direction of the participant. Effective January 1, 1996, the 401(k) Plan was
amended to provide employees with pay-based credits. The pay-based credits are
equal to 3 percent or 7 percent of an eligible employee's annual qualified
earnings up to one-half of the Social Security wage base, depending upon the
employee's age or length of service.

BAC maintains certain nonqualified defined contribution retirement plans. The
related retirement benefits are paid from BAC's assets. In addition, certain
non-U.S. employees within BAC are covered under defined contribution pension
plans that are separately administered in accordance with local laws.

Aggregate contributions for all defined contribution plans were $169 million,
$175 million, and $93 million in 1997, 1996, and 1995, respectively. The
increase of $82 million in 1996 was primarily attributable to the aforementioned
amendment regarding pay-based credits. Certain employer and employee
contributions to the plans are used to purchase BAC's common stock at prices
that approximate market values. Contributions, including dividends, to the plans
were used to purchase 529,302 shares for $34 million in 1997, 761,094 shares for
$30 million in 1996, and 591,890 shares for $16 million in 1995. Sales by the
plans of BAC's common stock were 467,329 shares for $32 million in 1997, 581,146
shares for $26 million in 1996, and 1,687,176 shares for $45 million in 1995.
The plans held 30,268,651 shares, 31,336,418 shares, and 31,988,306 shares
of BAC's common stock at December 31, 1997, 1996, and 1995, respectively.

76
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

Employee Stock Plans

BAC offers shares of its common stock under three compensation plans: 1992
Management Stock Plan (the management stock plan), Performance Equity Program
(PEP), and Take Ownership!(TM) The BankAmerica Global Stock Option Program (Take
Ownership!).

BAC offers shares of its common stock to certain key employees through options
or restricted stock under the management stock plan. BAC was authorized to grant
up to 10,658,006 and 11,023,416 shares of common stock in 1997 and 1996,
respectively, under the management stock plan.

Shares are offered by the management stock plan under three types of options:
nonqualified stock options, performance stock options, and incentive stock
options. The shares under option generally vest ratably over three years. In
addition, the shares under option generally become exercisable not earlier than
six months and not later than ten years after the date the options are granted.

Options awarded before August 5, 1991 to principal officers of BAC are subject
to certain restrictions and also constitute stock appreciation rights (SARs)
equal to the number of shares covered by the options. These SARs are exercisable
for the difference between the option price and the current market price of the
stock at the time of exercise. The difference can be received in cash or in
shares. SARs, which are included in options for purposes of this disclosure, are
exercisable under the same terms as the related stock options.

Under the management stock plan, BAC also awards restricted stock to certain key
employees. Generally, the stock is not released until the employee has completed
a continuous service requirement specified in the award agreement. During 1997,
BAC awarded 1,058,456 restricted shares with a weighted-average fair value at
the date of grant of $73.34 per share. BAC awarded 1,137,252 restricted shares
during 1996 which had a weighted-average fair value at the date of grant of
$41.46 per share. In addition, in 1994 and 1995, shares of restricted stock were
awarded under a three-year performance share program. There were no restricted
shares awarded in 1996 and 1997 under the performance share program. Generally,
these shares vested in three installments as the price of BAC common stock
attained the specified targets. In 1996, the final installment of 302,000 of
these shares vested. Shares of restricted stock outstanding under the management
stock plan were 3,608,440 and 4,165,504 at December 31, 1997 and 1996,
respectively.

Effective May 22, 1997, BAC adopted PEP under which BAC offers shares of its
common stock to certain key employees. Two types of awards can be made under
PEP: market price options and premium price options. Under PEP, BAC is
authorized to grant up to 11,400,000 shares of common stock. The market price
options become exercisable ratably over three years and generally have a maximum
term of ten years after the date the options are granted. The premium price
options generally are exercisable not earlier than three years and not later
than ten years after the date the options are granted. Furthermore, the premium
price options only become exercisable when BAC's common stock price increases
significantly to specified threshold levels within given time frames. Limited
SARs may be awarded in conjunction with premium price options and become
exercisable upon a change in control.

Effective October 1, 1996, BAC adopted Take Ownership! which covers
substantially all of its employees. Under Take Ownership!, BAC is authorized to
grant options, or SARs in certain foreign locations, to its employees for up to
70,200,000 shares of common stock. SARs are generally exercisable under the same
terms as options. The shares granted under Take Ownership! vest ratably over
three years and have a maximum term of five years after the date of grant. As of
December 31, 1997, 28,013,806 options were outstanding under this program.

Both stock options and restricted stock are granted by the Executive Personnel
and Compensation Committee of the Board of Directors. Shares available for grant
under the management stock plan, through either stock options or restricted
stock, were 7,139,419 and 4,263,778 at December 31, 1997 and 1996, respectively.
Under PEP, 523,750 shares were available for grant at December 31, 1997. In
addition, shares available for grant under Take Ownership! were 41,393,705 and
60,015,960 at December 31, 1997 and 1996, respectively. Shares subject to
options that are canceled, except for those converted in connection with the
Security Pacific Corporation and Continental Bank Corporation mergers, become
available for future grants.

The following is a summary of options outstanding and exercisable at 
December 31, 1997:

<TABLE> 
<CAPTION> 

--------------------------------------------------------------------------------------------------------------------------
                                                   Options Outstanding/a/                      Options Exercisable/a/
                                   ---------------------------------------------------------------------------------------
                                           Shares   Weighted-Average                             Shares
Range of                              Outstanding          Remaining   Weighted-Average     Exercisable   Weighted-Average
Exercise Prices                    at End of Year   Contractual Life     Exercise Price  at End of Year     Exercise Price
-------------------------------------------------------------------------------------------------------------------------
<S>                                <C>              <C>                <C>               <C>              <C> 
$4.35 to $35.75                        19,482,673              5.69           $22.92        16,107,745           $22.15
$41.34 to $72.00                       29,589,079              6.07            52.71         4,712,010            44.70
$73.53 to $108.00                      24,171,420              7.46            81.43                --               --
-------------------------------------------------------------------------------------------------------------------------
      Total                            73,243,172              6.43           $54.26        20,819,755           $27.26

-------------------------------------------------------------------------------------------------------------------------
</TABLE> 

/a/ Includes outstanding and exercisable options under former plans. 
    No additional options can be granted under these former plans.

                                                                              77
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


The following is a summary of changes in the options for all of the employee
stock plans:

<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                        Year Ended December 31/a/
                                      1997                    1996/b/
                       ---------------------------------------------------------
                                      Weighted-Avg.                Weighted-Avg.
                           Shares    Exercise Price      Shares   Exercise Price
--------------------------------------------------------------------------------
<S>                    <C>           <C>              <C>         <C>    
Balance,
 beginning
 of year                45,180,386/b/    $31.44/b/     36,251,348      $21.44
Granted                 40,896,039        73.05        18,740,750       44.89
Exercised               (8,499,494)       24.09        (8,734,398)      18.54
Forfeited               (4,331,690)       52.71        (1,077,314)      33.72
Expired                     (2,069)       20.15                --          --
--------------------------------------------------------------------------------
 Balance, 
  End of 
   Year                 73,243,172       $54.26        45,180,386      $31.44
Exercisable
 at end of
 year                   20,819,755       $27.26        18,211,016      $20.53

------------------------------------------------------------------------------
</TABLE> 

/a/ Includes outstanding and exercisable options under former plans. No
    additional options can be granted under these former plans.

/b/ Restated to reflect a two-for-one stock split effective June 2, 1997.

Compensation expense related to employee stock plans calculated using the
intrinsic value method was $63 million and $50 million in 1997 and 1996,
respectively. The table below reflects BAC's pro forma net income, earnings per
common share, and diluted earnings per common share as if compensation expense
for BAC's stock plans had been determined based on the fair value at the grant
dates for awards under those plans. Since pro forma compensation expense relates
to all periods over which the awards vest, the initial impact of pro forma
compensation expense on pro forma net income may not be representative of
compensation expense in subsequent years, when the effect of the amortization of
multiple awards would be reflected.
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                PRO FORMA RESULTS
--------------------------------------------------------------------------------
                                                     Year Ended December 31
(in millions, except per share data)               1997       1996       1995
--------------------------------------------------------------------------------
<S>                                             <C>        <C>        <C> 
Net income                                       $3,106     $2,844     $2,655
Earnings per common share/b/                       4.30       3.68/a/    3.27/a/
Diluted earnings per common share/b/               4.21       3.62/a/    3.24/a/

--------------------------------------------------------------------------------
</TABLE> 

/a/ Restated to reflect a two-for-one stock split effective June 2, 1997.

/b/ Reflects the adoption of SFAS No. 128 including the restatement of prior 
    year.

Fair values of the options were estimated at the date of grant using a
variation of the Black-Scholes option pricing model, which includes the
following assumptions used for the stock options awarded during 1997 and 1996,
respectively: risk-free weighted average interest rate of 6.23 percent and 5.95
percent; weighted average dividend yield of 2.96 percent and 3.23 percent;
weighted average expected volatility of 24.5 percent and 20.80 percent; expected
option life for the management stock plan of 4.3 and 4.5 years; expected option
life for PEP of 6.9 years and expected life for Take Ownership! of 2.6 and 2.6
years.

Except for the premium price options awarded under PEP, the weighted-average
grant date fair values of the options granted during 1997 and 1996 were $12.09
and $7.53 per share, respectively. The weighted-average grant date fair values
of the premium price options granted under PEP during 1997 was $8.01 per share.
Generally, the exercise price of each option equals the market price of BAC's
common stock on the date of grant with the exception of premium price options
which have exercise prices significantly above the market price of BAC's common
stock on the date of grant. Expiration dates ranged from January 20, 1998 to
December 4, 2007 for options outstanding at December 31, 1997. 

Postretirement Health Care and Life Insurance Benefits

BAC provides certain defined health care and life insurance benefits under plans
for retired U.S. employees. Retiree health care benefits are offered under
self-insured arrangements, as well as through various health maintenance
organizations. The contributions of BAC are expressed as a fixed dollar amount.
The cost of monthly coverage each year for retirees is equal to the difference
between the projected total cost of coverage for the year and the fixed dollar
amount. BAC's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management. Employer contributions are invested
in diversified portfolios, including fixed income and equity investments.

The assumed discount rates used to measure the accumulated postretirement
benefit obligation were 6.50 percent and 7.25 percent at December 31, 1997 and
1996, respectively. The expected long-term rates of return on plan assets used
in computing the net periodic postretirement cost were 8.50 percent, 8.00
percent, and 9.75 percent, for the years ended December 31, 1997, 1996, and
1995, respectively.

The following is a reconciliation between the funded status of all
postretirement benefit plans other than pensions and the amounts included in
BAC's consolidated balance sheet:
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                           December 31
  (in millions)                                        1997          1996
--------------------------------------------------------------------------------
<S>                                                   <C>           <C> 
Accumulated postretirement benefit obligation:
 Retirees                                              $510          $467
 Fully eligible active plan participants                 18            19
 Other active plan participants                         104            89
--------------------------------------------------------------------------------
   Total accumulated postretirement
    benefit obligation                                  632           575
                                                             
Less: Plan assets at fair value, primarily                   
      listed stocks and bonds                           136           116
--------------------------------------------------------------------------------

   Accumulated postretirement benefit                        
    obligation in excess of plan assets                 496           459
                                                             
Less: Unrecognized net transition obligation            398           424
     Unrecognized net gain                              (36)          (61)
     Unrecognized prior service benefit                  (3)          (23)
--------------------------------------------------------------------------------
       Accrued Postretirement Benefit Cost             $137          $119

--------------------------------------------------------------------------------
</TABLE> 
78

<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

The unrecognized net transition obligation is being amortized on a straight-line
basis over twenty years. The following is a summary of the components of net
periodic postretirement cost:
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                    Year Ended December 31
(in millions)                                  1997           1996        1995
--------------------------------------------------------------------------------
<S>                                       <C>            <C>         <C>  
Service cost - benefits earned
 during the year                            $   5          $   6       $   6
Interest cost on accumulated                                      
 postretirement benefit obligation             40             40          49
Net amortization and deferral                  33             28          37
Effect of actual return on plan assets        (20)           (12)        (17)
--------------------------------------------------------------------------------
 Net Periodic Postretirement Cost            $ 58           $ 62        $ 75
</TABLE> 
--------------------------------------------------------------------------------

24   Earnings per Common Share

Effective December 15, 1997, BAC adopted SFAS No. 128, "Earnings per Share." For
information regarding the adoption of SFAS No. 128, refer to Note 1 of the Notes
to Consolidated Financial Statements on pages 60-65.

Under the new requirements, BAC's computation of earnings per common and common
equivalent share is replaced by earnings per common share, which excludes any
dilutive effect of stock options and warrants outstanding during the period.
Earnings per common share is computed by dividing net income applicable to
common stock by the average number of common shares outstanding during the
period.

Also, under SFAS No. 128, BAC's computation of earnings per common and common
equivalent share, assuming full dilution, is replaced with diluted earnings per
common share. Diluted earnings per common share is computed by dividing net
income applicable to common stock by the average number of common shares
outstanding during the period including the dilutive effect of stock options and
warrants outstanding during the period. The dilutive effect of stock options and
warrants outstanding during the period is computed using the average market
price of BAC's common stock for the period.

Earnings per common share have been computed based on the following:

<TABLE> 
<CAPTION> 
-----------------------------------------------------------------------------------------------------------------------------------
                                                                           Year Ended December 31

                                                        1997                         1996/a/                       1995/a/
                                              -------------------------------------------------------------------------------------
                                                                  Diluted                      Diluted                      Diluted
(dollar amounts in millions,                  Earnings Per   Earnings Per  Earnings Per   Earnings Per   Earnings Per  Earnings Per
except per share data)                        Common Share   Common Share  Common Share   Common Share   Common Share  Common Share
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>            <C>           <C>            <C>            <C>           <C>     
Net income                                          $3,210         $3,210        $2,873         $2,873         $2,664        $2,664
Less: Preferred stock dividends                        100            100           185            185            227           227
-----------------------------------------------------------------------------------------------------------------------------------
 Net income applicable to common stock               3,110          3,110         2,688          2,688          2,437         2,437
Average number of common shares outstanding    699,189,176    699,189,176   722,373,206    722,373,206    741,963,186   741,963,186
Effect of dilutive options and warrants                 --     20,587,405            --     13,681,838             --     9,148,652
-----------------------------------------------------------------------------------------------------------------------------------
 Average number of common shares outstanding
  used to calculate earnings per common share  699,189,176    719,776,581   722,373,206    736,055,044    741,963,186   751,111,838
    Earnings Per Common Share                       $ 4.45         $ 4.32        $ 3.72         $ 3.65         $ 3.28        $ 3.24

-----------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Restated to reflect a two-for-one stock split effective June 2, 1997.

                                                                              79
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


25     Off-Balance-Sheet Transactions

In the ordinary course of business, BAC enters into various types of
transactions that involve credit-related financial instruments and derivative
financial instruments that are not required to be recorded on the balance sheet.
Credit-related financial instruments are typically customer-driven, while
derivative financial instruments are entered into both with customers and for
BAC's own account in managing interest rate and foreign exchange risks.

In its effort to manage credit risk associated with derivative financial
instruments, BAC ensures that its off-balance-sheet portfolio is well
diversified, both in terms of instrument type and industry and customer
concentration. In addition, credit risk is managed through BAC's credit approval
process. It is also BAC's policy to execute legally enforceable master netting
agreements with its derivative financial instrument customers, which provide for
the netting of BAC's current positive and negative closeout exposures associated
with all individual transactions of those counterparties in the event of
default. To further mitigate off-balance-sheet credit exposures, BAC obtains
collateral where determined appropriate. 

Credit-Related Financial Instruments

Credit-related financial instruments include commitments to extend credit,
standby letters of credit, and commercial letters of credit. Fees received from
credit-related financial instruments are recognized over the terms of the
contracts and are included in other fees and commissions in noninterest income.

Unfunded credit commitments at December 31, 1997 and 1996 totaled $171,924
million and $158,287 million, respectively, of which $16,806 million and $10,255
million related to foreign-based customers and $155,118 million and $148,032
million related to domestic-based customers. At both December 31, 1997 and 1996,
no domestic or foreign industry nor any individual foreign country comprised
more than 10 percent of total unfunded noncredit-card-related commitments. For a
summary of funded loan outstandings by type at December 31, 1997 and 1996, refer
to Note 9 of the Notes to Consolidated Financial Statements on page 68.

A summary of the contractual amounts of each significant class of
off-balance-sheet credit-related financial instruments outstanding appears in
the table below. The contractual amounts of these instruments are not recorded
as assets or liabilities on the balance sheet. These amounts represent the
amounts at risk should the contract be fully drawn upon, the client default, and
the value of any existing collateral become worthless. 
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                             December 31
(in millions)                                             1997          1996
--------------------------------------------------------------------------------
<S>                                                      <C>           <C> 
Commitments to extend credit:                       
 Unutilized credit card lines                        $  35,920      $  36,897
 Other commitments to extend credit                    114,771        100,234
Standby letters of credit (net of participations    
 sold: 1997 -- $3,300; 1996 -- $2,999)                  18,888         17,092
Commercial letters of credit                             2,345          4,064

--------------------------------------------------------------------------------
</TABLE> 
COMMITMENTS TO EXTEND CREDIT

Unutilized credit card lines are commitments to extend credit. These lines
generally are not secured and may be canceled by BAC after thirty-days written
notice to the customer. Many credit card customers are not expected to fully
draw down their total lines of credit and, therefore, the total contractual
amount of these lines does not necessarily represent future cash requirements.

Other commitments to extend credit represent agreements to extend credit to
customers for which BAC may have received fees. These commitments have specified
interest rates and generally have fixed expiration dates and may be terminated
by BAC if certain conditions of the contract are violated. Although they are
currently subject to drawdown, many of these commitments are expected to expire
or terminate without being funded. Of total other commitments to extend credit
at December 31, 1997, $53,591 million will expire in less than one year, $56,208
million from one to five years, and $4,972 million after five years. Generally,
other commitments are not secured, but, when required, collateral may include
cash, securities, and real estate.

STANDBY LETTERS OF CREDIT

A standby letter of credit (SBLC) represents an irrevocable obligation to pay a
third-party beneficiary in the event a customer fails to meet a financial or
performance obligation. BAC's determination of whether an SBLC is a financial or
performance obligation is based upon the contractual obligation which triggers
payment. When the contractual obligation is financial, such as securing bonds or
debt, the SBLC is classified as financial. When the contractual obligation is
performance-related, such as shipping a product or providing a service, then the
SBLC is classified as performance. Credit risk arises in these transactions from
the possibility that, if the SBLC has been drawn upon due to default of payment
or nonperformance, a customer may not be able to repay BAC. Historically, losses
associated with counterparty nonperformance on these instruments have been
immaterial.

80
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


At December 31, 1997 and 1996, financial SBLCs totaled $14,530 million and
$12,720 million, respectively. Of the year-end 1997 balance, $9,156 million will
expire in less than one year, $4,797 million will expire in one to five years,
and $577 million will expire after five years.

At December 31, 1997 and 1996, performance SBLCs totaled $4,358 million and
$4,372 million, respectively. Of the year-end 1997 balance, $2,579 million will
expire in less than one year, $1,769 million will expire in one to five years,
and $10 million will expire after five years.

Fees received for SBLCs are recognized over the lives of the contracts and are
included in other fees and commissions in noninterest income. Generally, SBLCs
are not secured, but, when required, collateral may include cash and securities.

COMMERCIAL LETTERS OF CREDIT

Commercial letters of credit ensure payment by a bank to a third party for a
customer's foreign or domestic trade transactions. BAC's credit risk in these
transactions is limited by the face amount of the letter of credit, along with
the related collateral and the general duration of the contract.

Derivative Financial Instruments

Derivative financial instruments include swaps, futures, forwards, and option
contracts, all of which derive their value from underlying interest rates,
foreign exchange rates, commodity values or equity instruments. For most
contracts, notional amounts are used solely to determine cash flows to be
exchanged. However, certain foreign exchange contracts are designed for
principal amounts to be exchanged on a common settlement date. The notional or
contract amounts associated with foreign exchange and derivative financial
instruments are not recorded as assets or liabilities on the balance sheet and
do not represent the potential for gain or loss associated with such
transactions.

A more detailed discussion regarding the accounting treatment for trading and
hedging derivative financial instruments and related unrealized gains and losses
may be found in Footnote 1 of the Notes to Consolidated Financial Statements on
pages 60 -- 65.

The table on the next page summarizes the notional and credit risk amounts for
each significant class of derivative financial instrument outstanding in BAC's
trading and asset and liability management portfolios.

Credit risk represents unrealized gains on derivative financial instruments. It
is the amount of loss that BAC would suffer if all counterparties failed to
perform according to the terms of the contract and the value of any existing
collateral became worthless, based on then-current currency exchange and
interest rates at each respective period after the effects of master netting
agreements. In the aggregate for all contracts, credit risk totaled $10.9
billion at December 31, 1997.

The table on page 83 summarizes the average and year-end fair values of each
significant class of derivative financial instrument outstanding in BAC's
trading portfolio and the year-end fair values for each significant class of
derivative financial instrument outstanding in BAC's asset and liability
management portfolio. Fair value amounts consist of unrealized
gains and losses, accrued interest receivable and payable, and premiums paid or
received, and take into account master netting agreements.

The fair value amounts for the trading portfolio are disaggregated by gross
unrealized gains (assets) and gross unrealized losses (liabilities), while the
fair value amounts for the asset and liability management portfolio are shown on
a net basis. Fair value amounts were generally calculated using discounted cash
flow models based on current market yields for similar instruments and the
maturity of each instrument.

                                                                              81
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 

--------------------------------------------------------------------------------
      NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL INSTRUMENTS
                       HELD OR ISSUED FOR TRADING PURPOSES
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                     December 31, 1997      December 31, 1996
                                              --------------------------------------------------
                                                Notional      Credit     Notional     Credit
(in millions)                                     Amount        Risk/a/    Amount       Risk/a/
------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>         <C> 
INTEREST RATE CONTRACTS
Interest rate swaps                           $  463,295    $  1,828/b/  $442,160    $ 2,968/b/
Futures and forward rate contracts:
  Commitments to purchase                        112,562          69      138,381         34
  Commitments to sell                            145,158          50      182,065        280
Written options                                   27,191          --/c/    32,679         --/c/
Purchased options                                 36,522         395       40,805        373
------------------------------------------------------------------------------------------------
  Total interest rate contracts                  784,728       2,342      836,090      3,655

FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts             575,761       6,530      612,767      2,670
Written options                                   31,748          --/c/    24,840         --/c/
Purchased options                                 30,330         520       23,272        319
Currency swaps                                    29,063       1,450       27,589        951
------------------------------------------------------------------------------------------------
  Total foreign exchange contracts               666,902       8,500      688,468      3,940
Stock Index Options and Commodity Contracts        4,349          87        1,561         87
------------------------------------------------------------------------------------------------
  Total                                       $1,455,979/d/ $ 10,929   $1,526,119/e/ $ 7,682

------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Credit risk represents current replacement cost after the effects of master
    netting agreements.
/b/ Includes the effects of cross product netting of certain interest rate
    derivatives and currency swaps.
/c/ Interest rate and foreign exchange options written have no credit risk.
/d/ Interest rate swaps and interest rate options in the trading portfolio
    include intercompany hedging-related contracts of $6.5 billion and $0.7
    billion, respectively. Foreign exchange contracts in the trading portfolio
    include $4.2 billion of intercompany hedging-related contracts.
/e/ Interest rate swaps and interest rate options in the trading portfolio
    include intercompany hedging-related contracts of $13.9 billion and $0.7
    billion, respectively. Foreign exchange contracts in the trading portfolio
    include $2.4 billion of intercompany hedging-related contracts.

--------------------------------------------------------------------------------
      NOTIONAL AND CREDIT RISK AMOUNTS FOR DERIVATIVE FINANCIAL INSTRUMENTS 
           HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                               December 31, 1997            December 31, 1996
                                              -------------------------------------------------
                                              Notional     Credit        Notional      Credit
(in millions)                                   Amount       Risk/a/       Amount        Risk/a/
-----------------------------------------------------------------------------------------------
<S>                                           <C>        <C>             <C>        <C> 
INTEREST RATE CONTRACTS                                            
Interest rate swaps                           $ 48,704    $   167        $ 46,445    $   128
Futures and forward rate contracts              89,650         --          58,467         --
Purchased options                               17,959         49          10,957         81
-----------------------------------------------------------------------------------------------
 Total interest rate contracts                 156,313        216         115,869        209
                                                                   
FOREIGN EXCHANGE CONTRACTS                                         
Spot, forward, and futures contracts             3,756         --           1,746         --
Currency swaps                                     771         --             673         --
----------------------------------------------------------------------------------------------- 
 Total foreign exchange contracts                4,527         --           2,419         --
  Total                                      $ 160,840/b/ $    216       $118,288/c/ $   209

-----------------------------------------------------------------------------------------------
</TABLE> 

/a/ Credit risk represents current replacement cost after the effects of master
    netting agreements.
/b/ Interest rate swaps and interest rate options in the asset and liability
    management portfolio include intercompany hedging-related contracts of $6.5
    billion and $0.7 billion, respectively. Foreign exchange contracts in the
    asset and liability management portfolio include $4.2 billion of
    intercompany hedging-related contracts.
/c/ Interest rate swaps and interest rate options in the asset and liability
    management portfolio include intercompany hedging-related contracts of $13.9
    billion and $0.7 billion, respectively. Foreign exchange contracts in the
    asset and liability management portfolio include $2.4 billion of
    intercompany hedging-related contracts.

82
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 
<TABLE> 
<CAPTION> 
-------------------------------------------------------------------------------------------------------------------------------
                        FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES
--------------------------------------------------------------------------------------------------------------------------------
                                                         December 31, 1997                          December 31, 1996
--------------------------------------------------------------------------------------------------------------------------------
                                           Average Fair Value            Year-End      Average Fair Value            Year-End
(in millions)                              For the Year Ended/a,b/     Fair Value/b/   For the Year Ended/a,b/     Fair Value/b/
--------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                         <C>             <C>                         <C> 
INTEREST RATE CONTRACTS                                                                           
Interest rate swaps:                                                                              
 Assets                                               $ 2,280             $ 1,828                 $ 2,956             $ 2,968
 Liabilities                                           (1,999)             (1,603)                 (2,661)             (2,820)
Futures and forward rate contracts:                                                                                 
 Assets                                                   150                 119                     335                 314
 Liabilities                                             (131)                (78)                   (331)               (329)
Written options                                          (283)               (302)                   (221)               (300)
Purchased options                                         303                 395                     307                 373
--------------------------------------------------------------------------------------------------------------------------------
  Total interest rate contracts                           320                 359                     385                 206
                                                                                                                    
FOREIGN EXCHANGE CONTRACTS                                                                                          
Spot, forward, and futures contracts:                                                                               
 Assets                                                 4,454               6,530                   2,358               2,670
 Liabilities                                           (4,370)             (6,521)                 (2,709)             (2,842)
Written options                                          (640)               (731)                   (333)               (369)
Purchased options                                         504                 520                     283                 319
Currency swaps:                                                                                                     
 Assets                                                 1,154               1,450                   1,137                 951
 Liabilities                                             (962)             (1,199)                 (1,308)               (937)
--------------------------------------------------------------------------------------------------------------------------------
  Total foreign exchange contracts                        140                  49                    (572)               (208)
                                                                                                                    
STOCK INDEX OPTIONS AND COMMODITY CONTRACTS                                                                         
 Assets                                                    67                  87                      58                  87
 Liabilities                                              (61)                (68)                    (25)                (36)
--------------------------------------------------------------------------------------------------------------------------------
  Total stock index options and commodity contracts         6                  19                      33                  51
   Total                                              $   466             $   427                 $  (154)            $    49

--------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Average fair value amounts are calculated based on monthly balances. 
/b/ For a description of fair value methodologies, refer to Note 26 of the Notes
    to Consolidated Financial Statements on pages 86 -- 88.

--------------------------------------------------------------------------------
             FAIR VALUES OF DERIVATIVE FINANCIAL INSTRUMENTS HELD
             OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                               December 31
(in millions)                                           1997/a,b/    1996/a,b/
--------------------------------------------------------------------------------
<S>                                                    <C>          <C> 
INTEREST RATE CONTRACTS
Interest rate swaps                                    $(325)       $(369)
Futures and forward rate contracts                       (16)         (26)
Purchased options                                         42           (4)
--------------------------------------------------------------------------------
 Total interest rate contracts                          (299)        (399)

FOREIGN EXCHANGE CONTRACTS
Spot, forward, and futures contracts                      --           --
Currency swaps                                          (133)         (63)
--------------------------------------------------------------------------------
 Total foreign exchange contracts                       (133)         (63)
  Total                                                $(432)       $(462)

--------------------------------------------------------------------------------
</TABLE> 
/a/ For a description of fair value methodologies, refer to Note 26 of the Notes
    to Consolidated Financial Statements on pages 86 -- 88.
/b/ Bracketed amounts reflect net liability positions.

                                                                              83
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


INTEREST RATE AND CURRENCY SWAPS

Interest rate swaps are contractual agreements between two parties to exchange
periodic payments in the same currency, each of which is computed on a different
interest rate basis, on a specified notional amount. Most interest rate swaps
involve the net exchange of payments calculated as the difference between fixed
and floating interest rate payments. Currency swaps, in their simplest form, are
contractual agreements that involve the exchange of both periodic and final
amounts in two different currencies. Exposure to loss on both types of swap
contracts will increase or decrease over their respective lives as a function of
maturity dates, interest and foreign exchange rates, and timing of payments.

INTEREST RATE FUTURES, FORWARD, AND OPTION CONTRACTS

Interest rate futures are exchange-traded instruments and represent commitments
to purchase or sell a designated security or money market instrument at a
specified future date and price. Interest rate forward agreements are
over-the-counter contracts where two parties agree on an interest rate and tenor
that will become a reference point in determining, in concert with an agreed
notional principal amount, a net payment to be made by one party to the other,
depending on what market rate in fact prevails at a future point in time.
Interest rate options, which primarily consist of caps and floors, are interest
rate protection instruments that involve the obligation of the seller to pay the
buyer an interest rate differential in exchange for a premium paid by the buyer.
This differential represents the difference between current interest rates and
an agreed-upon rate applied to a notional amount. Exposure to loss on all
interest rate contracts will increase or decrease over their respective lives as
interest rates fluctuate. For interest rate futures and exchange-traded option
contracts, BAC's exposure to off-balance-sheet credit risk is limited, as these
transactions are executed on organized exchanges that assume the obligations of
counterparties and generally require security deposits and daily settlement of
margins. 

FOREIGN EXCHANGE CONTRACTS

Foreign exchange contracts, which include spot, forward and futures contracts,
represent agreements to exchange the currency of one country for the currency of
another country at an agreed-upon price, on an agreed-upon settlement date.
Foreign exchange option contracts are similar to interest rate option contracts,
except that they are based on currencies, rather than interest rates. Exposure
to loss on these contracts will increase or decrease over their respective lives
as currency exchange and interest rates fluctuate. For exchange-traded foreign
exchange contracts, BAC's exposure to off-balance-sheet credit risk is limited,
as these transactions are executed on organized exchanges that assume the
obligations of counterparties and generally require security deposits and daily
settlement of margins.

Trading Activities

Trading income represents the net amount earned from BAC's trading activities,
which include entering into transactions to meet customer demand and taking
positions for BAC's own account in a diverse range of financial instruments and
markets. The profitability of these trading activities depends largely on the
volume and diversity of the transactions BAC executes, the level of risk it is
willing to assume, and the volatility of price and rate movements.

Trading income, as disclosed in BAC's consolidated statement of operations, does
not include the net interest income associated with trading activities. However,
the trading-related net interest income amounts are presented in the table below
as they are considered in evaluating the overall profitability of those
activities.

To reflect the business purpose and use of the financial contracts into which
BAC enters, trading income and the related net interest revenue or expense
associated with the respective products have been allocated into three broad
functional categories: interest rate products, foreign exchange contracts, and
debt instruments trading. Trading-related income from interest rate products
primarily includes the results from transactions using interest rate and
currency swaps, interest rate futures, option contracts, and forward rate
agreements, as well as cash instruments used in the management of this function.
Trading-related income from foreign exchange contracts primarily includes the
results from transactions using foreign exchange spot, forward, futures, and
option contracts. Trading-related income from debt instruments primarily
represents the results from trading activities in various debt securities,
including U.S. government and government agency securities, foreign government
securities (including securities in emerging markets), mortgage-backed
securities, municipal bonds, and corporate debt.
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                             TRADING-RELATED INCOME
--------------------------------------------------------------------------------
                                                      Year Ended December 31
(in millions)                                         1997     1996     1995
--------------------------------------------------------------------------------
<S>                                                 <C>       <C>      <C>  
TRADING INCOME                   
Interest rate products                              $   25    $  56    $  67
Foreign exchange contracts                             444      316      303
Debt instruments                                       223      258      157
--------------------------------------------------------------------------------
                                                    $  692    $ 630    $ 527
                                 
OTHER TRADING-RELATED INCOME/a/    
Interest rate products                              $   43    $  31    $  30
Foreign exchange contracts                               7       20       28
Debt instruments                                       219      208      152
--------------------------------------------------------------------------------
                                                    $  269    $ 259    $ 210

--------------------------------------------------------------------------------
</TABLE> 
/a/ Primarily includes the net interest revenue associated with the respective
    products.

Asset and Liability Management Activities

BAC uses derivative financial instruments to manage interest rate risk related
to designated assets and liabilities, primarily fixed rate and adjustable rate
residential mortgages, long-term debt, and deposits. Foreign exchange derivative
financial instruments are used to hedge net capital exposure and foreign
currency exposures.

84
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


One strategy that BAC employs in managing interest rate risk is the use of
interest rate swaps to modify the interest rate characteristics of designated
categories of assets and liabilities. For example, BAC may enter into an
interest rate swap to alter cash flows on its long-term debt from fixed to
floating rate in an effort to reduce gap mismatches.

Another hedging strategy used by BAC is the purchase of options to protect
against significant loss due to extreme interest rate movements. For example,
BAC may purchase interest rate floors on its adjustable rate mortgage portfolio
to reduce the risk of loss from a rapid or prolonged decline in interest rates.
In addition, BAC may use interest rate swaps to hedge against market value
fluctuations of available-for-sale securities.

The above hedging strategies would be rendered ineffective if BAC disposes of
the underlying product being hedged or if certain unexpected events occur. In
addition, BAC may terminate its hedging-related contracts in reaction to certain
events or circumstances. The deferred gains or losses on terminated contracts
recorded in BAC's consolidated balance sheet at December 31, 1997 and 1996, and
the amortization of such amounts for the years 1997 and 1996 were not
significant.

The table below summarizes the expected or contractual maturities and weighted
average interest rates associated with amounts to be received or paid on BAC's
interest rate swaps used to manage asset and liability interest rate exposure at

--------------------------------------------------------------------------------
             Asset and Liability Management Interest Rate Swaps/a/
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

------------------------------------------------------------------------------------------------------------------------------------
                                                                           December 31, 1997

                                                   Greater     Greater    Greater     Greater    Greater      Greater
                                                    than         than       than        than       than         than  
(dollar amounts in billions)           0-1 year   1-2 years   2-3 years  3-4 years   4-5 years  5-10 years    10 years      Total/c/
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>         <C>        <C>         <C>        <C>           <C>           <C> 
RECEIVE FIXED/b/
Notional amount                         $  1.5      $  1.9      $  1.6     $  2.0      $  2.0      $12.8       $  2.0         $23.8
Weighted average receive rate             6.68%       6.52%       6.44%      7.07%       7.02%      6.47%        6.60%         6.59%

PAY FIXED/b/
Notional amount                         $  3.7      $  4.9      $  5.3     $  2.3      $  1.1      $ 4.4       $  1.3         $23.0
Weighted average pay rate                 6.19%       6.33%       7.03%      6.99%       7.24%      7.21%        7.20%         6.80%

FORWARD RECEIVE FIXED/d/
Notional amount                             --          --          --         --          --      $ 0.4       $  0.7         $ 1.1
Weighted average receive rate               --          --          --         --          --       7.40%        6.46%         6.80%

FORWARD PAY FIXED/d/
Notional amount                             --      $  0.2      $  0.1         --      $  0.1      $ 0.1           --         $ 0.5
Weighted average pay rate                   --        6.16%       6.28%        --        8.95%      8.13%          --          7.14%

BASIS SWAPS/e/
Notional amount                             --          --          --         --          --      $ 0.3           --         $ 0.3
------------------------------------------------------------------------------------------------------------------------------------
Total Notional Amount                                                                                                         $48.7

------------------------------------------------------------------------------------------------------------------------------------
<CAPTION> 

------------------------------------------------------------------------------------------------------------------------------------
                                                                               December 31, 1996

                                                   Greater     Greater    Greater     Greater    Greater      Greater
                                                    than         than       than        than       than         than  
(dollar amounts in billions)           0-1 year   1-2 years   2-3 years  3-4 years   4-5 years  5-10 years    10 years      Total/c/
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>         <C>        <C>         <C>        <C>           <C>           <C> 
RECEIVE FIXED/b/
Notional amount                         $  4.4      $  1.1      $  1.3     $  1.8      $  1.7      $11.6       $  3.6         $25.5
Weighted average receive rate             6.02%       6.69%       6.91%      6.35%       7.29%      6.62%        6.75%         6.58%

PAY FIXED/b/
Notional amount                         $  2.4      $  3.5      $  1.8     $  3.6      $  2.4      $ 4.4       $  0.1         $18.2
Weighted average pay rate                 5.95%       6.19%       6.65%      6.97%       7.11%      7.16%        7.30%         6.72%

FORWARD RECEIVE FIXED/d/
Notional amount                             --          --      $  0.8     $  0.1          --      $  0.4          --         $ 1.3
Weighted average receive rate               --          --        6.46%      5.62%         --        7.40%         --          6.68%

FORWARD PAY FIXED/d/
Notional amount                             --          --      $  0.1     $  0.7          --      $  0.3          --         $ 1.1
Weighted average pay rate                   --          --        6.55%      7.82%         --        8.14%         --          7.79%

BASIS SWAPS/e/
Notional amount                             --          --          --         --          --      $  0.3          --         $ 0.3
------------------------------------------------------------------------------------------------------------------------------------
Total Notional Amount                                                                                                         $46.4

------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
/a/ Includes intercompany swaps.
/b/ The variable rate side of substantially all receive fixed rate and pay fixed
    rate swaps is based on the one-, three-, or six-month LIBOR. At December 31,
    1997 and 1996, the one-, three-, and six-month LIBOR rates were 5.7188
    percent and 5.5000 percent, 5.8125 percent and 5.6016 percent, and 5.8438
    percent and 6.1250 percent, respectively.
/c/ Includes $1.4 billion and $1.0 billion of swaps with amortizing notional
    amounts at December 31, 1997 and 1996, respectively.
/d/ Accrual of interest on forward swaps starts at a predetermined future date.
    The majority of the forward swaps start accruing interest one to three years
    after each reported year end.
/e/ Basis swaps are interest rate swaps in which both amounts paid and received
    are based on floating LIBOR rates.

                                                                              85
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


December 31, 1997 and 1996. These swaps have been designated as accounting
hedges and are used to modify the interest rate characteristics of certain
designated categories of assets and liabilities.

Approximately 56 percent of BAC's hedging-related interest rate futures and
forward rate agreements outstanding at December 31, 1997 mature within one year,
while approximately 83 percent of its hedging-related option contracts mature
between five and ten years. Approximately 75 percent of BAC's hedging-related
interest rate futures and forward rate agreements outstanding at December 31,
1996 matured within one year, while approximately 80 percent of its hedging-
related option contracts mature between five and ten years.


26     Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of BAC's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates presented herein are not necessarily indicative of the amounts
BAC could have realized in a sales transaction at either December 31, 1997 or
1996. The estimated fair value amounts for 1997 and 1996 have been measured as
of their respective year ends, and have not been reevaluated or updated for
purposes of these consolidated financial statements subsequent to those
respective dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year end. This disclosure of fair value amounts
does not include lease financing, MSA, intangibles, including core deposit
intangibles and credit card intangibles, or trust preferred securities.

The following information should not be interpreted as an estimate of the fair
value of the entire corporation since a fair value calculation is only required
for a limited portion of BAC's assets. Due to the wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between BAC's disclosures and those of other companies may not be
meaningful. The following methods and assumptions were used to estimate the fair
values of BAC's financial instruments at December 31, 1997 and 1996.


Financial Instruments Valued at Carrying Value

The respective carrying values of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and due
from banks, interest-bearing deposits in banks, federal funds sold and
purchased, securities purchased and sold under resale and repurchase agreements,
trading account assets, customers' acceptance liability, accrued interest
receivable, other short-term borrowings, acceptances outstanding, accrued
interest payable, and certain other assets and liabilities that are considered
financial instruments. Carrying values were assumed to approximate fair values
for these financial instruments as they are short term in nature and their
recorded amounts approximate fair values or are receivable or payable on demand.


Available-for-Sale and Held-to-Maturity Securities

Fair value amounts of available-for-sale and held-to-maturity securities were
based on quoted market prices, if available. If quoted market prices did not
exist, fair values were estimated using book, cost, or appraised value.
Available-for-sale securities are carried at their aggregate fair value, while
held-to-maturity securities are carried at amortized cost. There were no
off-balance-sheet financial instruments that qualified as accounting hedges for
held-to-maturity securities at December 31, 1997 or 1996. For more information
on the fair value of these securities, refer to Note 7 of the Notes to
Consolidated Financial Statements on pages 66 -- 67. 


Loans

The fair values of residential first mortgages were estimated using pricing
procedures that are similar to those used when these loans are sold in the
secondary market in the normal course of business. These pricing procedures use
current market rates for loans with similar characteristics and risk factors.

For residential junior mortgages, consumer installment loans, and other consumer
loans that do not reprice frequently, the fair values were estimated using
discounted cash flow models. The discount rates were based on current market
pricing for loans with similar characteristics and risk factors. Since
substantially all credit card loans, individual lines of credit, and other
variable rate consumer loans reprice frequently, with interest rates reflecting
current market pricing, the carrying values of these loans were assumed to
approximate their fair values.

The fair values of domestic commercial loans that do not reprice or mature
within relatively short time frames were estimated using discounted cash flow
models. The discount rates were based on current market interest rates for
similar types of loans, remaining maturities and credit ratings. For domestic
commercial loans that reprice within relatively short time frames, the carrying
values were used to approximate their fair values.

Substantially all of the foreign loans reprice within relatively short time
frames. Accordingly, for the majority of foreign loans, the carrying values were
assumed to approximate their fair values.

For purposes of these fair value estimates, the fair values of nonaccrual loans
were computed by deducting an estimated market discount from their carrying
values to reflect the uncertainty of future cash flows.

86
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                      CONSOLIDATED FINANCIAL STATEMENTS 


The fair values of commitments to extend credit were not significant at either
December 31, 1997 or 1996.

The aggregate fair value of loans excludes the effect of off-balance-sheet
financial instruments that qualify as accounting hedges. The fair value of these
hedges was $(23) million and $(8) million at December 31, 1997 and 1996,
respectively. The contract amount of these instruments was $18,066 million and
$12,545 million at December 31, 1997 and 1996, respectively.


Other Financial Instruments

For non-exchange-traded equity securities, which are included in other assets,
fair values were estimated using equity, cost, or appraised value. The carrying
values of all other components of other assets that are considered financial
instruments approximated their respective fair values, as they are short term in
nature or are receivable or payable on demand.

The following is a summary of previously described on-balance-sheet asset
financial instruments whose fair values differ from their carrying values for 
either of the periods presented:

<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                    December 31
                                           1997                     1996
                                 -----------------------------------------------
                                 Carrying         Fair     Carrying         Fair
(in millions)                       Value        Value        Value        Value
--------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>          <C> 
ASSETS
Held-to-maturity
 securities                      $  3,667     $  3,744     $  4,138     $  3,920
Loans:
 Domestic consumer:
  Residential first mortgages      31,749       32,467       37,459       37,998
  Other consumer loans             38,432       38,459       40,094       40,048
 Domestic commercial               61,578       61,579       56,160       56,082
 Foreign                           27,196       27,168       25,053       25,019
--------------------------------------------------------------------------------
   Total loans                   $158,955     $159,673     $158,766     $159,147

Other financial
 instruments                        2,717        2,756        2,596        2,611

--------------------------------------------------------------------------------
</TABLE> 
Deposits

The fair values of domestic and foreign demand deposits, savings deposits, and
money market deposits without defined maturities were the amounts payable on
demand.

For domestic deposits with defined maturities, the fair values were estimated
using discounted cash flow models that apply market interest rates corresponding
to similar deposits and timing of maturities. For variable-rate deposits with
fixed repricing dates, the first repricing date was considered the maturity date
for purposes of the fair value calculation. For variable-rate deposits where BAC
has the contractual right to change rates, carrying value was assumed to
approximate fair value.

The carrying values of total foreign time deposits were assumed to approximate
their fair values since these deposits primarily had variable rates and repriced
within relatively short time frames.

The fair value of deposits excludes the fair value of off-balance-sheet
financial instruments that qualify as accounting hedges for the bank's deposits.
The fair value of these accounting hedges was $(334) million and $(478) million
at December 31, 1997 and 1996, respectively. The contract amount of these
financial instruments was $134,148 million and $93,083 million at December 31,
1997 and 1996, respectively. 


Long-term Debt

The fair values of BAC's long-term debt instruments were calculated based on
quoted market prices. For those long-term debt issues where quoted market prices
were not available, a discounted cash flow model was used. The discount rates
were based on yield curves appropriate for the remaining maturities of the
instruments.

The fair value of long-term debt excludes the fair value of off-balance-sheet
financial instruments that qualify as accounting hedges for the parent's
long-term debt. The fair value of these hedges was $(120) million and $24
million at December 31, 1997 and 1996, respectively. The contract amount of
these financial instruments was $4,132 million and $12,660 million at December
31, 1997 and 1996, respectively. 


Subordinated Capital Notes

The fair value of BAC's subordinated capital notes was calculated based on
quoted market prices.

The following is a summary of previously described on-balance-sheet liability
financial instruments whose aggregate fair values differ from their carrying
values for either of the periods presented:
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                                                    December 31
                                          1997                      1996
--------------------------------------------------------------------------------
                                 Carrying         Fair     Carrying         Fair
(in millions)                       Value        Value        Value        Value
--------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>          <C>   
LIABILITIES
Deposits                         $172,037     $171,929     $168,015     $167,971
Long-term debt                     13,569       14,002       15,430       15,754
Subordinated capital notes            353          362          355          368

--------------------------------------------------------------------------------
</TABLE> 
                                                                              87
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                       CONSOLIDATED FINANCIAL STATEMENTS


Derivative Financial Instruments

The following is a summary of the fair values of derivative financial
instruments outstanding. The fair value of exchange-traded derivative financial
instruments was based on quoted market prices or dealer quotes. Fair value of
non-exchange traded, or over-the-counter (OTC) derivative financial instruments
consisted of net unrealized gains and losses, accrued interest receivable or
payable, and premiums paid or received. These amounts were generally calculated
using discounted cash flow models based on current market yields for similar
types of instruments and the maturity of each instrument. The discount rates
were based on market interest rates and indices for similar derivative financial
instruments prevalent in the market. Refer to Note 25 of the Notes to
Consolidated Financial Statements on pages 80 -- 86 for more information
regarding off-balance-sheet transactions, including a summary of the fair values
for each significant class of derivative financial instrument outstanding in
BAC's trading and asset and liability management portfolios.

--------------------------------------------------------------------------------
                            Fair Values of Derivative
                              Financial Instruments
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
                                                December 31
(in millions)                               1997           1996
--------------------------------------------------------------------------------
<S>                                        <C>           <C> 
Trading                                    $ 427         $   49
Asset and Liability Management              (432)          (462)

--------------------------------------------------------------------------------
</TABLE> 
27     Restructuring Charge

BAC recorded a pre-tax restructuring charge of $280 million in the fourth
quarter of 1996 as a result of decisions to implement a number of restructurings
of its business activities. The charge covered approximately $196 million for
severance payments, $72 million for premises expense, primarily reflecting the
planned closure of 120 branches, and $12 million for other costs affected by the
actions. The severance payments will reflect an estimated reduction of 3,700
positions due to the restructuring of BAC's business activities. Management
expects that the projects relating to these restructurings will be completed by
the end of 1998.

During 1997, 1,836 positions were reduced, reflecting a remaining balance of
1,864 positions at December 31, 1997. Due to BAC's reorganization into Global
Retail and Wholesale Banks during 1997, BAC determined that $27 million of the
restructuring reserve primarily related to severance costs would not be
utilized.

The following is a summary of changes in the restructuring charge:
<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
(in millions)                       Severance    Premises    Other/a/   Total
--------------------------------------------------------------------------------
<S>                                 <C>          <C>         <C>        <C>  
Balance at December 31, 1996             $196         $72      $12       $280
Payments                                 (106)        (30)      (5)      (141)
Unutilized restructuring accrual          (17)         (8)      (2)       (27)
--------------------------------------------------------------------------------
   Balance at December 31, 1997          $ 73         $34      $ 5       $112

--------------------------------------------------------------------------------
</TABLE> 
/a/ Includes equipment write-offs and other miscellaneous costs.

28       Special Deposit Assessment

On September 30, 1996, Congress passed legislation to recapitalize the Savings
Association Insurance Fund (SAIF) to 1.25 percent of insured deposits as
prescribed by the Federal Deposit Insurance Corporation Improvement Act. This
legislation imposed a one-time assessment on SAIF deposits held on March 31,
1995, lowered the rates on assessments paid to the SAIF, and widened the spread
of the rates between institutions. BAC recognized a charge of $82 million for
the year ended December 31, 1996 as a result of this assessment.

In addition, beginning January 1, 1997, Bank Insurance Fund (BIF) member
institutions began sharing in the cost of funding Financing Corporation (FICO)
interest payments. The cost of funding these interest payments will be in the
form of an assessment on both BIF and SAIF insured deposits. The assessment rate
will be lower for BIF deposits than for SAIF deposits. Actual rates will
fluctuate over time depending on the amount of deposits insured by the BIF and
SAIF at the time the assessment is made.


29     Legal Contingencies

Due to the nature of its business, BAC is subject to various threatened or
filed legal actions. Although the amount of the ultimate exposure, if any,
cannot be determined at this time, BAC, based upon the advice of counsel, does
not expect the final outcome of threatened or filed suits to have a material
adverse effect on its financial position.

30     BankAmerica Corporation (Parent Company Only)

The amount of funds available to the parent from its subsidiaries is limited by
restrictions placed on them by law and various debt covenants.

Under the U.S. National Bank Act and other federal laws, the parent's national
banking subsidiaries are subject to prohibitions on the payment of dividends in
certain circumstances and to restrictions on the amount that each can pay
without the prior approval of the Office of the Comptroller of the Currency.
Without the Comptroller's approval, dividends for a given year cannot exceed
each bank's retained net income (as defined by national banking laws) for that
year and retained net income from the preceding two years. In addition,
dividends may not be paid in excess of each bank's undivided profits, subject to
other applicable provisions of law. Based upon these laws, the bank could have
declared dividends for 1997 of $3,249 million and the parent's other national
banking

88
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                       CONSOLIDATED FINANCIAL STATEMENTS

<TABLE> 
<CAPTION> 
--------------------------------------------------------------------------------
                             STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
BankAmerica Corporation
(Parent Company Only)                                 Year Ended December 31
(in millions)                                       1997       1996      1995
--------------------------------------------------------------------------------
<S>                                               <C>        <C>       <C> 
Dividends from subsidiaries:
 Banking                                          $2,398     $1,964    $2,110
 Nonbanking                                          694        460       153
Interest on subordinated notes
 purchased from banking subsidiaries                 335        310       316
Interest on advances to
 nonbanking subsidiaries                             210        239       239
Interest on deposits in banking
 subsidiaries                                        238        192       231
Interest on available-for-sale securities             53         73        80
Net gain on available-for-sale securities              7         33        10
Other income                                          24         54        36
--------------------------------------------------------------------------------
Total income                                       3,959      3,325     3,175

Interest on other short-term borrowings               75         89        76
Interest on long-term debt                           916        966     1,007
Interest on subordinated capital notes                28         33        46
Interest on junior subordinated
 deferrable interest debentures
 issued to grantor trusts                            147          7        --
Amortization of goodwill                              30         31        30
Other expense                                        119         75        95
--------------------------------------------------------------------------------
 Total expense                                     1,315      1,201     1,254
 Income before income taxes
  and equity in undistributed
  income of subsidiaries                           2,644      2,124     1,921
Benefit from income taxes                            141        105       158
Equity in undistributed income
 of subsidiaries                                     425        644       585
--------------------------------------------------------------------------------
 Net Income                                       $3,210     $2,873    $2,664

--------------------------------------------------------------------------------
</TABLE> 
See notes following the Statement of Cash Flows on page 90.

subsidiaries could have declared dividends of $450 million. At December 31,
1997, the unutilized dividends allowed under these laws for the bank and other
national banking subsidiaries were $899 million, and $450 million, respectively.

In addition, state-chartered nonmember banking subsidiaries are subject to
dividend limitations imposed by applicable federal or state law. State-chartered
nonmember banking subsidiaries could have declared dividends without state
approval of $8 million for 1997. At December 31, 1997, the unutilized dividends
allowed under these laws for the state-chartered nonmember banking subsidiaries
were $8 million.

The parent's subsidiary, Bank of America, FSB, is subject to regulatory
restrictions by the Office of Thrift Supervision on its payment of dividends.
Under these restrictions, Bank of America, FSB could have declared dividends
without regulatory approval of $267 million for 1997. At December 31, 1997, the
unutilized dividends allowed under these laws were $267 million.

The depository subsidiaries are also subject to certain restrictions of the
Federal Reserve Act on loans each subsidiary may extend to their parent
companies. Among other things, the aggregate of such loans may not exceed 10
percent of the sum of such subsidiary's capital stock and surplus. Such loans
must be secured by collateral with a value between 100 percent and 130 percent
of the loan, depending on the type of collateral. Under these restrictions, and
assuming the parent provided the collateral required, the bank, Bank of America
National Association, and other depository subsidiaries could have loaned to the
parent a maximum of $1,845 million, $157 million, and $249 million respectively,
at December 31, 1997.

The net assets of depository subsidiaries restricted from flowing to the parent
by legal limitations were $17,933 million at December 31, 1997.

--------------------------------------------------------------------------------
                                  Balance Sheet
--------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
BankAmerica Corporation
(Parent Company Only)                                         December 31
(in millions)                                             1997           1996
--------------------------------------------------------------------------------
<S>                                                   <C>             <C> 
ASSETS
Cash and short-term investments                        $ 2,510        $ 4,961
Available-for-sale securities                              636            982
Investments in subsidiaries:
 Banking                                                21,909         21,674
 Nonbanking                                              1,812          1,563
Subordinated notes purchased from
 banking subsidiaries                                    5,315          4,715
Advances to nonbanking subsidiaries                      2,764          4,110
Accrued interest receivable                                 42             64
Goodwill                                                   575            605
Other assets                                               731            720
--------------------------------------------------------------------------------
    Total Assets                                       $36,294        $39,394

LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings from subsidiaries                           $   121        $   130
Other short-term borrowings                                694          1,552 
Accrued interest payable                                   201            206
Other liabilities                                          565            665
Long-term debt                                          12,564         14,227
Subordinated capital notes                                 353            355
Junior subordinated deferrable interest
 debentures issued to grantor trusts                     1,959          1,546
--------------------------------------------------------------------------------
    Total liabilities                                   16,457         18,681
Stockholders' equity                                    19,837         20,713
--------------------------------------------------------------------------------
    Total Liabilities and Stockholders' Equity         $36,294        $39,394

--------------------------------------------------------------------------------
</TABLE> 
See notes following the Statement of Cash Flows on page 90.

                                                                              89
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                       CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                            Statement of Cash Flows
--------------------------------------------------------------------------------

<TABLE> 
<CAPTION> 

------------------------------------------------------------------------------------------------------------------------------------
BankAmerica Corporation (Parent Company Only)                                                          Year Ended December 31
(in millions)                                                                                      1997         1996         1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>          <C>          <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                                       $3,210       $2,873       $2,664
Adjustments to net income to arrive at net cash provided by operating activities:
     Benefit from deferred income taxes                                                             (47)         (41)         (43)
     Equity in undistributed income of subsidiaries                                                (458)        (697)        (613)
     Amortization of goodwill                                                                        30           31           30
     (Increase) decrease in accrued interest receivable                                              22           35          (36)
     Increase (decrease) in accrued interest payable                                                 (5)          14           (1)
     Increase (decrease) in current income taxes payable                                            265          (79)          53
     Other, net                                                                                     (22)        (198)         378
------------------------------------------------------------------------------------------------------------------------------------
     Net cash provided by operating activities                                                    2,995        1,938        2,432

CASH FLOWS FROM INVESTING ACTIVITIES
Capital contributions to subsidiaries                                                            (1,027)        (347)        (182)
Capital returns from subsidiaries                                                                 1,354          673          108
Purchase of subordinated notes from banking subsidiaries                                           (600)        (135)        (500)
Redemption of subordinated capital notes from banking subsidiaries                                   --            7          400
Activity in available-for-sale securities:
     Sales proceeds                                                                                   8           40          513
     Purchases                                                                                       --           --          (54)
     Maturities, prepayments, and calls                                                             351           60           59
Maturities and prepayments of held-to-maturity securities                                            --           --          125
Cash used for acquisitions                                                                         (255)          --           --
Collections from subsidiaries                                                                     6,047        5,412        6,807
Advances to subsidiaries                                                                         (4,701)      (5,937)      (6,597)
Other, net                                                                                          (13)          32          (55)
------------------------------------------------------------------------------------------------------------------------------------
     Net cash provided (used) by investing activities                                             1,164         (195)         624

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings from subsidiaries                                                          605          329          428
Payments on borrowings from subsidiaries                                                           (614)        (341)        (360)
Increase (decrease) in other short-term borrowings                                                 (925)         766         (267)
Proceeds from issuance of long-term debt                                                          1,395        2,994        2,265
Principal payments and retirements of long-term debt and subordinated capital notes              (3,060)      (2,714)      (2,591)
Net proceeds from issuance of junior subordinated
     deferrable interest debentures issued to grantor trusts                                        396        1,477           --
Proceeds from issuance of common stock                                                               --           83          151
Proceeds from issuance of treasury stock                                                            223           99           --
Preferred stock repurchased                                                                      (1,628)        (391)        (206)
Treasury stock purchased                                                                         (2,039)      (1,333)        (926)
Common stock dividends                                                                             (853)        (780)        (684)
Preferred stock dividends                                                                          (100)        (185)        (227)
Other, net                                                                                          (10)           3            1
------------------------------------------------------------------------------------------------------------------------------------
     Net cash provided (used) by financing activities                                            (6,610)           7       (2,416)
     Net increase (decrease) in cash and short-term investments                                  (2,451)       1,750          640
Cash and short-term investments at beginning of year                                              4,961        3,211        2,571
------------------------------------------------------------------------------------------------------------------------------------

      Cash and Short-Term Investments at End of Year                                             $2,510       $4,961       $3,211

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

</TABLE> 

General: For income and asset classification purposes, banking amounts include
the amounts for all of the parent's bank, bank holding company, and savings bank
subsidiaries. Certain amounts in prior periods have been reclassified to conform
to the presentation in the current year.

Balance Sheet: At December 31, 1997 and 1996, cash and short-term investments
included $2,487 million and $4,938 million, respectively, of interest-bearing
deposits with the bank.

Statement of Cash Flows: The statement of cash flows illustrates the change in
cash and short-term investments as disclosed in the Parent Company Only balance
sheet. Short-term investments have original maturities of three months or less
and are considered to be cash equivalents, respectively. During 1997 and 1995,
the parent received net income tax payments representing reimbursements from
subsidiaries of $359 million and $168 million, respectively. During 1996, the
parent made net income tax payments of $15 million. The parent made interest
payments on interest-bearing liabilities of $1,186 million, $1,109 million, and
$1,155 million in 1997, 1996, and 1995, respectively.

90
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                             CORPORATE INFORMATION


31     Performance by Geographic Area
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                            Year Ended December 31/a/
                                              -----------------------------------------------------------------------------------
                                                  Total Assets at                  Net Interest and  Income Before
(in millions)                                 Year    December 31  Gross Income  Noninterest Income   Income Taxes    Net Income
---------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>     <C>          <C>           <C>                 <C>              <C>   
Domestic                                      1997       $208,227       $19,160             $12,964         $5,123        $3,070
                                              1996       $203,123       $17,721             $12,104         $4,039        $2,394
                                              1995       $190,549       $16,719             $11,575         $4,058        $2,349
---------------------------------------------------------------------------------------------------------------------------------
Asia                                          1997         24,084         1,866                 825           (312)         (218)
                                              1996         21,654         1,786                 930            359           224
                                              1995         17,738         1,452                 615            142            82

Europe, Middle East, and Africa               1997         20,741         1,653                 564            192           143
                                              1996         21,574         1,810                 566            143           107
                                              1995         20,762         1,616                 507            170           109

Latin America and the Caribbean               1997          4,644           771                 392            292           194
                                              1996          2,878           617                 335            190           121
                                              1995          2,337           512                 282            173           108

Canada                                        1997          2,463           135                  52             31            21
                                              1996          1,524           137                  64             42            27
                                              1995          1,060            87                  29             24            16
---------------------------------------------------------------------------------------------------------------------------------
   Total Foreign                              1997         51,932         4,425               1,833            203           140
                                              1996         47,630         4,350               1,895            734           479
                                              1995         41,897         3,667               1,433            509           315
---------------------------------------------------------------------------------------------------------------------------------
   BankAmerica Corporation                    1997       $260,159       $23,585             $14,797         $5,326        $3,210
                                              1996       $250,753       $22,071             $13,999         $4,773        $2,873
                                              1995       $232,446       $20,386             $13,008         $4,567        $2,664

---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/a/ For comparability purposes, 1996 and 1995 amounts reflect BAC's allocation
    methodologies at December 31, 1997.

    Since BAC's operations are highly integrated, certain asset, liability,
    income, and expense amounts must be allocated to arrive at total assets,
    gross income, net interest and noninterest income, income before income
    taxes, and net income. The underlying assumptions and principle allocations
    used in the presentation above are as follows: 

    BAC identifies its geographic performance based upon the business unit in
    which the assets are recorded and where the income is earned and the
    expenses are incurred. In certain circumstances, units may transact business
    with customers who are out of their immediate geographic area. For example,
    a U.S. domiciled unit may have made a loan to a borrower who resides in
    Latin America. In this instance, the loan and related income would be
    included in domestic activities.

    BAC's funds transfer pricing system allocates domestic sources of funds at
    U.S. market rates based on the maturities of the funds. To the extent that
    overseas units interact with U.S. operations, they are also included in the
    funds transfer pricing system.

    The allowance for credit losses is established by credit officers for each
    portfolio segment. After the allowance has been established for portfolio
    segments, credit management establishes an unallocated portion of the
    allowance for credit losses, which is attributable to factors that cannot be
    associated with a particular portfolio segment and is therefore
    proportionally allocated to all portfolio segments. While management
    allocates reserves to various portfolio segments, the allowance is general
    in nature and is available for the entire portfolio.

    Equity is assigned on a risk-adjusted basis taking into account goodwill and
    tax-effected identifiable intangibles. Overhead is allocated based on each
    geographic area's proportionally weighted income and expenses.

    Each geographic area includes its respective tax liability. BAC allocates
    federal and state taxes at its effective tax rates.

    Translation losses, for those units in hyperinflationary economies, net of
    hedging, totaled $27 million, $23 million, and $14 million in 1997, 1996,
    and 1995, respectively. These amounts, which are reported in other
    noninterest income, are included in the table above.

                                                                              91
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                             CORPORATE INFORMATION


32     Quarterly Results (unaudited)



<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
                                                     1997 Quarter Ended                          1996 Quarter Ended
(in millions, except per share data)        Dec 31   Sept 30    June 30  Mar 31/a/    Dec 31/a/ Sept 30/a/ June 30/a/ Mar 31/a/
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>      <C>        <C>      <C>          <C>       <C>        <C>        <C>   
RESULTS OF OPERATIONS                     
Interest income                             $4,407    $4,451     $4,359    $4,240       $4,238    $4,206    $4,126    $4,089
Interest expense                             2,300     2,257      2,165     2,066        2,108     2,054     1,967     1,943
----------------------------------------------------------------------------------------------------------------------------------
  Net interest income                        2,107     2,194      2,194     2,174        2,130     2,152     2,159     2,146
Provision for credit losses                    220       260        250       220          220       235       250       180
Noninterest income                           1,631     1,670      1,442     1,385        1,499     1,319     1,320     1,274
Noninterest expense                          2,209     2,232      2,047     2,033        2,250     2,081     1,997     2,013
----------------------------------------------------------------------------------------------------------------------------------
  Income before income taxes                 1,309     1,372      1,339     1,306        1,159     1,155     1,232     1,227
Provision for income taxes                     497       553        540       526          412       472       509       507
----------------------------------------------------------------------------------------------------------------------------------
    Net Income                             $   812   $   819    $   799   $   780      $   747   $   683   $   723   $   720
Earnings per common share/b/               $  1.15   $  1.14    $  1.10   $  1.05      $  0.98   $  0.89   $  0.94   $  0.91
Diluted earnings per common share/b/          1.12      1.11       1.07      1.03         0.96      0.87      0.92      0.90
                                          
STOCK DATA                                
Dividends per common share                   0.305     0.305      0.305     0.305         0.27      0.27      0.27      0.27
Common stock price range:/a/              
  High                                          81 15/16  77 7/8     69        61 7/8       51 15/16  42 5/8    40 3/16   39 9/16
  Low                                           66 1/4    64 9/16    49 9/16   47 11/16     41 1/16   36        34 7/8    29 3/8
Closing common stock price/c/                   73        73 5/16    64 9/16   50 7/16      49 7/8    41 1/16   37 7/8    38 3/4

----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

/a/ Share and per share amounts and stock prices have been restated to reflect a
    two-for-one stock split effective June 2, 1997.
/b/ Reflects the adoption of SFAS No. 128 including the restatement of prior
    years.
/c/ The principal market of BAC's common stock is the New York Stock Exchange;
    the stock is also listed on the Chicago, Pacific, and London Stock
    Exchanges. BAC delisted from the Tokyo Stock Exchange during the first
    quarter of 1996. Price information represents quotations as reported in the
    New York Stock Exchange consolidated transaction reporting system.

92
<PAGE>
 
                                     BankAmerica Corporation 1997 Annual Report 

                             CORPORATE INFORMATION


Corporate Information


Boards of Directors
BankAmerica Corporation and
Bank of America NT&SA

Members of the Boards of Directors spend a great many hours every year, both
attending Board and committee meetings and tending to BankAmerica business
between meetings. They make their diverse experience and expertise readily
available to senior management for the benefit of the corporation and its
shareholders.

As of February 2, 1998                      Committees:
--------------------------------------------------------------------------------

Joseph F. Alibrandi
Chairman of the Board,                      Executive
 President and Chief Executive Officer      Executive Personnel and
Whittaker Corporation                         Compensation
Simi Valley, California                     Nominating (Chair)
(aerospace/manufacturing
 and communications)

Peter B. Bedford
Chairman of the Board                       Executive
  and Chief Executive Officer               Nominating
Bedford Property Investors, Inc.            Public Policy (Chair)
Lafayette, California
(real estate investment trust)

Richard A. Clarke
Retired Chairman of the Board               Auditing and Examining
 and Chief Executive Officer
Pacific Gas and Electric Company
San Francisco, California
(gas and electric utility)

David A. Coulter
Chairman of the Board, President            Executive
 and Chief Executive Officer
BankAmerica Corporation
Bank of America NT&SA

Timm F. Crull
Retired Chairman                            Executive
Nestle USA, Inc.                            Executive Personnel and
Glendale, California                          Compensation (Chair)
(food and related products processing)

Kathleen Feldstein
President                                   Executive
Economics Studies, Inc.                     Executive Personnel and
Belmont, Massachusetts                        Compensation
(economics consulting)

Donald E. Guinn
Chairman Emeritus                           Auditing and
Pacific Telesis Group                         Examining (Chair)
San Francisco, California
(telecommunications)

Frank L. Hope, Jr.
Consulting Architect                        Executive Personnel and
San Diego, California                         Compensation
(architecture)                              Nominating
                                            Public Policy
Walter E. Massey
President                                   Auditing and Examining
Morehouse College
Atlanta, Georgia
(education)

John M. Richman
Of Counsel                                  Public Policy
Wachtell, Lipton, Rosen & Katz              Nominating
Chicago, Illinois                           Auditing and Examining
(law firm)

Sanford R. Robertson
Chairman, Robertson Stephens Division       Public Policy
BancAmerica Robertson Stephens
San Francisco, California
(investment banking)

Richard M. Rosenberg
Retired Chairman of the Board and           Executive (Chair)
 Chief Executive Officer
BankAmerica Corporation
Bank of America NT&SA

A. Michael Spence
Dean of the Graduate School of Business     Executive
Stanford University                         Executive Personnel and
Stanford, California                          Compensation
(education)

Solomon D. Trujillo
President and Chief Executive Officer       Auditing and Examining
U.S. West Communications Group
Denver, Colorado
(telecommunications)


Honorary Directors
BankAmerica Corporation
and Bank of America NT&SA
(nonvoting)

As of February 2, 1998
-------------------------------------------------------------------------------

A. W. Clausen
Retired Chairman and Chief Executive Officer
BankAmerica Corporation
Bank of America NT&SA

Rudolph A. Peterson
Retired President and Chief Executive Officer
BankAmerica Corporation
Bank of America NT&SA


Advisor
BankAmerica Corporation

As of February 2, 1998
------------------------------------------------------------------------------

George S. Ishiyama
Senior Advisor

                                                                              93
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                             CORPORATE INFORMATION


Principal Officers
BankAmerica Corporation

As of February 2, 1998

David A. Coulter*
Chairman of the Board, President and
   Chief Executive Officer

Kathleen J. Burke*
Vice Chairman--Human Resources

H. Eugene Lockhart*
President, Global Retail Bank

Jack L. Meyers*
Vice Chairman--Risk Management

Michael J. Murray*
President, Global Wholesale Bank

Michael E. O'Neill*
Vice Chairman and Chief Financial Officer

Martin A. Stein*
Vice Chairman--Technology, Operations
   and Payments

John J. Higgins
Executive Vice President and
   Chief Accounting Officer

Bruce W. Mitchell
Executive Vice President and
   General Auditor

Raymond R. Peters
Executive Vice President and Treasurer

James N. Roethe
Executive Vice President and
   General Counsel

Cheryl A. Sorokin
Executive Vice President and Secretary

Joseph E. Vaez
Executive Vice President and Director of
   Corporate Credit Examination Services


*Executive Officers of BankAmerica Corporation for Securities and Exchange
 Commission reporting purposes.


Senior Management Council

As of February 2, 1998

Doyle L. Arnold
Corporate Strategy and Development

Charles Bell
Human Resources

Jeanine R. Brown
Consumer Deposits

Kathleen J. Burke
Vice Chairman--Human Resources

Christopher A. Callero
Deposit, Payment and Business Banking
 Products

David A. Coulter
Chairman and Chief Executive Officer

Barbara J. Desoer
California Consumer

P. Gerald Doherty
Europe, Middle East and Africa/
 Global Capital Markets

Paul M. Dorfman
Credit Policy and Risk Management

Jeremy G. Fair
U.S.-Canada Corporate

Marion R. Foote
Relationship Marketing

Stephen B. Galasso
Credit Card

Christine N. Garvey
Commercial Real Estate Services and OREO

William M. Goodyear
Midwest Banking/Global Private Banking
 and Trust

Richard V. Harris
BankAmerica Leasing and Capital

John J. Higgins
Finance

James E. Hulihan, Jr.
Asia Retail Banking

James G. Jones
Consumer Credit and Card Services

Cheryl L. Kane
Technology Support Services

H. Eugene Lockhart
President, Global Retail Bank

Richard W. Madresh
BankAmerica Business Credit

Liam E. McGee
National Customer Support Services

Jack L. Meyers
Vice Chairman--Risk Management

Bruce W. Mitchell
Corporate Audit and Security Services

Robert P. Morrow III
Asia Wholesale Banking

Donald A. Mullane
Corporate Community Development

Kathryn L. Munro
Southwest Region

Michael J. Murray
President, Global Wholesale Bank

Michael E. O'Neill
Vice Chairman and Chief Financial Officer

Terry E. Perucca
Global Equity Investment

Raymond R. Peters
Corporate Treasury

Barbara L. Rambo
National Commercial Banking

Daniel P. Riley
Global Payment Services/
 Wholesale Operations

John V. Rindlaub
Northwest Banking/Information
 Technology Strategy

Arthur D. Ringwald
BankAmerica Mortgage

James N. Roethe
Legal--General Counsel

Federico Sacasa
Latin America

Frank A. Somers
Special Assets

Cheryl A. Sorokin
Corporate Relations/Corporate Secretary

Martin A. Stein
Vice Chairman--Technology, Operations
 and Payments

Lewis W. Teel
Trading Exposure Control and Compliance

Joseph E. Vaez
Corporate Credit Examination Services

John W. Wheeler
BankAmerica Housing Services

Mary Wikstrom
National Call Center

M. Faye Wilson
Country Risk Evaluation

94
<PAGE>
 
                                     BankAmerica Corporation 1997 Annual Report

                             CORPORATE INFORMATION


BankAmerica Corporate Governance Principles


The Board of Directors has adopted Corporate Governance Principles covering the
Role of the Board, Board Structure, Committees, Meetings, and other issues.
Below is a summary of some of the major points. Copies of the full text of the
Principles can be obtained by writing to the Corporate Secretary's Office at the
address listed on the inside back cover of this Annual Report.

Responsibility to Shareholders 

The Board believes the role of the Board of Directors is to oversee the affairs
of the corporation for the benefit of shareholders.

Strategic Issues 

The Board believes it is important to discuss long-range strategic issues as a
matter of course at regular Board meetings as well as at periodic meetings
devoted solely to strategic issues.

Operating Plan 

The Board reviews BankAmerica's yearly operating plan and specific financial
goals at the start of each year and monitors performance in comparison to plan.
The Board also believes it is important to establish and evaluate longer-term
objectives and not to over-emphasize short-term performance.

Business Ethics 

The Board believes the long-term success of BankAmerica is dependent upon
maintenance of an ethical business environment that focuses on adherence to both
the letter and the spirit of regulatory and legal mandates and expects
management to conduct operations in a manner supportive of the Board's view.

Performance of CEO 

The Board believes that CEO performance should be evaluated annually and as a
regular part of any decision with respect to CEO compensation. The Board
ratifies any compensation decisions for the CEO made by the Executive Personnel
and Compensation Committee.

Chairman of the Board 

The Chairman of the Board may be an officer/director or an outside director and
may or may not be the same individual as the CEO, at the option of the Board.
The Board believes it should be free to make these determinations depending on
what it believes is best for the corporation in light of all the circumstances.

Executive Sessions 

The Board believes that outside directors should meet in executive session from
time to time during the year and that some of the executive sessions should be
with the CEO, who is an inside director, and some should be outside the presence
of the CEO and any other inside directors or management officials.

Outside Directors 

The Board believes that a significant majority of the Board should be outside
directors: individuals who are not members of management and have not been such
within the last 10 years; have no close family relationship with a member of key
management; are not significant advisors or consultants to BankAmerica; do not
have significant personal service contracts with BankAmerica; and do not have
any other relationship with BankAmerica which, in the opinion of the Board,
would adversely affect their ability to exercise independent judgment as
directors.

Selection of Directors

The Board believes that directors should be nominated by a Nominating Committee
of the Board consisting entirely of outside directors and that an offer to join
the Board should be extended by the committee. The committee may consider the
views of the CEO in making nominations. The Board believes that directors should
not represent particular constituents, but should be diverse enough to be
clearly able to represent differing points of view. The Board does not set
specific criteria for directors, but believes that they should show evidence of
leadership in their particular field, and have broad experience and the ability
to exercise sound business judgment. In selecting directors, the Board generally
seeks a combination of active or former CEOs of major complex businesses,
leading academics and entrepreneurs, including women and ethnic minority
individuals.

Board Effectiveness

The Board believes it is appropriate to periodically review its own
effectiveness, including its corporate governance policies and practices, and
would generally expect a review annually. The Board believes that the Nominating
Committee should review incumbent directors as part of the annual nomination
process and in the context of the committee's overall review of the strengths
and weaknesses of the Board as a whole.

Director Compensation

The Board believes that director compensation should be competitive with that
paid to directors of other major financial institutions and major corporations.
The Board believes directors should have a financial stake in BankAmerica and in
1995 established a stock ownership guideline of three times the annual director
retainer fee in stock or deferred restricted stock equivalent units, to be
achieved within five years of joining the Board. The Board also mandates
deferral of at least one-half of the retainer into deferred restricted stock
equivalent units which fluctuate with the value of BankAmerica stock.

Committee Assignments

The Board believes that the Auditing and Examining Committee, the Executive
Personnel and Compensation Committee, and the Nominating Committee should be
comprised solely of outside directors.

Committee Agendas

The Board believes committee chairmen, in consultation with appropriate members
of management and committee members, should determine committee agendas.

                                                                              95
<PAGE>
 
BankAmerica Corporation 1997 Annual Report

                             CORPORATE INFORMATION


Glossary of Common Banking Terms


Adjustable Rate Mortgage (ARM)

A loan secured by real estate with periodic adjustments in the interest rate.
These mortgages often have consumer protections against rapid escalation in
borrowing costs, such as a maximum amount that the interest rate can increase in
any single year and over the life of the loan.

Asset-Liability Management

The practice of balance sheet management with the objective of promoting income
generation while containing market risk exposures.

Bank Insurance Fund (BIF)

The government guarantee program administered by the Federal Deposit Insurance
Corporation, backing deposits in commercial banks up to $100,000 per account.

Core Deposits

Customer deposits which are considered a stable and reasonably priced source of
funds for investing.

Derivative Financial Instrument

A financial instrument that derives its cash flows, and therefore its value, by
reference to an underlying instrument, index, or reference rate. For example, an
equity option is a derivative financial instrument because its value is derived
from an underlying stock, stock index, or futures contract.

Duration

Expected life of a fixed-income security, taking into account its coupon yield,
interest payments, maturity, and call features. Duration attempts to measure
actual maturity, as opposed to final maturity, by measuring the average time
required to collect all payments of principal and interest.

Economic Capital

The level of equity capital that is assigned to cover the inherent risk of each
business. Economic Capital is the amount of capital protection that is required
to protect the business against unexpected losses.

Economic Profit

The dollar amount of earnings generated by a business after subtracting the
cost of economic capital. Economic profit is a function of a group's risk
adjusted net income, assigned economic capital, and the Bank's cost of equity
capital.

Fixed Rate Mortgage (FRM)

A loan secured by real estate with an interest rate that does not vary over
the term of the loan.

Hedging

The financial technique in which transactions or contractual agreements are
undertaken to offset the risk of loss from one or more types of business risk,
such as price or rate fluctuations in the market.

Interest Rate Gap

The amount by which the carrying value of interest-rate-sensitive assets for a
designated maturity period differs from the carrying value of
interest-rate-sensitive liabilities and equity during the same period.

Liquidity

The ability of an organization to meet its maturing financial obligations as
they come due.

Manufactured Housing

A single family residence built in a factory and transported to a homesite
where the wheels and axles are removed and the home is set.

Master Netting Agreement

A written contract to settle mutual obligations with a single counterparty at
the net value of all outstanding contracts, as opposed to settling each contract
at its gross value.

Mortgage-Backed Securities

Investment grade securities backed by a pool of mortgages or trust deeds.
Principal and interest payments on the underlying mortgages are used to pay
semi-annual interest and principal on the securities.

Risk-Based Capital

A measure of a bank's financial strength developed by banking regulators,
taking into account the risks inherent in the bank's assets as well as its
off-balance-sheet exposures.

Risk Management

The procedures necessary to manage a bank's exposure to various types of risk
associated with transacting business.

Savings Association Insurance Fund (SAIF)

The government guarantee program administered by the Federal Deposit Insurance
Corporation, backing deposits in federal savings and loan associations, federal
savings banks, and certain state savings and loan associations up to $100,000
per account.

Simulation

A technique to test earnings performance under different interest rate and
pricing scenarios.

Spread

The difference between the interest rate charged by a bank on an investment
(i.e. a loan) and the bank's cost of funds.

Transfer Pricing

A method by which costs are allocated to the various profit centers within an
organization.

                                                                              96
<PAGE>
 
                                      BankAmerica Corporation 1997 Annual Report

                             CORPORATE INFORMATION


Connecting With BankAmerica

By Mail

The Annual Report of BankAmerica Corporation is designed to provide financial
facts and analysis to shareholders and professional investors while satisfying
various regulatory requirements. 

The following additional publications are available without charge by writing
to:

Bank of America,
Corporate Secretary's Office #13018,
P.O. Box 37000, San Francisco, CA 94137

* The BankAmerica Corporation 1997 Form 10-K, which includes additional
  information and financial data on the corporation

* Environmental Program Progress Report

* Information regarding community
  reinvestment and related activities

* Recording for the blind of the 1997 Annual Report

Requests for copies of the full text of the BankAmerica Corporation Board of
Directors' Corporate Governance Principles can be obtained by writing to:

  BankAmerica Corporation            
  Corporate Secretary's Office #13018
  Bank of America Center             
  555 California Street              
  San Francisco, CA 94104             

Requests for assistance with specific matters related to BankAmerica's stock
and registered securities can be addressed to the corporation's Transfer Agent
and Registrar:

  ChaseMellon Shareholder Services, L.L.C.  
  83 Challenger Road                        
  Ridgefield Park, NJ 07660                 
                                            
  or                                        
                                            
  ChaseMellon Shareholder Services, L.L.C.  
  235 Montgomery Street, 23rd Floor         
  San Francisco, CA 94104                    


By Phone

Shareholder Assistance Line 1-800-642-9880

Shareholders can call ChaseMellon Shareholder Services toll-free to receive
assistance with specific matters related to BAC stock and registered
securities, such as change of address, stock transfers and change of
ownership, non-receipt of or lost stock certificates or dividend checks, sale
or transfer of book-entry shares, dividend reinvestment plan information,
direct deposit of dividends, consolidation of accounts, and dividend income
reporting for tax purposes. Shareholders can also call (415) 622-3530 during
normal Pacific Coast business hours to receive information on corporate
activities.

Customer Service 1-800-521-BofA (521-2632),
1-800-24First (243-4778) (in Washington)

Loan-by-Phone 1-800-The BofA (843-2632)
Customers can apply for loans toll-free, 24 hours a day.

Online

Visit BankAmerica's home page on the World Wide Web to view the latest
information about the corporation and its products and services, open an
account, bank online, or apply for a loan or credit card.

(http://www.bankamerica.com)

Financial information and a link to the corporation's disclosure
documents filed with the Securities and Exchange Commission by BankAmerica are
available on the shareholder section of BankAmerica's home page.

(http://www.bankamerica.com/shareholder)

Shareholders can reach the corporation's Transfer Agent and Registrar through
(http://www.chasemellon.com)

In Person

With approximately 1,800 branches, nearly 1,000 in-store facilities, and close
to 7,700 ATMs, BankAmerica provides a level of on-site customer convenience
that is second to none. Consult the telephone directory for a location near
you.

The Annual Meeting of Shareholders will be held in Portland, Oregon at the
DoubleTree Hotel--Jantzen Beach, 909 N. Hayden Island Drive on Thursday, May 21,
1998 at 2 p.m.


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