UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 10-Q/A
-----------
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarterly Period Ended June 30, 1994
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period ___________________ to __________________
Commission File Number 1-6366
FLEET FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
RHODE ISLAND 05-0341324
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 KENNEDY PLAZA
PROVIDENCE, RHODE ISLAND 02903
(Address of principal executive office) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (401) 278-5800
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ----
The number of shares of common stock of the Registrant outstanding as of July
29, 1994 was 137,765,926.
<PAGE>
<PAGE 2>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERALL PERSPECTIVE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 Dollars in millions, June 30
1994 1993 except per share data 1994 1993
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings
$152 $119 Net income $285 $225
505 518 Net interest income (fully 1,009 1,031
taxable equivalent basis)
-------------------------------------------------------------------------
Per Common Share
$0.95 $0.72 Fully diluted earnings $1.74 $1.38
0.35 0.25 Cash dividends declared 0.65 0.475
22.82 21.50 Book value 22.82 21.50
-------------------------------------------------------------------------
Operating Ratios
1.28 % 1.05 % Return on average assets 1.21 % 1.00 %
19.24 15.51 Return on common equity 17.25 15.38
Return on realized common
18.49 15.51 equity (a) 17.31 15.38
64.03 67.28 Efficiency ratio 64.70 66.65
7.31 7.67 Equity to assets (period end) 7.31 7.67
-------------------------------------------------------------------------
At June 30
$48,158 $44,841 Total assets $48,158 $44,841
3,522 3,441 Stockholders' equity 3,522 3,441
560 852 Nonperforming assets 560 852
-------------------------------------------------------------------------
<FN>
(a) Excludes average unrealized losses of $127 million for the three
months ended June 30, 1994, and average unrealized gains of $11
million for the six months ended June 30, 1994, as a result of the
adoption of Financial Accounting Standards Board Statement No. 115
on January 1, 1994.
</TABLE>
Net income for the three months and six months ended June 30, 1994 increased
28% and 27%, respectively, from the same periods in 1993. Return on assets and
return on equity also improved significantly. The improved results reflect
successful implementation of numerous efficiency enhancement initiatives during
the second quarter, as well as a continued reduction in asset quality costs.
Return on average assets and return on realized common equity for the second
quarter of 1994 were at their highest levels since the first quarter of 1989.
Also, total loans increased more than $800 million from the first quarter of
1994, primarily due to the growth in commercial loans of nearly $500 million in
the Massachusetts, Connecticut and Rhode Island banking franchises. Additional
areas of loan growth during the second quarter of 1994 included commercial real
estate and consumer lending with increases of $131 million and $180 million,
respectively.
-2-
<PAGE>
<PAGE 3>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
NET INTEREST INCOME
<TABLE>
<CAPTION>
For the Six Months Ended June 30
1994 1993
------------------------- --------------------------
Interest Interest
Average Earned/ Average Earned/
Dollars in millions Balance Paid Rate Balance Paid Rate
- --------------------- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market instruments........ $ 13 $ - 3.57 % $ 315 $ 5 2.95 %
Securities...................... 15,260 458 6.02 12,532 454 7.32
Loans and leases................ 25,823 1,073 8.37 26,127 1,109 8.56
Other........................... 1,675 53 6.33 2,020 65 6.45
------ ------ ---- ------ ----- ----
Total interest-earning assets 42,771 1,584 7.45 % 40,994 1,633 8.03 %
------ ------ ---- ------ ----- ----
Other nonearning assets......... 4,865 - - 4,213 - -
------ ------ ---- ------ ----- ----
Total assets.................... $47,636 $ 1,584 - $45,207 $1,633 -
======= ====== ==== ====== ===== ====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits........................ $24,487 $ 327 2.69 % $25,411 $ 399 3.16 %
Borrowings...................... 11,366 248 4.41 8,929 203 4.59
------ ------ ---- ------ ----- ----
Total interest-bearing
liabilities................ 35,853 575 3.23 34,340 602 3.53
------ ------ ---- ------ ----- ----
Net interest spread............. - 1,009 4.22 - 1,031 4.50
------ ------ ---- ------ ----- ----
Demand deposits and other
noninterest-bearing time
deposits...................... 6,688 - - 6,251 - -
Other liabilities............... 1,461 - - 1,241 - -
------ ------ ---- ------ ----- ----
Total liabilities............... 44,002 575 - 41,832 602 -
------ ------ ---- ------ ----- ----
Stockholders' equity............ 3,634 - - 3,375 - -
------ ------ ---- ------ ----- ----
Total liabilities and
stockholders' equity........... $47,636 $575 - $45,207 $ 602 -
====== ====== ==== ====== ===== ====
Net interest margin............. 4.74 % 5.05 %
====== ====== ==== ====== ===== ====
</TABLE>
Net interest income on a fully taxable equivalent basis for the six months
ended June 30, 1994, decreased $22 million, compared to the same period in
1993, as illustrated in the reduction in the net interest margin.
The net interest margin for the six months ended June 30, 1994 was down 31
basis points compared to the same period in the prior year. The decrease
reflects the restructuring of the Corporation's bond portfolio at the beginning
of the second quarter of 1994 to shorten the average life of securities in
anticipation of a rising rate environment. The net interest margin was also
impacted by the Corporation's decision in 1993 to mitigate its interest rate
exposure on higher-yielding mortgage-backed securities and long-term fixed-rate
securities by selling some of these securities and replacing them with
lower-yielding and shorter maturity securities.
-3-
<PAGE>
<PAGE 4>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The net interest margin was also negatively impacted by the rising interest
rate environment. In an increasing interest rate environment, the
Corporation's net interest margin will initially be negatively impacted as the
Corporation's interest-bearing liabilities reprice more rapidly than its
interest-earning assets. This was evident during the first six months of 1994
as the Federal Reserve increased short-term borrowing rates by 125 basis
points, which prompted the Corporation to increase its prime rate by the same
amount. The net interest margin was negatively impacted by these events as the
repricing of the Corporation's prime-based interest-earning assets lagged the
repricing of its interest-bearing liabilities.
Average interest-earning assets increased $1.8 billion due to net purchases of
approximately $2.2 billion of securities, primarily U.S. Treasury securities,
in the first half of 1994. The increase in average interest earning assets was
primarily funded by increases in short-term borrowings.
NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 Dollars in millions 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating noninterest income:
$84 $92 Mortgage banking $184 $196
43 43 Service charges on deposits 87 86
43 43 Investment services revenue 87 85
18 18 Other service charges, fees and commissions 35 33
12 14 Student loan servicing fees 24 25
11 5 FDIC loan administration fees 25 12
8 8 Merchant discount fees 15 14
4 5 Brokerage fees and commissions 9 10
4 4 Insurance 8 9
23 39 Other 75 86
-------------------------------------------------------------------------------------------
250 271 Total operating noninterest income 549 556
-------------------------------------------------------------------------------------------
Trading income:
3 5 Securities 6 10
4 1 Foreign exchange/interest rate products 1 1
-------------------------------------------------------------------------------------------
7 6 Total trading income 7 11
-------------------------------------------------------------------------------------------
19 114 Securities available for sale gains 19 133
-------------------------------------------------------------------------------------------
$276 $391 Total noninterest income $575 $700
===========================================================================================
</TABLE>
-4-
<PAGE>
<PAGE 5>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Operating noninterest income (as defined in the preceding table) decreased
approximately 8% and 1%, respectively, for the three months and six months
ended June 30, 1994 in comparison to the same periods of the prior year.
Mortgage banking revenue decreased $8 million from the second quarter of 1993
to the second quarter of 1994 and $12 million from the first six months of 1993
compared to the first six months of 1994 as shown in the following table.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 Dollars in millions 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$62 $43 Net loan servicing revenue $128 $103
5 39 Mortgage production revenue 28 71
17 10 Gains on sale of mortgage servicing 28 22
------------------------------------------------------------------------------
$84 $92 Mortgage banking noninterest income $184 $196
==============================================================================
</TABLE>
The decrease in mortgage banking revenue is largely due to lower mortgage
production revenue, primarily the component relating to gains on sales of
loans, as a result of a less favorable interest rate environment. Fleet
Mortgage Group (FMG), the Corporation's mortgage banking subsidiary, recognized
$67 million in gains on sales of loans in the first half of 1993 compared to
$24 million in the first half of 1994, a 64% decline.
Net loan servicing revenue, which had been adversely affected throughout 1993
by prepayments, increased $25 million, or 24%, for the first six months of 1994
compared to the same period in 1993 and $19 million, or 44%, in the second
quarter of 1994 compared to the second quarter of 1993. These increases were
primarily due to accelerated amortization charges on capitalized excess
servicing fees during the second quarter of 1993. However, increases in
servicing revenue were also due to the growth of the loan servicing portfolio.
FMG's mortgage servicing portfolio totaled $73.4 billion at June 30, 1994,
compared to $68.2 billion a year earlier, an increase of 8%.
Other operating noninterest income decreased $16 million on a
quarter-to-quarter basis primarily due to a decline in the value of investments
at Fleet Equity Partners, coupled with a $9 million decline in consumer finance
servicing income at Fleet Finance, Inc. due to a lower amount of average loans
being serviced. These decreases were offset by a $6 million increase in FDIC
loan administration fees due to a higher volume of principal collections during
the second quarter of 1994.
-5-
<PAGE>
<PAGE 6>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The decrease in securities available for sale gains is primarily due to the
sale of approximately $2.4 billion of mortgage-backed securities during the
second quarter of 1993 in order to reduce prepayment sensitivity and shorten
the maturity of the portfolio. The $19 million of securities gains recognized
in the second quarter of 1994 resulted from the sale of U.S. Treasury
securities ($10 million) and the sale of equity securities ($9 million). The
U.S. Treasury securities were sold as part of a restructuring of the
Corporation's bond portfolio early in the quarter to shorten the average life
of securities in anticipation of a rising interest rate environment.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 Dollars in millions 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$238 $256 Employee compensation and benefits $494 $511
41 43 Occupancy 85 87
33 32 Equipment 67 64
21 119 Acquired servicing rights amortization 52 147
17 21 FDIC assessment 35 42
15 14 Core deposit and goodwill amortization 28 26
14 11 Other professional fees 27 27
14 13 Marketing 27 26
10 11 Printing and mailing 22 22
10 10 Charge card 19 19
9 10 Telephone 18 19
8 9 Office supplies 15 17
5 16 OREO expense 12 37
5 6 Legal fees 12 15
7 7 Travel and entertainment 13 14
- - Restructuring accrual 25 -
53 63 Other 99 111
------------------------------------------------------------------------------
$500 $641 Total noninterest expense $1,050 $1,184
==============================================================================
</TABLE>
Noninterest expense in the second quarter of 1994 totaled $500 million,
compared to $551 million for the second quarter of 1993, excluding the
accelerated mortgage servicing rights amortization of $90 million incurred in
the second quarter of 1993, a decrease of 9.3%. Excluding the restructuring
charge recorded in the first quarter of 1994, and the accelerated mortgage
servicing rights amortization, noninterest expense was $1,025 million and
$1,094 million for the six months ended June 30, 1994 and June 30, 1993,
respectively, which represents a 6.3% decrease on a year-to-date comparison.
These decreases are mainly attributable to the initial results from Fleet
Focus, the Corporation's efficiency improvement program, as several initiatives
were implemented during the second quarter of 1994, and a decrease in OREO
expense, as foreclosed property and repossessed equipment has decreased from
$218 million at June 30, 1993 to $115 million at June 30, 1994, a 47% decline.
-6-
<PAGE>
<PAGE 7>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Also, FDIC assessment fees have decreased due to upgrades in the Corporation's
banking subsidiaries' ratings based upon the strength of their capital
positions and other factors. In addition, the Corporation recorded a $5
million charge relating to the sale of certain short-to-intermediate-term
instruments held in three proprietary money market funds, with the proceeds
reinvested in instruments considered more appropriate for these types of funds.
EARNINGS BY SUBSIDIARY
<TABLE>
<CATION>
Three Months Ended Six Months Ended
June 30 (c) June 30 (c)
1994 1993 Dollars in thousands 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANKING
$62,726 $58,998 New York $100,751 $83,222
28,362 11,865 Rhode Island 52,788 20,550
25,908 25,201 Massachusetts 53,610 50,761
20,645 44,272 Connecticut 39,132 75,948
7,276 6,222 Maine 13,715 10,125
3,992 5,996 New Hampshire 9,702 8,255
2,696 5,622 Fleet Investment Group 8,606 11,463
---------------------------------------------------------------------------
151,605 158,176 Total 278,304 260,324
---------------------------------------------------------------------------
FINANCIAL SERVICES
9,069 (28,593) Fleet Mortgage (a) 19,523 (6,947)
5,718 4,885 Fleet Credit 9,779 7,239
(2,077) 780 Fleet Equity Partners 4,782 2,590
742 788 Fleet Brokerage 1,807 1,520
827 739 AFSA 1,695 1,548
884 1,392 Fleet Securities 1,146 2,895
0 2,572 Fleet Factors (b) 1,096 4,513
(3,052) 2,644 Fleet Finance (3,196) 2,823
---------------------------------------------------------------------------
12,111 (14,793) Total 36,632 16,181
---------------------------------------------------------------------------
(11,517) (24,713) PARENT (29,658) (51,583)
---------------------------------------------------------------------------
$152,199 $118,670 Total Net Income $285,278 $224,922
============================================================================
<FN>
(a) Net of minority interest of $2.2 million and ($6.8) million for the
1994 and 1993 quarters, respectively, and $4.7 million and ($1.7)
million year-to-date, respectively.
(b) Fleet Factors was sold in the first quarter of 1994.
(c) The internal allocation of the Corporation's restructuring charge has
not been reflected in the above table.
</TABLE>
-7-
<PAGE>
<PAGE 8>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Earnings at the Banking Group for the first half of 1993 included $78.0 million
of securities gains from the sale of approximately $2.4 billion of mortgage-
backed securities during the second quarter of 1993 in order to reduce
prepayment sensitivity and shorten the maturity of the portfolio (compared to
$5.9 million of securities gains in the first six months of 1994). Excluding
securities gains, the Banking Group's year-to-date earnings increased $90
million from $182.4 million for the first six months of 1993 to $272.4 million
in 1994. This 49% increase is primarily attributable to a decrease in credit
costs of $67.9 million as asset quality continues to improve, and a $24.3
million decrease in employee compensation and benefits as a result of the
Corporation's efficiency improvement program. The largest decreases in asset-
quality related costs occurred at Fleet-New York ($41 million), Fleet-Rhode
Island ($16 million) and Fleet-Connecticut ($8 million).
Fleet Investment Group earnings decreased $2.9 million during the second
quarter of 1994 compared to the second quarter of 1993 due to a $3 million
(after-tax) charge relating to the sale of certain short-to-intermediate-term
instruments held in three proprietary money market funds.
Fleet Mortgage, the Corporation's mortgage banking subsidiary, contributed
income of $19.5 million in the first half of 1994, compared to a loss of $6.9
million in the first half of 1993, net of minority interest in each case. The
loss in 1993 resulted from the recognition of a $49 million after-tax charge
related to the accelerated amortization of servicing rights. Earnings for the
1994 period were adversely affected by the rising interest rate environment
which has caused lower production revenue offset partially by an increase in
servicing revenue. See Noninterest Income section for more information on
mortgage banking revenue.
Fleet Credit's earnings increased by $2.5 million for the first six months of
1994 compared to the same period in the prior year, due to improved asset
quality costs as nonperforming assets decreased from $42.2 million at June 30,
1993 to $18.3 million at June 30, 1994.
Fleet Equity Partners' income increased by $2.2 million for the first half of
1994 when compared to the same period in 1993 due to both realized and
unrealized gains on investments. Fleet Equity Partners recorded a loss of $2.1
million for the second quarter of 1994 due to decreased valuations of the
entity's investments, primarily in the communications area.
Fleet Securities reported net income of $1.1 million for the first half of 1994
compared to $2.9 million for the same period in 1993. The decrease in earnings
was due to the adverse impact of the increasing interest rate environment on
the municipal securities market.
Fleet Finance lost $3.2 million in the first six months of 1994, compared to
earnings of $2.8 million in the first six months of 1993, as high asset quality
costs continue to negatively impact earnings.
-8-
<PAGE>
<PAGE 9>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LOANS AND LEASES
<TABLE>
<CAPTION>
June 30, March 31, December 31,
Dollars in millions 1994 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and industrial $11,196 $10,708 $11,299
Consumer 7,485 7,415 7,531
Commercial real estate:
Construction 492 461 477
Interim/permanent 3,857 3,757 3,917
--------------------------------------------------------------------------
Total commercial real estate 4,349 4,218 4,394
--------------------------------------------------------------------------
Residential real estate 2,246 2,136 2,052
Lease financing 1,042 1,018 1,034
--------------------------------------------------------------------------
Total loans and leases $26,318 $25,495 $26,310
==========================================================================
</TABLE>
Total loans and leases have increased $823 million since March 31, 1994,
primarily due to a $488 million increase in commercial loans due to both new
loans and seasonal advances principally at Fleet-Massachusetts, Fleet-Rhode
Island and Fleet-Connecticut. Also, consumer loans, including residential real
estate, increased $180 million as credit card receivables increased $98
million and residential real estate increased $110 million, offset by decreases
in home equity loans and student loans.
Commercial loans and commercial real estate loans have decreased $103 million
and $45 million, respectively, over the first six months of 1994 partially due
to significant paydowns, including $378 million of principal collected during
the first half of 1994 on loans subject to federal financial assistance, and
$66 million of loans put back to the FDIC under federal financial assistance
agreements. In addition, the sale of Fleet Factors in the first quarter of
1994 resulted in a $333 million decrease in commercial loans.
The federal financial assistance agreement with the FDIC relating to loans
acquired as part of the Bank of New England acquisition in 1991 expired on July
14, 1994. Subsequent to June 30, 1994, less than $25 million of commercial
and commercial real estate loans, out of a $2.0 billion portfolio,
were put back to the FDIC.
-9-
<PAGE>
<PAGE 10>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
NONPERFORMING ASSETS(a)
The balance of nonperforming assets is as follows.
<TABLE>
<CAPTION>
June 30, 1994
--------------------------------------------
Commercial Commercial
and Real Consumer/
Dollars in millions Industrial Estate Other Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonperforming loans and leases:
Current or less than 90
days past due.................. $ 70 $ 36 $ 11 $ 117
Noncurrent....................... 88 74 166 328
OREO/ISF........................... 9 61 45 115
- -----------------------------------------------------------------------------
Total nonperforming assets
at June 30, 1994................ $ 167 $ 171 $ 222 $ 560
=============================================================================
Total nonperforming assets
at December 31, 1993............. $ 231 $ 159 $ 211 $ 601
=============================================================================
<FN>
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($101 million
and $77 million at June 30, 1994 and December 31, 1993, respectively,
which include approximately $68 million and $62 million of consumer loans,
respectively), or assets subject to federal financial assistance ($90
million and $118 million at June 30, 1994 and December 31, 1993,
respectively).
</TABLE>
Nonperforming assets were down $41 million from December 31, 1993, due to
continued improvement in the portfolio. The largest decreases were noted at
Fleet-New York, Fleet-Rhode Island and Fleet Credit.
The following reconciliation shows the activity in nonperforming assets by
quarter.
<TABLE>
<CAPTION>
2nd Quarter 1st Quarter 2nd Quarter
Dollars in millions 1994 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period....... $ 609 $ 601 $ 944
Additions............................ 97 101 186
Increase due to FDIC loan agreement.. - 28 -
Reductions:
Payments/interest applied.......... (65) (27) (110)
Returned to accrual................ (9) (10) (38)
Sales/other........................ (38) (40) (50)
------------------------------------------------------------------------
Subtotal......................... (112) (77) (198)
------------------------------------------------------------------------
Charge-offs/write-downs............ (34) (44) (80)
------------------------------------------------------------------------
Total reductions..................... (146) (121) (278)
------------------------------------------------------------------------
Balance at end of period............. $ 560 $ 609 $ 852
========================================================================
</TABLE>
-10-
<PAGE>
<PAGE 11>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
At June 30, 1994, nonperforming assets decreased $292 million, or 34% from June
30, 1993, due to reduced inflows to nonperformers as second quarter 1994
additions were $97 million compared to $101 million in the first quarter of
1994 and $186 million in the second quarter of 1993. Nonperforming assets, as
a percentage of total loans, leases, OREO and insubstance foreclosures (ISFs),
and as a percentage of total assets, were 2.12% and 1.16%, respectively, at
June 30, 1994, compared to 2.27% and 1.25%, respectively, at December 31, 1993.
RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
A summary of activity in the reserve for credit losses follows.
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 Dollars in millions 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
$980 $1,033 Balance, beginning of period $1,000 $1,029
Provisions charged against
12 70 income 34 155
Recoveries of loans and leases
26 23 charged off 47 44
(47) (95) Loans and leases charged off (100) (196)
(1) (3) Acquisitions/other (11) (4)
-----------------------------------------------------------------------
$970 $1,028 Balance, end of period $970 $1,028
=======================================================================
</TABLE>
The Corporation's reserve for credit losses decreased by $30 million from
December 31, 1993 to June 30, 1994, as loans and leases charged off during the
quarter exceeded the amount of the provision and recoveries recognized during
the period. The decrease in the provision for credit losses reflects the
continued reduction in charge-offs as well as a general improvement in economic
conditions. Net charge-offs as a percentage of average loans and leases
decreased from 1.17% for the six months ended June 30, 1993 to 0.41% for the
same period in 1994. The Corporation's ratios of reserve for credit losses
to nonperforming assets and reserve for credit losses to nonperforming loans
were 173% and 218%, respectively, at June 30, 1994, compared to 166% and 215%,
respectively, at December 31, 1993.
-11-
<PAGE>
<PAGE 12>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
SECURITIES
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
----------------------------------------------
Amortized Market Amortized Market
Dollars in millions Cost Value Cost Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury and government agencies $7,851 $7,739 $5,775 $5,950
Mortgage-backed securities 7,010 6,802 5,739 5,878
State and municipal 0 0 733 747
Other debt securities 192 193 250 257
- --------------------------------------------------------------------------------------------
Total debt securities 15,053 14,734 12,497 12,832
- --------------------------------------------------------------------------------------------
Marketable equity securities 78 94 64 83
Other securities 98 98 16 16
- --------------------------------------------------------------------------------------------
Total securities available for sale $15,229 $14,926 $12,577 $12,931
============================================================================================
Total securities held to maturity $748 $751 $1,546 $1,580
============================================================================================
Total securities $15,977 $15,677 $14,123 $14,511
============================================================================================
</TABLE>
U.S. Treasury and government agencies securities increased $2.1 billion due
primarily to net purchases of $2.2 billion of U.S. Treasury securities during
the first six months of 1994 as part of the Corporation's restructuring of its
portfolio to shorten the average life of securities in anticipation of a rising
rate environment. Total sales of U.S. Treasury securities during the first
half of 1994 generated securities gains of $10 million. During the second
quarter of 1994, the Corporation also sold approximately $23 million of equity
securities which resulted in gains of $9 million.
-12-
<PAGE>
<PAGE 13>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
FUNDING SOURCES
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in millions 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
Deposits:
Demand $ 6,459 $ 6,473
Regular savings, NOW, money market 15,788 16,437
Time 9,523 8,175
- -----------------------------------------------------------------------------
Total deposits 31,770 31,085
- -----------------------------------------------------------------------------
Borrowed funds:
Federal funds purchased 1,609 442
Securities sold under agreements to repurchase 2,145 1,519
Commercial paper 731 1,337
Treasury, tax and loan 2,628 2,759
Other 1,058 2,050
- -----------------------------------------------------------------------------
Total borrowed funds 8,171 8,107
Notes and debentures 3,341 3,444
- -----------------------------------------------------------------------------
Total $43,282 $42,636
=============================================================================
</TABLE>
Total deposits increased $685 million, or 2.2%, from December 31, 1993 to June
30, 1994, due primarily to the purchase of 29 New York State branches formerly
owned by Chemical Bank. In addition, the Corporation's mix of total deposits
has shifted slightly as time deposits have increased by $1.3 billion while
regular savings, NOW and money market deposits have decreased by $649 million.
Federal funds purchased and securities sold under agreements to repurchase have
increased by $1,167 million and $626 million, respectively, from December 31,
1993 to June 30, 1994, as these funding sources have offered more favorable
interest rates compared to other borrowing sources. These funds were primarily
used to purchase securities during the second quarter of 1994. Commercial
paper and other borrowed funds have decreased by $606 million and $992 million,
respectively, from December 31, 1993 to June 30, 1994. These decreases were
primarily at Fleet Mortgage Group as these borrowings are used to fund
mortgages held for resale which have declined by $1.7 billion during the
same period.
-13-
<PAGE>
<PAGE 14>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY
The following liquidity discussion focuses primarily on developments since
December 31, 1993. Accordingly, it should be read in conjunction with the
liquidity section on pages 19-20 of the Corporation's 1993 Annual Report to
Stockholders.
The primary sources of liquidity at the parent level are interest and dividends
from subsidiaries and access to the capital and money markets. The
Corporation's subsidiaries rely on cash flows from operations, core deposits,
borrowings, short-term high-quality liquid assets, and in the case of
nonbanking subsidiaries, excluding Fleet Mortgage, funds from the parent for
liquidity. During the first six months of 1994, the parent received $231.9
million in interest and dividends from subsidiaries and paid $167.6 million in
interest and dividends to third parties. Dividends paid by the Corporation's
banking subsidiaries are limited by various regulatory requirements related to
capital adequacy and historic earnings.
As shown in the consolidated statement of cash flows, cash and cash equivalents
decreased by $26 million during the six month period ended June 30, 1994. This
decrease primarily reflected the use of $2.51 billion for investing activities
offset in part by $2.04 billion of net cash provided by operating activities
and $441 million provided by financing activities. Net cash used for investing
activities was principally caused by net purchases of securities available for
sale and securities held to maturity coupled with net increases in loans and
leases at the banking subsidiaries. Cash provided by operating activities was
mainly attributable to proceeds from the sale of mortgages held for resale,
offset in part by originations and purchases of mortgages held for resale.
Cash provided by financing activities was due primarily to increases in
deposits offset in part by repayments of long-term debt.
At June 30, 1994 and December 31, 1993, the Corporation and its subsidiaries
had $2.55 billion in confirmed lines of credit; $700 million and $940 million
were outstanding at June 30, 1994 and December 31, 1993, respectively. The
amounts outstanding under the lines of credit relate to FMG at both June 30,
1994 and December 31, 1993. On August 1, 1994, FMG increased its available
lines of credit from $1.75 billion to $2.20 billion. At June 30, 1994, Fleet
had commercial paper outstanding of $731 million compared to $1.3 billion at
December 31, 1993. Fleet maintains back-up lines of credit to ensure funding
will not be interrupted if commercial paper cannot be issued.
The Corporation has filed shelf registration statements with the SEC that
provide for the issuance of senior or subordinated debt securities and warrants
to purchase senior or subordinated debt securities. The total amount of funds
available under the shelf registrations was $1.8 billion. As of June 30, 1994,
$1.1 billion of debt securities has been issued under this shelf,
leaving $629 million in debt securities available for future issuance. Also,
the Corporation has filed a preferred stock shelf registration with the SEC
that permits the issuance of $445 million in preferred stock, all of which
remains available for issuance at June 30, 1994.
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<PAGE>
<PAGE 15>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
ASSET AND LIABILITY MANAGEMENT
The asset/liability management process at Fleet ensures that the risk to
earnings fluctuations from changes in interest rates is prudently managed. To
measure and monitor interest-rate risk, management uses various tools, which
include an interest-rate sensitivity "gap" analysis, a "rate shock" analysis,
and an interest-rate risk reporting schedule, as well as simulation models of
balance sheet and interest-rate scenarios under alternative conditions.
Internal parameters have been established as guidelines for monitoring these
measurements. These guidelines serve as benchmarks for determining actions to
balance the current position against overall strategic goals. As of June 30,
1994, management believes the Corporation was in a relatively neutral
interest-rate sensitivity position.
As part of the Corporation's interest-rate risk management strategy, the
Corporation has increased its usage of interest-rate swaps over the past year,
as the use of interest-rate swaps for asset/liability management can have
substantial advantages compared to on-balance-sheet alternatives. These
advantages include improved control of interest-rate risks and enhanced balance
sheet liquidity. Fleet expects to continue its prudent use of this valuable
tool. On a consolidated basis, Fleet Financial Group had $6.6 billion
(notional amount) of interest-rate risk management swaps with external
counterparties at June 30, 1994.
<TABLE>
<CAPTION>
Weighted
Average
Notional Maturity Fair Weighted Average Rate
Dollars in millions Value (years) Value Receive Pay
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-rate risk management swaps:
Receive fixed/pay variable $2,503 1.3 $9 7.04 % 4.99 %
Pay fixed/receive variable 1,296 4.3 62 4.56 5.82
Basis swaps 80 2.4 (3) (a) (a)
Index-amortizing swaps receive
fixed/pay variable 2,770 1.2 (b) (96) 5.29 5.58
- ----------------------------------------------------------------------------------------
Total $6,649 1.9 $(28) 5.81 % 5.40 %
========================================================================================
<FN>
(a) Basis swaps are interest-rate swaps in which both amounts paid and received are
based on floating rates.
(b) $2.6 billion of index-amortizing swaps have the potential to extend one additional
year, while one five-year $200-million swap has the potential to extend an
additional two years.
</TABLE>
The interest-rate risk management swap activity for the six months ended June
30, 1994 is summarized in the following table.
<TABLE>
<CAPTION>
Notional Amounts Receive Pay Index- Total
Dollars in millions Fixed Fixed Basis Amortizing Swaps
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 2,249 $ 985 $ - $ 2,770 $ 6,004
Additions 624 311 80 - 1,015
Maturities (370) - - - (370)
Terminations - - - - -
- ----------------------------------------------------------------------------------------
Balance at June 30, 1994 $ 2,503 $ 1,296 $ 80 $ 2,770 $ 6,649
========================================================================================
</TABLE>
-15-
<PAGE>
<PAGE 16>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The total notional amount of all interest-rate swaps at June 30, 1994 was $7.4
billion compared to $6.6 billion at December 31, 1993. These amounts include
$739 million and $614 million, respectively, of customer swaps. The customer
swap portfolio is carried at market value. Customer swaps contributed $1.5
million of trading revenue for the second quarter of 1994.
CAPITAL
As of June 30, 1994 and December 31, 1993, Fleet's capital ratios, which
exceeded all minimum regulatory requirements, were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Dollars in millions 1994 1993
---------------------------------------------------------
<S> <C> <C>
Tier 1 capital $3,540 $3,495
Total capital 4,966 4,939
Risk adjusted assets 29,936 29,713
Tier 1 risk-based capital 11.8 % 11.8 %
Total risk-based capital 16.6 16.6
Leverage ratio 7.4 7.5
Common equity/assets 6.53 6.55
Total equity/assets 7.31 7.59
</TABLE>
The Corporation's capital ratios have remained relatively stable from December
31, 1993 to June 30, 1994. Fleet exceeded the required minimum Tier 1
risk-based capital and required total risk-based capital by approximately $2.3
billion and $2.6 billion, respectively, at both June 30, 1994 and December 31,
1993. Fleet exceeded the Federal Reserve Board's minimum leverage requirements
by approximately $1.6 billion at both June 30, 1994 and December 31, 1993. The
June 30, 1994 and December 31, 1993, Tier 1 capital, total capital and leverage
ratios do not include any adjustments for unrealized gains or losses relating
to securities available for sale.
-16-
<PAGE>
<PAGE 17>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fleet Financial Group, Inc.
---------------------------
(Registrant)
/s/ Eugene M. McQuade
-------------------------
Eugene M. McQuade
Executive Vice President
Chief Financial Officer
/s/ Robert C. Lamb, Jr.
--------------------------
Robert C. Lamb, Jr.
Chief Accounting Officer
Controller
DATED: October 26, 1994
-17-
