<PAGE 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------
FORM 10-Q
-----------
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Quarterly Period Ended March 31, 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 (Zip Code)
office)
</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 each 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
April 29, 1994 was 137,687,019.
<PAGE>
<PAGE 2>
FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED MARCH 31, 1994
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
-----------------------------------------------------
PAGE
------
PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Three Months Ended March 31, 1994 and 1993 3
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 4
Consolidated Statements of Changes in
Stockholders' Equity
Three Months Ended March 31, 1994 and 1993 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 6
Condensed Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 26
SIGNATURES 27
EXHIBITS 28
2
<PAGE>
FLEET FINANCIAL GROUP, INC.
<TABLE> CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
March 31
(Dollars in millions, except share amounts) 1994 1993
------- -------
<S> <C> <C>
Interest and fees on loans and leases............. $ 552 $ 586
Interest taxable securities....................... 209 221
Interest on tax-exempt securities................. 7 7
---- ----
Total interest income....................... 768 814
Interest expense: ---- ----
Deposits...................................... 156 205
Short-term borrowings......................... 61 47
Long-term debt................................ 55 57
---- ----
Total interest expense...................... 272 309
---- ----
Net interest income............................... 496 505
---- ----
Provision for credit losses....................... 22 85
---- ----
Net interest income after provision for credit losses 474 420
---- ----
Noninterest income:
Mortgage banking.............................. 100 104
Service charges, fees and commissions......... 82 82
Investment services revenue................... 44 42
FDIC loan administration fees................. 14 7
Gain on sale of subsidiary.................... 13 -
Student loan servicing fees................... 12 11
Securities available for sale gains........... - 19
Other......................................... 34 44
---- ----
Total noninterest income.................... 299 309
---- ----
Noninterest expense:
Employee compensation and benefits............ 256 255
Occupancy..................................... 44 44
Equipment..................................... 34 32
Acquired servicing rights amortization........ 31 28
Legal and other professional.................. 20 25
FDIC assessment............................... 18 21
Core deposit and goodwill amortization........ 13 12
Marketing..................................... 13 13
Printing and mailing.......................... 12 11
OREO expense.................................. 7 21
Restructuring accrual......................... 25 -
Other......................................... 77 81
---- ----
Total noninterest expense................... 550 543
---- ----
Income before income taxes........................ 223 186
Applicable income taxes........................... 87 75
---- ----
Net income before minority interest............... 136 111
Minority interest................................. 3 5
---- ----
Net income........................................ $ 133 $ 106
==== ====
Net income applicable to common shares............ $ 125 $ 99
==== ====
Weighted average common shares outstanding:
Primary....................................... 157,568,456 149,117,428
Fully diluted................................. 157,646,032 149,643,168
Earnings per share:
Primary....................................... $ 0.80 $0.67
Fully diluted................................. 0.80 0.66
Dividends declared................................ 0.30 0.225
<FN>
See accompanying condensed notes to consolidated financial statements
</TABLE> -3-
<PAGE>
<PAGE>
<PAGE 4> FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> March 31, December 31,
($ in millions, except share amounts) 1994 1993
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 1,919 $ 2,213
Securities available for sale (1994 at market;1993 at
cost,market value $12,931 at December 31, 1993).... 13,694 12,577
Securities held to maturity (market value: $845 at
March 31, 1994, and $1,580 at December 31, 1993)... 840 1,546
Loans and leases..................................... 25,495 26,310
Reserve for credit losses............................ (980) (1,000)
Mortgages held for resale............................ 1,566 2,622
Premises and equipment............................... 742 733
Acquired servicing rights............................ 575 560
Accrued interest receivable.......................... 386 347
Deferred taxes....................................... 381 360
Excess costs over net assets of subsidiaries acquired 184 187
Other intangibles.................................... 178 166
Foreclosed property and repossessed equipment........ 136 136
Trading account securities........................... 105 91
Other assets......................................... 1,194 1,075
------ ------
Total assets......................................... $ 46,415 $ 47,923
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand............................................ $ 5,964 $ 6,473
Regular savings, NOW, money market................ 16,360 16,437
Time.............................................. 8,398 8,175
------- -------
Total deposits.................................. 30,722 31,085
------- -------
Federal funds purchased and securities sold
under agreement to repurchase...................... 2,133 1,961
Other short-term borrowings.......................... 5,094 6,146
Accrued expenses and other liabilities............... 1,518 1,648
Long-term debt:
Senior............................................ 2,291 2,357
Subordinated...................................... 1,087 1,087
------- -------
Total liabilities............................... 42,845 44,284
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock ..................................... 379 501
Common stock (outstanding 137,626,533 and
137,381,588 shares)................................ 138 137
Common surplus....................................... 1,498 1,492
Retained earnings.................................... 1,592 1,509
Net unrealized gain/(loss) on securities............. (37) -
------- -------
Total stockholders' equity........................... 3,570 3,639
------- -------
Total liabilities and stockholders' equity........... $ 46,415 $ 47,923
======= =======
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
<PAGE 5>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
Three Months Ended March 31 COMMON UNREALIZED
(Dollars in millions, except share PREFERRED STOCK COMMON RETAINED GAIN/(LOSS) ON
amounts) STOCK $1 PAR SURPLUS EARNINGS SECURITIES TOTAL
- - --------------------------------------- --------- -------- -------- --------- ----------- -------
1993
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 604 $ 123 $ 1,066 $ 1,217 $ - $ 3,010
Net income - - - 106 -
Cash dividends declared on common
stock ($.225 per share) - - - (31) -
Cash dividends declared on preferred
stock - - - (7) -
Common stock issued in connection with:
Common stock offering, net of issuance
costs $10 - 12 379 - -
Employee benefit and stock option plans
and conversion of preferred stock - 1 12 (2) -
Other items - - 1 (1) -
----- ----- ----- ----- ----- -----
Balance at March 31, 1993 $ 604 $ 136 $ 1,458 $ 1,282 $ - $ 3,480
=================================================================================================================
1994
Balance at December 31, 1993 $ 501 $ 137 $ 1,492 $ 1,509 $ - $ 3,639
Net unrealized gain on securities
available for sale at January 1, 1994 - - - - 224
Net income - - - 133 -
Cash dividends declared on common
stock ($.30 per share) - - - (41) -
Cash dividends declared on preferred
stock - - - (8) -
Redemption of preferred stock (122) - - - -
Common stock issued in connection with:
Employee benefit and stock option plans
and conversion of preferred stock - 1 6 (1) -
Adjustment for net unrealized loss on
securities available for sale - - - - (261)
----- ----- ----- ----- ----- -----
Balance at March 31, 1994 $ 379 $ 138 $ 1,498 $ 1,592 $ (37) $ 3,570
=================================================================================================================
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
<PAGE 6>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31 (dollars in millions) 1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income............................................. $ 133 $ 106
Adjustments for noncash items:
Depreciation and amortization of premises
and equipment................................... 26 20
Amortization of acquired servicing rights and
other intangible assets......................... 44 40
Provision for credit losses....................... 22 85
Deferred income tax expense (benefit)............. 5 (14)
Securities gains.................................. - (19)
Write-down of OREO to fair value.................. 2 12
Minority interest................................. 3 5
Other gains on sales of assets.................... (13) (23)
Originations and purchases of mortgages held for resale (4,365) (3,107)
Proceeds from sale of mortgages held for resale........ 5,421 3,902
Net (increase) decrease in trading account securities (14) 37
Increase decrease in accrued receivables, net.......... (33) (1)
(Increase) decrease in accrued liabilities, net........ (145) 107
Other - net............................................ 234 (107)
------ ------
Net cash flow provided by operating
activities................................. 1,320 1,043
------ ------
Cash Flows from Investing Activities:
Purchases of securities available for sale............. (980) (1,077)
Proceeds from maturities and sales of
securities available for sale........................ 502 739
Purchases of securities held to maturity............... (139) (8)
Proceeds from maturities of securities held to maturity 77 25
Loans made to customers, nonbank subsidiaries.......... (244) (767)
Principal collected on loans made to customers,
nonbank subsidiaries................................. 263 789
Loans purchased from the FDIC.......................... - (16)
Proceeds from sales of loans........................... 19 324
Net decrease in loans and leases, banking subsidiaries. 230 315
Proceeds from sales of OREO............................ 21 26
Proceeds from sale of subsidiary....................... 76 -
Purchases of premises and equipment.................... (34) (41)
Purchases of acquired servicing rights................. (47) (41)
------ ------
Net cash flow provided (used) by investing
activities................................. (256) 268
------ ------
Cash Flows from Financing Activities:
Net decrease in deposits............................... (363) (1,678)
Net decrease in short-term borrowings.................. (880) (1,008)
Proceeds from issuance of long-term debt............... - 205
Repayments of long-term debt........................... (66) (150)
Proceeds from issuance of common stock and preferred
stock................................................ - 401
Repurchase of preferred stock held by the FDIC......... - (93)
Cash dividends paid.................................... (49) (33)
------ ------
Net cash flow used by financing
activities................................. (1,358) (2,356)
------ ------
Net decrease in cash and cash equivalents.............. (294) (1,045)
<PAGE>
<PAGE 8>
Cash and cash equivalents at the beginning
of the period........................................ 2,213 3,037
------ ------
Cash and cash equivalents at the end of the
period............................................... $ 1,919 $ 1,992
======= ======
Supplemental disclosure for Statements of Cash Flows
Cash paid during the period for:
Interest expense $ 282 $ 287
Income taxes, net of refunds 28 29
Supplemental disclosure of noncash investing and
financing activities:
Transfer of loans to foreclosed property and
repossessed equipment 26 47
Net transfer of securities held to maturity to
securities available for sale 767 -
Transfer of preferred stock to other liabilities
in anticipation of redemption 122 -
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-6-
<PAGE>
<PAGE 8>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
NOTE 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein has been
prepared in conformity with the accounting principles and practices in Fleet
Financial Group, Inc.'s ("Fleet, FFG or the Corporation") consolidated
financial statements included in the Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 1993.
The accompanying interim consolidated financial statements contained herein
are unaudited. However, in the opinion of the Registrant, all adjustments
consisting of normal recurring items necessary for a fair statement of the
operating results for the periods shown, have been made, including an
additional $25 million restructuring charge (see Note 2). The results of
operations for the three months ended March 31, 1994 may not be indicative of
operating results for the year ending December 31, 1994. Certain prior year
and prior quarter amounts have been reclassified to conform to current
classifications. Cash and cash equivalents consists of cash, due from banks,
interest-bearing deposits, federal funds sold and securities purchased under
agreements to resell.
NOTE 2. RESTRUCTURING CHARGE
A restructuring charge of $25 million was recorded in the first quarter
relating to the Corporation's efficiency-improvement program. The $25
million first quarter restructuring charge is in addition to the 1993 third
quarter charge of $125 million that was recorded to reflect management's
estimate at that time of anticipated one-time expenses. The one-time
expenses include severance and facilities related costs, project costs,
consulting fees, and other direct expenses resulting from this program. The
current quarter's charge reflects management's estimate of additional direct
costs expected to be incurred by the Corporation as the ultimate savings and
related direct costs were greater than previously anticipated. The
implementation of Fleet Focus '94 will result in the elimination of
approximately 5,500 positions.
NOTE 3. SECURITIES
Effective January 1, 1994, the Corporation adopted Financial Accounting
Standards Board (FASB) Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The standard requires that securities
available for sale be reported at fair value, with unrealized gains or losses
reflected as a separate component of stockholders' equity. Previously, these
securities were recorded at the lower of amortized cost or fair value with
any net unrealized loss included in earnings. In connection with the
adoption of Statement No. 115, the Corporation transferred securities netting
to $767 million from the held to maturity portfolio to the available for sale
portfolio.
-7-
<PAGE>
<PAGE 9>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
At January 1, 1994, the securities available for sale portfolio had net
unrealized gains of $373 million. At March 31, 1994, securities available
for sale portfolio had net unrealized losses of $63 million. The decrease of
$436 million during the first quarter of 1994 was principally due to an
increase in long-term interest rates in response to the recent Federal
Reserve increases in the federal funds rate of 50 basis points from 3.00% to
3.50%. Accordingly, stockholders' equity has been reduced by a valuation
reserve of $37 million ($63 million less related tax effects). Securities
available for sale that were sold or matured during the first quarter totaled
$502 million, while securities available for sale purchased aggregated $980
million. There were no gains recognized on any sales during the first
quarter. A summary of securities available for sale and securities held to
maturity at March 31, 1994 is as follows:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
(Dollars in millions) Cost Gains Losses Value
- - --------------------- --------- --------- ---------- -------
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $ 6,510 $ 98 $ 94 $ 6,514
Mortgage-backed securities 6,887 48 137 6,798
Other debt securities 244 4 1 247
------- ------ ------ ------
Total debt securities 13,641 150 232 13,559
Marketable equity securities 37 19 - 56
Other securities 79 - - 79
------ ------ ------ ------
Total securities available for sale $13,757 $ 169 $ 232 $13,694
====== ====== ====== ======
SECURITIES HELD TO MATURITY
Gross Gross
Amortized Unrealized Unrealized Market
(Dollars in millions) Cost Gains Losses Value
- - --------------------- --------- ---------- ---------- ------
State and municipal $ 797 $ 8 $ 4 $ 801
Other debt securities 43 1 - 44
----- ---- ---- -----
Total securities held to maturity $ 840 $ 9 $ 4 $ 845
===== ==== ==== =====
</TABLE>
-8-
<PAGE>
<PAGE 10>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
A summary of maturities of debt securities available for sale and held to
maturity at March 31, 1994 is as follows:
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
Within 1 to 5 5 to 10 After
(Dollars in millions) 1 Year Years Years 10 Years Total
- - --------------------- ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Market value:
U.S. Treasury and government agencies $ 153 $ 6,140 $ 100 $ 121 $ 6,514
Mortgage-backed securities - 25 214 6,559 6,798
Other debt securities - 207 4 36 247
----- ------ ----- ------ ------
Total debt securities $ 153 $ 6,372 $ 318 $ 6,716 $13,559
===== ====== ===== ====== ======
Percent of total debt securities 1.1 % 47.0 % 2.4 % 49.5 % 100.0 %
Weighted average yield (a) 6.0 % 5.8 % 7.6 % 6.2 % 6.0 %
===== ====== ===== ====== ======
SECURITIES HELD TO MATURITY
Within 1 to 5 5 to 10 After
(Dollars in millions) 1 Year Years Years 10 Years Total
- - --------------------- ------ ------ ------- -------- -------
Amortized cost:
State and muncipal $ 514 $ 199 $ 64 $ 20 $ 797
Other debt securities 29 10 4 - 43
----- ------ ----- ------ ------
Total debt securities $ 543 $ 209 $ 68 $ 20 $ 840
===== ====== ===== ====== ======
Percent of total debt securities 64.6 % 24.9 % 8.1 % 2.4 % 100.0 %
Weighted average yield (a) 4.4 % 7.7 % 9.8 % 9.8 % 5.7 %
===== ====== ===== ===== ======
Market value $ 544 $ 210 $ 70 $ 21 $ 845
===== ====== ===== ===== ======
<FN>
(a) A tax equivalent adjustment has been included in the calculation of the yields to reflect
this income as if it had been fully taxable. The tax equivalent adjustment is based upon
the applicable federal income tax rate and the applicable state income tax rates.
</TABLE>
NOTE 4. STOCKHOLDERS' EQUITY
During the quarter, the Corporation called for redemption all of its $1 and
$20 par value preferred stock with cumulative and adjustable dividends
(Preferred Stock) on April 1, 1994. The redemption price is $50 for each
share of Preferred Stock plus accrued dividends, or approximately $125
million. The difference between the aggregate redemption price of $125.0
million and the carrying value of $121.6 million has been treated as a
dividend for earnings per share calculations.
-9-
<PAGE>
<PAGE 11>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
NOTE 5. PENDING ACQUISITION
On May 9, 1994, the Corporation agreed to acquire NBB Bancorp (NBB), the
parent company of the New Bedford Institution for Savings, of New Bedford,
Massachusetts for $420 million in stock and cash and 2.5 million warrants.
Under terms of the agreement, consideration is in the form of approximately
50% stock and 50% cash at $48.50 per NBB share. In addition, NBB shareholders
will receive .277 warrants to purchase Fleet stock for each share of NBB
common stock with a stock price of $43 per share and a term of six years,
which is exercisable beginning one year after closing. Fleet will repurchase
approximately six million common shares for issuance to NBB shareholders.
The value of the stock portion of the purchase price is subject to a floating
exchange ratio based on a 10-day average prior to closing. Funding for the
repurchase of Fleet stock and the cash portion of consideration at the
closing will be provided through the issuance of term debt.
-10-
<PAGE>
<PAGE 12>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERALL PERSPECTIVE
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in millions, except per share data) 1994 1993
- - -------------------------------------------- ------ ------
<S> <C> <C>
Earnings:
Net income.......................................... $ 133 $ 106
Net interest income (fully taxable equivalent basis) 504 513
Per Common Share:
Fully diluted earnings.............................. $ 0.80 $ 0.66
Cash dividends declared............................. 0.30 0.225
Book value.......................................... 23.19 21.12
Operating Ratios:
Return on average assets............................ 1.14 % 0.96 %
Return on realized common equity.................... 16.08 15.24
Efficiency ratio.................................... 65.40 66.03
Equity to assets (period end)....................... 7.69 7.75
At March 31:
Total assets........................................ $46,415 $44,893
Stockholders' equity................................ 3,570 3,480
Nonperforming assets................................ 609 944
</TABLE>
Net income for the three months ended March 31, 1994 increased 25% from the
same period in 1993. The improved results reflect a reduction in asset
quality costs, partially offset by an additional $25 million restructuring
charge. The corporation had recorded a $125 million restructuring charge in
the third quarter of 1993 as part of the Corporation's efficiency-improvement
program, Fleet Focus '94; however, the current quarter's restructuring charge
reflects management's estimate of additional direct costs expected to be
incurred by the Corporation as the ultimate savings and related direct costs
were greater than previously anticipated.
Return on assets improved significantly due to higher earnings even though
average assets increased by $2.4 billion. Return on realized common equity
also increased. Effective January 1, 1994, the Corporation adopted FASB No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
which requires that unrealized gains and losses in the Corporation's
securities available for sale portfolio be added to or deducted from
stockholders' equity. The Corporation decided to classify substantially all
of its securities as available for sale in order to maximize its flexibility.
For the quarter, the effect of adopting this new standard was to increase
average stockholders' equity by $150 million, which resulted in a return on
equity of 15.35%, compared to a return on realized equity of 16.08%.
-11-
<PAGE>
<PAGE 13>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
NET INTEREST INCOME
<TABLE>
<CAPTION>
For the Three Months Ended March 31
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........ $ 14 $ - 3.51 % $ 128 $ 1 2.98 %
Securities...................... 14,577 221 6.13 12,757 233 7.41
Loans and leases................ 25,938 524 8.17 26,434 558 8.57
Other........................... 1,982 31 6.27 1,694 30 7.10
------ ------ ---- ------- ----- ----
Total interest-earning assets 42,511 776 7.38 % 41,013 822 8.13 %
------ ------ ---- ------- ----- ----
Other nonearning assets......... 4,975 - - 4,052 - -
------ ------ ---- ------- ----- ----
Total assets.................... $47,486 $ 776 - $ 45,065 $ 822 -
======= ====== ==== ======= ===== ====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits........................ $24,177 $ 156 2.62 % $ 25,532 $ 205 3.25 %
Borrowings...................... 1l,174 116 4.22 9,026 104 4.70
------ ------ ---- ------- ----- ----
Total interest-bearing
liabilities................ 35,351 272 3.13 34,558 309 3.63
------ ------ ---- ------- ----- ----
Net interest spread............. - 504 4.25 - 513 4.50
------ ------ ---- ------- ----- ----
Demand deposits and other
noninterest-bearing time
deposits...................... 6,755 - - 6,080 - -
Other liabilities............... 1,611 - - 1,179 - -
------ ------ ---- ------- ----- ----
Total liabilities............... 43,717 272 - 41,817 309 -
------ ------ ---- ------- ----- ----
Stockholders' equity............ 3,769 - - 3,248 - -
------ ------ ---- ------- ----- ----
Total liabilities and
stockholders' equity........... $47,486 $272 - $ 45,065 $ 309 -
------ ------ ---- ------- ----- ----
Net interest margin............. 4.78 % 5.03 %
====== ====== ==== ======= ===== ====
</TABLE>
Net interest income on a fully taxable equivalent basis for the three months
ended March 31, 1994, decreased $9 million, compared to the same period in
1993, as illustrated in the reduction in the net interest margin.
-12-
<PAGE>
<PAGE 14>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The net interest margin for the three months ended March 31, 1994 was down 25
basis points compared to the same period in the prior year, as the Federal
Reserve increased short-term borrowing rates twice during the first quarter
of 1994 totaling 50 basis points. The increase was only partially offset by
an increase in the Corporation's prime lending rate from 6.00% to 6.25% late
in the quarter. Also, the net interest margin has been trending downward
since mid-1993 due to 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. Those
sales reduced prepayment sensitivity and shortened the maturity of the
portfolio. The yield on loans declined 40 basis points due to a significant
run-off of high-yielding loans, some of which were putable to the Federal
Deposit Insurance Corp. (FDIC), and refinancing of loans at increasingly
competitive rates. These items were partially offset by the benefit of a 35%
decrease in nonperforming loans from March 31, 1993, to March 31, 1994, and
the increased use of interest rate swap agreements. (At March 31, 1994 and
1993, Fleet had $6.8 billion and $3.0 billion, respectively, in notional
amount of swap agreements outstanding. See Interest-Rate Sensitivity for
more information on the interest-rate swaps.)
NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in millions) 1994 1993
- - --------------------- ----- -----
<S> <C> <C>
Operating noninterest income:
Mortgage banking........................... $ 100 $ 104
Service charges on deposits................ 44 43
Investment services revenue................ 44 42
Other service charges, fees and commissions 23 23
FDIC loan administration fees.............. 14 7
Student loan servicing fees................ 12 11
Merchant discount fees..................... 7 6
Brokerage fees and commissions............. 5 5
Insurance.................................. 4 5
Other...................................... 47 39
---- ----
Total operating noninterest income...... 300 285
---- ----
Trading income:
Securities................................. 2 5
Foreign exchange/interest rate products.... (3) -
---- ----
Total trading income.................... (1) 5
---- ----
Securities available for sale gains.......... - 19
---- ----
Total noninterest income................ $ 299 $ 309
==== ====
</TABLE>
-13-
<PAGE>
<PAGE15>
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) increased
approximately 5% for the three months ended March 31, 1994 in comparison to
the same period of the prior year. Other noninterest income increased by $8
million due primarily to the sale of Fleet Factors Corp., the Corporation's
factoring and commercial finance company, which resulted in a $13 million
(pre-tax) gain and an increase of $10.5 million in venture capital income at
Fleet Equity Partners, which was offset by a $12.5 million decline in the
securitization and sale of loans. The increase in Fleet Equity Partners'
venture capital income was primarily due to $4.7 million of realized gains
and an increase in unrealized appreciation on investments.
Mortgage Banking Revenue
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in millions) 1994 1993
--------------------- ---- ----
<S> <C> <C>
Net loan servicing revenue $ 66 $ 60
Mortgage production revenue 23 32
Gains on sale of mortgage servicing 11 12
---- ----
Mortgage banking noninterest income 100 104
===== ====
</TABLE>
Mortgage banking revenue decreased approximately 4% for the first quarter of
1994 compared to the same period in 1993. The decrease is primarily
attributable to lower gains on sale of loans as a result of a less favorable
interest rate environment, partially offset by higher servicing revenue.
Fleet Mortgage Group, the Corporation's mortgage banking subsidiary (FMG),
recognized $27.8 million in gains on sales of loans in the first quarter of
1993 compared to $20.2 million in the first quarter of 1994, a 27% decline.
Net loan servicing revenue, which had been adversely affected throughout 1993
by prepayments in the mortgage servicing portfolio, increased slightly from
$60 million in the first quarter of 1993 to $66 million in the first quarter
of 1994. This increase was primarily due to the growth of the loan servicing
portfolio. Fleet Mortgage's mortgage servicing portfolio totaled $70.1
billion at March 31, 1994, compared to $63.1 billion a year earlier, an
increase of 11%.
Foreign exchange/interest rate products income decreased $3.4 million for the
three months ended March 31, 1994, compared to the same quarter of 1993. The
decrease was attributable to the recognition of $5.5 million of net losses on
treasury options purchased by Fleet Mortgage Group, due to a higher interest
rate environment. The treasury options were purchased to mitigate the risk
of residential loan prepayments due to the low interest rate environment.
These losses were partially offset by trading gains and foreign exchange
gains.
-14-
<PAGE>
<PAGE 16>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in millions) 1994 1993
--------------------- ----- -----
<S> <C> <C>
Employee compensation and benefits...... $ 256 $ 255
Occupancy............................... 44 44
Equipment............................... 34 32
Acquired servicing rights amortization.. 31 28
FDIC assessment......................... 18 21
Core deposit and goodwill amortization.. 13 12
Other professional fees................. 13 16
Marketing............................... 13 13
Printing and mailing.................... 12 11
Charge card............................. 9 9
Telephone............................... 9 9
Office supplies......................... 7 8
OREO expense............................ 7 21
Legal fees.............................. 7 9
Travel and entertainment................ 6 7
Restructuring accrual................... 25 -
Other................................... 46 48
---- ----
Total noninterest expense............... $ 550 $ 543
==== ====
</TABLE>
A restructuring charge of $25 million was recorded in the first quarter
relating to the Corporation's efficiency-improvement program, Fleet Focus
'94. The $25 million first quarter restructuring charge is in addition to the
1993 third quarter charge of $125 million that was recorded to reflect
management's estimate at that time of anticipated one-time expenses The
one-time expenses include severance and facilities related costs, project
costs, consulting fees, and other direct expenses resulting from this
program. The current quarter's charge reflects management's estimate of
additional direct costs expected to be incurred by the Corporation as the
ultimate savings and related direct costs were greater than previously
anticipated. Direct costs that have been included in the aggregate $150
million restructuring charge include project related costs; facilities
related costs, which includes the write-off of future lease obligations net
of anticipated subleasing income, expected relocation costs and the write-off
of leasehold improvements; and severance payments, including outplacement
assistance, as the efficiency study will result in the elimination of
approximately 5,500 positions. The majority of these expenses, excluding
certain project costs, require future cash outlays that will take place
during 1994 and early 1995. Also, the Corporation anticipates that
approximately $50 million of additional cash outlays ($22 million of which
are expected to be capital outlays) will be
-15-
<PAGE>
<PAGE 17>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
required to support the implementation of many of the Fleet Focus ideas.
These costs, which have not been included as part of the Corporation's $150
million restructuring charge, consist mainly of software development costs
and equipment needs, and are expected to be incurred during 1994 and 1995 as
the Fleet Focus savings are being realized. The cash outlays associated with
Fleet Focus '94 are not expected to have an impact on the Corporation's
liquidity.
Excluding the restructuring charge, noninterest expense was $525 million and
$543 million for the three months ended March 31, 1994 and March 31, 1993,
respectively, which represents a 3.3% decrease on a quarter-to-quarter
comparison.
The $18 million decrease in noninterest expense is primarily attributable to
the $14 million decrease in OREO expense as foreclosed property and
repossessed equipment has decreased from $237 million at March 31, 1993 to
$136 million at March 31, 1994, a 43% decline. The remaining noninterest
expense accounts have remained fairly stable on a quarter-to-quarter
comparison. However, it is anticipated that noninterest expenses,
particularly employee compensation and benefits, will decrease in the
forthcoming months as the financial impact of implementing cost saving
strategies will begin to materialize.
Effective January 1, 1994, the Corporation adopted FASB Statement No. 112,
"Employers' Accounting for Postemployment Benefits," which requires accrual
of a liability for benefits paid to former or inactive employees after
employment but before retirement. The adoption of this Statement did not
have a material impact on the quarter's net income.
-16-
<PAGE>
<PAGE 18>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
EARNINGS BY SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in thousands) 1994 1993
---------------------- ------- -------
<S> <C> <C>
BANKING
New York.................. $ 30,122 $ 21,647
Massachusetts............. 27,702 25,560
Rhode Island.............. 24,426 8,685
Connecticut............... 18,487 31,676
Long Island............... 7,903 2,577
Maine..................... 6,439 3,903
New Hampshire............. 5,710 2,259
Fleet Investment Group.... 5,910 5,841
------- -------
Total.................. 126,699 102,148
------- -------
FINANCIAL SERVICES
Fleet Mortgage*........... 10,454 21,646
Fleet Equity Partners..... 6,859 1,810
Fleet Credit.............. 4,061 2,354
Fleet Factors............. 1,096 1,941
Fleet Brokerage........... 1,065 732
AFSA Data................. 868 809
Fleet Securities.......... 262 1,503
Fleet Finance............. (144) 179
======= =======
Total.................. 24,521 30,974
------- -------
PARENT...................... (18,141) (26,870)
------- -------
Total Net Income............ $133,079 $106,252
======= =======
<FN>
*Net of minority interest of $2.5 million and $5.2 million
for quarters ended March 31, 1994 and 1993, respectively.
</TABLE>
-17-
<PAGE>
<PAGE 19>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The Banking Group earnings increased 24% from the first quarter of 1993 to
the first quarter of 1994. The $24.6 million increase is primarily
attributable to a decrease in OREO expenses of $6.6 million and a $25.0
million decrease in the provision for credit losses. The largest decreases
in asset-quality related costs occurred at Fleet-New York ($14 million),
Fleet-Rhode Island ($7 million) and Fleet-Long Island ($5 million). These
decreases were the result of a significant overall improvement in asset
quality as nonperforming assets in the Banking Group have decreased from $755
million at March 31, 1993 to $443 million at March 31, 1994. Offsetting the
decrease in asset quality related costs was an $11 million decrease in
securities gains, as no gains were recognized in the first quarter of 1994,
coupled with a $5.5 million decline in gain on sale of bank loans.
Fleet-Connecticut and Fleet-Massachusetts recognized $9.0 million and $1.9
million, respectively, of the securities gains in the first quarter of 1993.
Fleet Mortgage, the Corporation's mortgage banking subsidiary, contributed
income of $10 million in the first quarter, compared to $22 million in the
first quarter of 1993, net of minority interest in each case. Earnings for
the 1994 period were adversely affected by the rising interest rate
environment which has caused lower production revenue, and net losses
relating to treasury options. See Noninterest Income section for more
information on mortgage banking revenue.
Fleet Equity Partners' venture capital income increased by $6.3 million
(post-tax) due to both realized and unrealized gains on investments. As
investment companies, Fleet Equity Partners' investments are carried at fair
value. Accordingly, subsequent appreciation or depreciation in value is
dependent upon market conditions.
Fleet Credit's earnings increased by $1.7 million due to improved asset
quality costs as nonperforming assets decreased from $53.5 million at March
31, 1993 to $25.8 million at March 31, 1994.
Fleet Finance recognized a loss of $144 thousand in the first quarter of 1994
compared to earnings of $179 thousand in the first quarter of 1993. The
decrease in earnings was primarily due to a $2.1 million after-tax gain on
the securitization of loans recognized in the first quarter of 1993; as no
similar gains were recognized in 1994. Excluding the securitization gain,
Fleet Finance's earnings have actually improved by $1.7 million. The
improvement is due to a lower provision for credit losses, offset in part by
lower servicing income caused by higher charge-offs on securitized loan
pools. Fleet Finance's earnings have been adversely affected during the past
fifteen months due to a continuing deterioration of its asset quality caused
primarily by protracted litigation. Fleet Finance is in the process of
attempting to settle these suits. Fleet Finance has increased its focus on
quality control and has implemented more stringent underwriting guidelines
and monitoring procedures in order to enhance its quality control system.
During the first quarter of 1994, the Corporation sold its factoring and
commercial finance company, Fleet Factors Corp., which resulted in an
after-tax gain of $7.4 million.
-18-
<PAGE>
<PAGE 20>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (continued)
ASSET QUALITY
Loans and Leases
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in millions) 1994 1993
--------------------- -------- -----------
<S> <C> <C>
Commercial and industrial.......$ 10,708 $ 11,299
Consumer........................ 7,415 7,531
Commercial real estate:
Construction.................. 461 477
Interim/permanent............. 3,757 3,917
------ ------
Total commercial real estate 4,218 4,394
------ ------
Residential real estate......... 2,136 2,052
Lease financing................. 1,018 1,034
------ ------
Total loans and leases..........$ 25,495 $ 26,310
====== ======
</TABLE>
Loan and lease portfolios involve credit risk. Fleet attempts to control
such risk through review processes that include careful analysis of credit
applications, portfolio diversification, and ongoing examination of
outstandings and delinquencies. Fleet strives to identify potential
classified assets early, to take charge-offs promptly based on realistic
assessments of probable losses and to maintain strong loss reserves. The
Corporation's portfolio is well-diversified by borrower, industry, product,
and geographic area, thereby reducing risk.
The $815 million decrease in the loan and lease portfolio from December 31,
1993 to March 31, 1994 is primarily due to the sale of Fleet Factors, which
reduced outstanding loans and leases by $333 million. Commercial loans and
commercial real estate loans have decreased due to significant paydowns,
including $208 million of principal collected during the first quarter on
loans subject to federal financial assistance. Also, $63 million of loans
were put back to the FDIC under federal financial assistance agreements,
which expire on July 14, 1994.
During the quarter, the Corporation completed an agreement to release the
FDIC from its federal financial assistance agreement on certain loans
purchased by Fleet as part of the acquisitions of the Bank of New England and
Maine Savings Bank in 1991. This transaction, which had the effect of
increasing nonperforming assets by $28 million due to the release of the
federal financial assistance agreement, resulted in the payment from the FDIC
to the Corporation, an amount that approximated the difference between the
Corporation's current carrying value of loans and the estimated fair value of
the related loans. The cash payment from the FDIC was recorded as a discount
and resulted in a reduction of the loan portfolio.
-19-
<PAGE>
<PAGE 21>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION (continued)
Federal Financial Assistance
Fleet has completed several acquisitions that have involved federal financial
assistance. The most significant were the Bank of New England (BNE)
acquisition in 1991, Maine Savings Bank (MSB) also in 1991, and Heritage Bank
and Eastland Bank in December, 1992. All of these acquisitions provided
substantial loss protection related to specific loans.
Specified BNE loans ($2.0 billion at March 31, 1994), comprised principally of
commercial and commercial real estate loans, are putable to the FDIC, subject
to certain conditions and discounts, until July 1994. Fleet currently
anticipates retaining the majority of putable loans, as Fleet expects to
return less than $100 million of loans to the FDIC at the expiration of the
BNE federal financial assistance agreement in July 1994. Specified MSB loans
that became classified prior to February 1, 1993, were eligible to be put to a
special asset pool (MSB special asset pool). The MSB special asset pool ($183
million at March 31, 1994) will be acquired by the FDIC on February 1, 1996,
for cash. Also, Eastland and Heritage loans aggregating $480 million are
subject to FDIC loss share agreements, whereby the FDIC generally reimburses
Fleet for 80% of net charge-offs for periods ranging from three to five years
from the date of acquisition.
Fleet has agreed to liquidate, collect, and manage the BNE asset pool and the
MSB special asset pool for the FDIC for a five-year period. The BNE asset
pool consists of a pool of classified assets acquired by the FDIC from BNE in
1991. Fleet receives reimbursement for all allowable direct costs, a general
overhead payment, and an incentive fee. Such amounts are reflected in
noninterest income, net of expenses, in the statement of income, and amounted
to $13.8 million for the first three months of 1994, compared to $7.3 million
in the first three months of 1993.
NONPERFORMING ASSETS (a)
The balance of nonperforming assets is as follows:
<TABLE>
<CAPTION>
March 31, 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.................. $ 96 $ 23 $ 8 $ 127
Noncurrent....................... 104 75 167 346
OREO/ISF........................... 14 73 49 136
---- ---- ---- ----
Total nonperforming assets
at March 31, 1994................ $ 214 $ 171 $ 224 $ 609
==== ==== ==== ====
Total nonperforming assets
at December 31, 1993............. $ 232 $ 158 $ 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 ($92 million and $77 million
at March 31, 1994 and December 31, 1993, respectively), or assets subject to
federal financial assistance ($95 million and $118 million at March 31, 1994
and December 31, 1993, respectively).
</TABLE>
-20-
<PAGE>
<PAGE 22>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Nonperforming assets were up $8 million from December 31, 1993, due to the
release of the FDIC from certain of its federal financial assistance
agreements which increased NPAs $28 million. Excluding this transaction, NPAs
would have decreased by $20 million from December 31, 1993.
At March 31, 1994, December 31, 1993, and March 31, 1993, loans in the 90-day
past due and still accruing category amounted to $92 million, $77 million, and
$97 million, respectively, which included approximately $66 million, $62
million, and $59 million of consumer loans, respectively. Although these
amounts are not included in nonperforming assets, management reviews loans in
this category when considering risk elements to determine the adequacy of
Fleet's credit loss reserves. The following reconciliation shows the activity
in nonperforming assets by quarter:
<TABLE>
<CAPTION>
1st Quarter 4th Quarter 1st Quarter
(Dollars in millions) 1994 1993 1993
--------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period..... $ 601 $ 736 $ 990
Additions:
Normal........................... 101 122 182
Due to FDIC loan agreement....... 28 - -
Reductions:
Payments/interest applied........ (27) (98) (80)
Returned to accrual.............. (10) (32) (32)
Sales/other...................... (40) (53) (33)
---- ---- ----
Subtotal....................... (77) (183) (145)
---- ---- ----
Charge-offs/write-downs.......... (44) (74) (83)
---- ---- ----
Total reductions................... (121) (257) (228)
---- ---- ----
Balance at end of period........... $ 609 $ 601 $ 944
==== ==== ====
</TABLE>
During the first quarter of 1994, nonperforming asset normal additions were
$101 million, a decrease of $21 million from the fourth quarter of 1993 and
represented a significant improvement over the four quarters of 1993 when the
average quarterly additions approximated $158 million.
At March 31, 1994, nonperforming assets decreased $335 million, or 35% from
March 31, 1993, due to reduced inflows to nonperformers as first quarter 1994
additions were $101 compared to $122 million in the fourth quarter of 1993 and
$182 million in the first 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 2.38% and 1.31%, respectively, at
March 31, 1994, compared to 2.27% and 1.25%, respectively, at December 31,
1993.
-21-
<PAGE>
<PAGE 23>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
RESERVE FOR CREDIT LOSSES
A summary of activity in the reserve for credit losses follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
(Dollars in millions) 1994 1993
--------------------- ----- -----
<S> <C> <C>
Balance, beginning of period $1,000 $1,029
Provisions charged against income 22 85
Recoveries of loans and leases
charged off 21 20
Loans and leases charged off (53) (100)
Acquisitions/other (10) (1)
----- -----
Balance, end of period $ 980 $1,033
===== =====
</TABLE>
Fleet continually evaluates its reserve for credit losses by performing
detailed reviews of certain individual loans and leases, considering the
historical net charge-off experience of the portfolio and performing an
evaluation of current and anticipated economic conditions and other pertinent
factors. Based on these analyses, the Corporation believes that its reserve
for credit losses at March 31, 1994 was adequate.
Fleet's reserve for credit losses totaled $980 million at March 31, 1994, or
3.84% of total loans and leases (including loans putable to the FDIC and loss
share loans) compared to $1.0 billion at December 31, 1993. The Corporation's
reserve for credit losses decreased by $20 million from December 31, 1993 to
March 31, 1994 as loans and leases charged-off during the quarter exceeded the
amount of the provision and recoveries recognized during the first quarter.
The Corporation's ratios of reserve for credit losses to nonperforming assets
and reserve for credit losses to nonperforming loans were 161% and 207%,
respectively, at March 31, 1994, compared to 166% and 215%, respectively, at
December 31, 1993.
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 decreased from $80 million for the three months
ended March 31, 1993 to $32 million for the three months ended March 31,
1994. Net charge-offs as a percentage of average loans and leases decreased
from 1.23% for the three months ended March 31, 1993 to 0.50% for the same
period in 1994.
-22-
<PAGE>
<PAGE 24>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
CAPITAL
As of March 31, 1994 and December 31, 1993, Fleet's capital ratios, which
exceeded all minimum regulatory requirements, were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in millions) 1994 1993
--------------------- -------- -----------
<S> <C> <C>
Tier 1 capital $ 3,463 $ 3,495
Total capital 4,899 4,939
Risk adjusted assets 29,105 29,713
Tier 1 risk-based capital 11.9 % 11.8 %
Total risk-based capital 16.9 16.6
Leverage ratio 7.3 7.5
Common equity/assets 6.88 6.55
Total equity/assets 7.69 7.59
</TABLE>
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 March 31, 1994 and December 31, 1993. Fleet exceeded the
Federal Reserve Board's minimum leverage requirements by approximately $1.6
billion at March 31, 1994 and December 31, 1993. The March 31, 1994 and
December 31, 1993, Tier 1, total capital and leverage ratios do not include
any adjustments for FASB No. 115.
Stockholders' equity decreased $69 million from December 31, 1993 to March 31,
1994, as first quarter earnings were offset by three items: normal quarterly
dividends, the redemption of preferred stock and the adoption of FASB No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
Statement No. 115 requires that unrealized gains or losses relating to the
securities available for sale portfolio be reflected in stockholders' equity.
The impact of Statement No. 115 was to decrease period-end stockholders'
equity by $37 million.
During the first quarter of 1994, the Corporation called for redemption all of
its $1 and $20 par value Preferred Stock with Cumulative and Adjustable
Dividends (Preferred Stock) on April 1, 1994. The redemption price was $50
for each share of Preferred Stock plus accrued dividends, or approximately
$125 million. The difference between the aggregate redemption price of $125
million and the carrying value of $122 million has been treated as a dividend
for earnings per share calculations.
-23-
<PAGE>
<PAGE 25
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY
The primary sources of liquidity at the parent level are interest and
dividends from subsidiaries and access to the capital and money markets.
During the first three months of 1994, the parent received $98.0 million in
interest and dividends from subsidiaries and paid $93.9 million in interest
and dividends to third parties. Dividends paid by banking subsidiaries are
limited by various regulatory requirements related to capital adequacy and
historic earnings. As of March 31, 1994, banking subsidiaries could have paid
$471 million of additional dividends, based upon regulatory calculations;
however, banking regulators have the authority to limit further the dividends
paid by the Corporation's banking subsidiaries.
The Corporation's subsidiaries rely on cash flows from operations, core
deposits, borrowings, short-term high-quality liquid assets, and in the case
of nonbanks, excluding Fleet Mortgage, funds from the parent for liquidity.
As shown in the consolidated statement of cash flows, cash and cash
equivalents decreased by $294 million during the three month period ended
March 31, 1994. This decrease primarily reflected the use of $1.36 billion
for financing activities and $256 million for investing activities, offset in
part by $1.32 billion of net cash provided by operating activities. Net cash
used for financing activities was largely the result of decreases in customer
deposits, decreases in short-term borrowings and redemption of preferred
stock. Net cash used for investing activities was principally caused by net
purchases of securities available for sale and securities held to maturity,
partially offset by net decreases in loans. 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.
At March 31, 1994 and December 31, 1993, the Corporation and its subsidiaries
had $2.55 billion in confirmed lines of credit ($1.75 billion at FMG), $795
million and $940 million were outstanding at March 31, 1994 and December 31,
1993, respectively. At March 31, 1994, Fleet had commercial paper outstanding
of $1.1 billion compared to $1.3 billion at December 31, 1993. Fleet
maintains back-up lines of credit to insure 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 were $1.8 billion. As of
March 31, 1994, $1.1 billion of debt securities has been issued under this
shelf, leaving $659 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 March 31, 1994.
-24-
<PAGE>
<PAGE 26>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Liquidity targets, both at the parent and subsidiary level, are subject to
change based on economic and market conditions as well as balance sheet
trends. Management believes that the Corporation has sufficient liquidity to
meet its obligations to customers and others.
INTEREST-RATE RISK
The asset/liability management process at Fleet ensures that the risk to
earnings from changes in interest rates is prudently managed. 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 $6.8 billion (notional
amount) of interest-rate swaps with external counterparties at March 31, 1994.
Fleet had $5.2 billion of interest-rate swaps to protect it against asset
sensitivity, a more rapid repricing of assets than liabilities. The majority
of these swaps were executed to hedge a rapid downward repricing of
floating-rate assets, primarily short-term prime-based loans, in an
environment of declining interest rates. These swap transactions, in which
Fleet receives a fixed rate and pays a floating rate, principally London
interbank offered rate (LIBOR) based, were primarily executed during the past
year.
Fleet also has $1.5 billion of interest rate swaps at March 31, 1994, to
protect it against liability sensitivity, a more rapid repricing of
liabilities than assets. These swap transactions, in which Fleet pays a fixed
rate and receives a floating rate, principally LIBOR based, were primarily
executed during the last half of 1993 and the first quarter of 1994.
For swaps used to manage interest-rate risk, net interest income is recognized
as it accrues. In the first quarter of 1994, swaps generated $16 million of
net interest income compared to $21 million in the first quarter of 1993.
Fleet also provides interest-rate swaps to customers to facilitate their own
management of interest-rate risk. Fleet hedges the resulting positions with
offsetting interest-rate swaps and futures contracts.
Customer swaps and their offsets are held in a trading account and marked to
market. Any valuations changes are reported as earnings. Fleet has $150
million of interest-rate swaps (as well as $1.4 billion of interest-rate caps
and floors), representing customer transactions and their offsets.
-25-
<PAGE>
<PAGE 27>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
INCOME TAXES
In the first quarter of 1994, the Corporation recognized income tax expense of
$87 million, or 39%, of income before income taxes, compared to income tax
expense of $75 million, or 40%, for the first quarter of 1993. The effective
tax rates exceed the federal statutory rate of 35% due primarily to state and
local income taxes, offset partially by tax-exempt income.
RECENT ACCOUNTING DEVELOPMENTS
The FASB has issued Statement No. 114, "Accounting by Creditors for Impairment
of a Loan," which requires that all creditors value all loans for which it is
probable that the creditor will be unable to collect all amounts due according
to the terms of the loan agreement at the present value of expected future
cash flows discounted at the loan's effective interest rate or, observable
market price of the impaired loans, or the fair value of the collateral if the
loan is collateral-dependent. The effect of adopting this statement has not
been fully determined, but it is not expected to have a material adverse
impact on the Corporation's results of operations. This statement would apply
for fiscal years beginning after December 15, 1994.
PART II. ITEM 6.
(a) Exhibit Index
Exhibit Page of this
Number Report
------- ------
4 Instruments defining the right of security holders,
including debentures *
10(d) Bonus Plan for Named Executive Officers 28
11 Statement re-computation of per share earnings 30
* Registrant has no instruments defining the rights of holders of equity
or debt securities where the amount of securities authorized
thereunder exceeds 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis. Registrant hereby agrees to
furnish a copy of any such instrument to the Commission upon request.
(b) Two Form 8-K's were filed during the period from January 1, 1994 to the
date of the filing of this report.
- Current Report on Form 8-K dated March 10, 1994 (reporting an update
relating to the Corporation's efficiency improvement program, Fleet
Focus '94.)
- Current Report on Form 8-K dated May 10, 1994 (reporting the
execution of an Agreement and Plan of Merger with NBB Bancorp,Inc.)
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<PAGE>
<PAGE 28>
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: May 12, 1994
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<PAGE 1>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended March 31
1994 1993
-------------------------- ---------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- -------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 137,527,293 137,527,293 129,163,305 129,163,305
Additional shares due to:
Stock options 812,793 850,937 844,053 1,011,963
Warrants 3,194,376 3,233,808 3,076,076 3,256,890
Series I preferred stock 0 0 0 43,127
Series II preferred stock 0 0 0 133,889
Dual convertible preferred stock 16,033,994 16,033,994 16,033,994 16,033,994
----------- ----------- ----------- -----------
Total equivalent shares 157,568,456 157,646,032 149,117,428 149,643,168
=========== =========== =========== ===========
Earnings per share:
Net income $ 133,079 $ 133,079 $ 106,252 $ 106,252
Less: Preferred stock dividends (7,732) (7,732) (6,918) (6,861)
------- ------- ------- -------
Adjusted net income $ 125,347 $ 125,347 $ 99,334 $ 99,391
======= ======= ======= =======
Total equivalent shares 157,568,456 157,646,032 149,117,428 149,643,168
=========== =========== =========== ===========
Earnings per share on net income $ 0.80 $ 0.80 $ 0.67 $ 0.66
======= ======= ======= =======
</TABLE>
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EXHIBIT 10(d)
FLEET FINANCIAL GROUP, INC.
1994 PERFORMANCE-BASED BONUS PLAN
FOR THE NAMED EXECUTIVE OFFICERS
Overview
The 1994 performance-based bonus plan (the "Bonus Plan") for the Named
Executive Officers of Fleet Financial Group, Inc. (the "Corporation") supports
the Corporation's objective of paying for performance which increases
shareholder value by providing for a maximum bonus award, which may be reduced
at the discretion of the Compensation Committee of the Board of Directors,
based solely on the Corporation's yearly financial performance as measured by
Return on Equity ("ROE") and Net Income, as adjusted for extraordinary charges
and changes in Generally Accepted Accounting Principles ("GAAP").
Eligibility
The Chief Executive Officer and any other employee of the Corporation who is
named as a Named Executive Officer in the Corporation's most recent proxy
statement are eligible to participate in the Bonus Plan.
Formula for Bonus Pool
a. Chief Executive Officer
If the Corporation's ROE in any year equals 15%, then the maximum amount
payable to the Chief Executive Officer under the Bonus Plan is .24% of Net
Income. For each .5% increase in ROE over 15%, the percentage of Net Income
payable to the Chief Executive Officer as a bonus increases by .005%.
Conversely, for each .5% percentage decrease in ROE from 15%, the percentage
of Net Income payable to the Chief Executive Officer decreases by .005%. No
bonus is payable if the Corporation's ROE is less than 10%.
b. Named Executive Officers other than the Chief Executive Officer
If the Corporation's ROE in any year equals 15%, then the maximum amount
payable to the Named Executive Officers under the Bonus Plan is .12% of Net
Income. For each .5% increase in ROE over 15%, the percentage of Net
Income payable to the Named Executive Officers as a bonus increases by
.0025%. Conversely, for each .5% percentage decrease in ROE from 15%, the
percentage of Net Income payable to the Other Named Executive Officers
decreases by .0025%. No bonus is payable if the Corporation's ROE is less
than 10%.
28
<PAGE>
Effect of Acquisitions/Unusual Earnings Impact
If the Corporation makes a major strategic acquisition during the year which
reduces ROE or Net Income, the calculation of ROE and Net Income for purposes
of calculating the bonus amounts payable will exclude the effect of such
acquisition. In addition, ROE and Net Income may be adjusted for
extraordinary charges and changes in GAAP.
Miscellaneous
In no event will the cost of the Bonus Plan exceed more than 10% of the
Corporation's annual average income before taxes for the preceding five years.
The Committee has the right to reduce any bonus awards payable under the bonus
plan.
29
