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 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>
FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED JUNE 30, 1994
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
---------------------------------------------------
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<CAPTION>
PAGE
----
<S> <C>
PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Three and Six Months Ended June 30, 1994 and 1993 3
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 5
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1994 and 1993 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 7
Condensed Notes to Consolidated Financial Statements 8
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. ITEM 4.
Submission of Matters to a Vote of Security Holders 24
PART II. ITEM 6. 25
SIGNATURES 26
EXHIBITS 27
</TABLE>
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<PAGE 3>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30
Dollars in millions, except share amounts 1994 1993
------- -------
<S> <C> <C>
Interest and fees on loans and leases............. $ 568 $ 582
Taxable securities................................ 221 213
Tax-exempt securities............................. 8 7
---- ----
Total interest income....................... 797 802
Interest expense: ---- ----
Deposits...................................... 171 194
Short-term borrowings......................... 76 37
Long-term debt................................ 56 61
---- ----
Total interest expense...................... 303 292
---- ----
Net interest income............................... 494 510
---- ----
Provision for credit losses....................... 12 70
---- ----
Net interest income after provision for credit losses 482 440
---- ----
Noninterest income:
Mortgage banking.............................. 84 92
Service charges, fees and commissions......... 77 78
Investment services revenue................... 43 43
Securities available for sale gains........... 19 114
Student loan servicing fees................... 12 14
FDIC loan administration fees................. 11 5
Other......................................... 30 45
---- ----
Total noninterest income.................... 276 391
---- ----
Noninterest expense:
Employee compensation and benefits............ 238 256
Occupancy..................................... 41 43
Equipment..................................... 33 32
Acquired servicing rights amortization........ 21 119
Legal and other professional.................. 19 17
FDIC assessment............................... 17 21
Core deposit and goodwill amortization........ 15 14
Marketing..................................... 14 13
Printing and mailing.......................... 10 11
OREO expense.................................. 5 16
Other......................................... 87 99
---- ----
Total noninterest expense................... 500 641
---- ----
Income before income taxes........................ 258 190
Applicable income taxes........................... 104 78
---- ----
Net income before minority interest............... 154 112
Minority interest................................. 2 (7)
---- ----
Net income........................................ $ 152 $ 119
==== ====
Net income applicable to common shares............ $ 150 $ 112
==== ====
Weighted average common shares outstanding:
Primary....................................... 158,229,800 156,026,540
Fully diluted................................. 158,232,758 156,479,170
Earnings per share:
Primary....................................... $ 0.95 $0.72
Fully diluted................................. 0.95 0.72
Dividends declared................................ 0.35 0.25
<FN>
See accompanying condensed notes to consolidated financial statements
</TABLE>
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<PAGE>
<PAGE 4>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
June 30
Dollars in millions, except share amounts 1994 1993
------- -------
<S> <C> <C>
Interest and fees on loans and leases............. $1,120 $ 1,168
Taxable securities................................ 430 434
Tax-exempt securities............................. 15 14
----- -----
Total interest income....................... 1,565 1,616
Interest expense: ---- ----
Deposits...................................... 327 399
Short-term borrowings......................... 137 84
Long-term debt................................ 111 118
---- ----
Total interest expense...................... 575 601
---- ----
Net interest income............................... 990 1,015
---- ----
Provision for credit losses....................... 34 155
---- ----
Net interest income after provision for credit losses 956 860
---- ----
Noninterest income:
Mortgage banking.............................. 184 196
Service charges, fees and commissions......... 154 152
Investment services revenue................... 87 85
Securities available for sale gains........... 19 133
Student loan servicing fees................... 24 25
FDIC loan administration fees................. 25 12
Other......................................... 82 97
---- ----
Total noninterest income.................... 575 700
---- ----
Noninterest expense:
Employee compensation and benefits............ 494 511
Occupancy..................................... 85 87
Equipment..................................... 67 64
Acquired servicing rights amortization........ 52 147
Legal and other professional.................. 39 42
FDIC assessment............................... 35 42
Core deposit and goodwill amortization........ 28 26
Marketing..................................... 27 26
Printing and mailing.......................... 22 22
OREO expense.................................. 12 37
Restructuring accrual......................... 25 0
Other......................................... 164 180
---- ----
Total noninterest expense................... 1,050 1,184
---- ----
Income before income taxes........................ 481 376
Applicable income taxes........................... 191 153
---- ----
Net income before minority interest............... 290 223
Minority interest................................. 5 (2)
---- ----
Net income........................................ $ 285 $ 225
==== ====
Net income applicable to common shares............ $ 275 $ 211
==== ====
Weighted average common shares outstanding:
Primary....................................... 157,920,587 152,621,535
Fully diluted................................. 158,139,767 152,936,904
Earnings per share:
Primary....................................... $ 1.74 $1.39
Fully diluted................................. 1.74 1.38
Dividends declared................................ 0.65 0.475
<FN>
See accompanying condensed notes to consolidated financial statements
</TABLE> -4-
<PAGE>
<PAGE>
<PAGE 5> FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> June 30, December 31,
Dollars in millions, except share amounts 1994 1993
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 2,187 $ 2,213
Securities available for sale (1994 at market;1993 at
cost,market value $12,931 at December 31, 1993).... 14,926 12,577
Securities held to maturity (market value: $751 at
June 30, 1994, and $1,580 at December 31, 1993)... 748 1,546
Loans and leases..................................... 26,318 26,310
Reserve for credit losses............................ (970) (1,000)
Mortgages held for resale............................ 895 2,622
Premises and equipment............................... 766 733
Acquired servicing rights............................ 632 560
Deferred taxes....................................... 480 360
Accrued interest receivable ........................ 299 347
Excess costs over net assets of subsidiaries acquired 192 187
Other intangibles.................................... 170 166
Foreclosed property and repossessed equipment........ 115 136
Trading account securities........................... 81 91
Other assets......................................... 1,319 1,075
------ ------
Total assets......................................... $ 48,158 $ 47,923
======= =======
LIABILITIES:
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
------- -------
Federal funds purchased and securities sold
under agreements to repurchase..................... 3,754 1,961
Other short-term borrowings.......................... 4,417 6,146
Accrued expenses and other liabilities............... 1,354 1,648
Long-term debt:
Senior............................................ 2,255 2,357
Subordinated...................................... 1,086 1,087
------- -------
Total liabilities............................... 44,636 44,284
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock ..................................... 379 501
Common stock (outstanding 137,757,719 and
137,381,588 shares)................................ 138 137
Common surplus....................................... 1,501 1,492
Retained earnings.................................... 1,695 1,509
Net unrealized gain/(loss) on securities............. (191) -
------- -------
Total stockholders' equity........................... 3,522 3,639
------- -------
Total liabilities and stockholders' equity........... $ 48,158 $ 47,923
======= =======
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
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<PAGE>
<PAGE 6>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
Six Months ended June 30 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 - - - 225 -
Cash dividends declared on common
stock ($.475 per share) - - - (65) -
Cash dividends declared on preferred
stock - - - (14) -
Purchase of Series III preferred stock (50) - - (15) -
Purchase of Series IV preferred stock (50) - - (11) -
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 - 2 24 (2) -
Other items - - 1 (5) -
----- ----- ----- ----- ----- -----
Balance at June 30, 1993 $ 504 $ 137 $ 1,470 $ 1,330 $ - $ 3,441
=================================================================================================================
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 - - - 285 -
Cash dividends declared on common
stock ($.65 per share) - - - (89) -
Cash dividends declared on preferred
stock - - - (10) -
Redemption of preferred stock (122) - - - -
Common stock issued in connection with:
Employee benefit and stock option plans
and conversion of preferred stock - 1 9 - -
Adjustment to valuation reserve
securities available for sale - - - - (415)
----- ----- ----- ----- ----- -----
Balance at June 30, 1994 $ 379 $ 138 $ 1,501 $ 1,695 $ (191) $ 3,522
=================================================================================================================
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-6-
<PAGE>
<PAGE 7>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30 (Dollars in millions) 1994 1993
- - ------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income............................................. $ 285 $ 225
Adjustments for noncash items:
Depreciation and amortization of premises
and equipment................................... 52 43
Amortization of acquired servicing rights and
other intangible assets......................... 80 173
Provision for credit losses....................... 34 155
Deferred income tax benefit....................... (9) (45)
Securities gains.................................. (19) (133)
Write down of OREO to fair value.................. 5 25
Minority interest................................. 5 (2)
Other gains on sales of assets.................... (26) (33)
Originations and purchases of mortgages held for resale (7,576) (8,352)
Proceeds from sale of mortgages held for resale........ 9,303 8,078
Net decrease in trading account securities............. 10 47
Decrease (increase) in accrued receivables, net........ 5 (108)
(Decrease) increase in accrued liabilities, net........ (194) 233
Other - net............................................ 87 47
------ ------
Net cash flow provided by operating
activities................................. 2,042 353
------ ------
Cash Flows from Investing Activities:
Purchases of securities available for sale............. (11,552) (3,037)
Proceeds from maturities and sales of
securities available for sale........................ 9,665 4,017
Purchases of securities held to maturity............... (424) (35)
Proceeds from maturities of securities held to maturity 475 82
Loans made to customers, nonbank subsidiaries.......... (568) (1,707)
Principal collected on loans made to customers,
nonbank subsidiaries................................. 605 1,575
Proceeds from sale of loans............................ 35 245
Net (increase) decrease in loans and leases,
banking subsidiaries................................. (654) 398
Proceeds from sales of OREO............................ 49 59
Proceeds from sale of subsidiary....................... 76 -
Purchases of premises and equipment.................... (85) (82)
Purchases of acquired servicing rights................. (131) (141)
------ ------
Net cash flow (used) provided by investing
activities................................. (2,509) 1,374
------ ------
Cash Flows from Financing Activities:
Net increase (decrease) in deposits.................... 685 (1,086)
Net increase (decrease) in short-term borrowings....... 64 (1,562)
Proceeds from issuance of long-term debt............... - 325
Repayments of long-term debt........................... (103) (457)
Proceeds from issuance of common stock and preferred
stock................................................ 10 415
Redemption of preferred stock.......................... (122) -
Repurchase of preferred stock held by the FDIC......... - (143)
Repurchase of Preferred Stock Series III and IV........ - (126)
Cash dividends paid.................................... (93) (71)
------ ------
Net cash flow provided (used) by
financing activities...................... 441 (2,705)
------ ------
Net decrease in cash and cash equivalents.............. (26) (978)
<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............................................... $ 2,187 $ 2,059
======= =======
Supplemental disclosure for Statements of Cash Flows
Cash paid during the period for:
Interest expense $ 572 $ 780
Income taxes, net of refunds 110 193
Supplemental disclosure of noncash investing and
financing activities:
Transfer of loans to foreclosed property and
repossessed equipment 42 95
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
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<PAGE>
<PAGE 9>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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. The results of
operations for the six months ended June 30, 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. PENDING ACQUISITIONS
On May 9, 1994, the Corporation agreed to acquire NBB Bancorp, Inc. (NBB), the
parent company of the New Bedford Institution for Savings, of New Bedford,
Massachusetts for approximately $420 million in stock and cash and 2.5 million
warrants to purchase Fleet common stock.
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 warrants to purchase Fleet stock for each share of NBB common stock at
a price of $43 per share. The warrants will be exercisable for a five year
period beginning one year after the closing of the transaction. The value of
the stock portion of the purchase price is determined based on a 10-day average
of the closing prices on the New York Stock Exchange prior to closing. The
Corporation will repurchase approximately six million common shares for
issuance to NBB shareholders. Funding for the repurchase of Fleet stock and
the cash portion of consideration at the closing will be provided through the
issuance of debt.
During July 1994, Fleet received regulatory approvals to acquire the $1-billion
Sterling Bancshares Corp., Waltham, Mass., and anticipates closing the
transaction in the third quarter of 1994.
-8-
<PAGE>
<PAGE 10>
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.
-9-
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<PAGE 11>
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.
-10-
<PAGE>
<PAGE 12>
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>
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<PAGE>
<PAGE 13>
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.
-12-
<PAGE>
<PAGE 14>
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.
-13-
<PAGE>
<PAGE 15>
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 June 30
1994 1993 Dollars in thousands 1994 1993
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANKING
$45,856 $58,998 New York $83,881 $83,222
24,252 11,865 Rhode Island 48,678 20,550
10,424 25,201 Massachusetts 38,126 50,761
12,354 44,272 Connecticut 30,841 75,948
(330) 6,222 Maine 6,109 10,125
(1,651) 5,996 New Hampshire 4,059 8,255
244 5,622 Fleet Investment Group 6,154 11,463
---------------------------------------------------------------------------
91,149 158,176 Total 217,848 260,324
---------------------------------------------------------------------------
FINANCIAL SERVICES
9,069 (28,593) Fleet Mortgage (a) 19,523 (6,947)
5,418 4,885 Fleet Credit 9,479 7,239
(2,077) 780 Fleet Equity Partners 4,782 2,590
742 788 Fleet Brokerage 1,807 1,520
827 739 AFSA Data 1,695 1,548
744 1,392 Fleet Securities 1,006 2,895
0 2,572 Fleet Factors (b) 1,096 4,513
(3,052) 2,644 Fleet Finance (3,196) 2,823
---------------------------------------------------------------------------
11,671 (14,793) Total 36,192 16,181
---------------------------------------------------------------------------
49,379 (24,713) PARENT 31,238 (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.
</TABLE>
The Banking Group's earnings for the second quarter of 1994 were negatively
impacted by $60.5 million (after-tax) due to the partial allocation of the
previously announced $150 million (pre-tax) restructuring accrual, with an
offsetting positive impact at the FFG Parent. The allocation methodology used
was based upon the impact on each bank of various efficiency improvement ideas,
including severance charges and occupancy costs. The greatest impact of the
restructuring charge allocation occurred at Fleet-New York and
Fleet-Massachusetts where earnings were reduced by $16.9 million and $15.5
million, respectively. Earnings at the Banking Group for the first half of
-14-
<PAGE>
<PAGE 16>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 the allocations of the restructuring charge and securities
gains, the Banking Group's year-to-date earnings increased $90 million from
$182.4 million in 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 $5.4 million during the second
quarter of 1994 compared to the second quarter of 1993 due to a $2.4 million
(after-tax) charge related to the above-mentioned allocation of the
restructuring accrual and 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 $2.2 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 $1.0 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.
-15-
<PAGE>
<PAGE 17>
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.
-16-
<PAGE>
<PAGE 18>
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>
-17-
<PAGE>
<PAGE 19>
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.
-18-
<PAGE>
<PAGE 20>
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.
-19-
<PAGE>
<PAGE 21>
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.
-20-
<PAGE>
<PAGE 22>
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.
-21-
<PAGE>
<PAGE 23>
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>
-22-
<PAGE>
<PAGE 24>
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.
-23-
<PAGE>
<PAGE 25>
PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Corporation held its Annual Meeting of Stockholders on
April 20, 1994.
(b) Not applicable
(c) A brief description of each matter voted upon at the meeting,
and the number of votes cast for, against or withheld, as well
as the number of abstentions and broker non-votes, as to each
such matter, follows. A separate tabulation with respect to each
nominee for office is also included.
Four matters were voted on at the Annual Meeting:
1. Election of Directors.
All five nominees for election as directors for three-year
terms were elected. There were no abstentions or broker
non-votes for any of the nominees.
<TABLE>
<CAPTION>
Name of Director For Against
---------------- --- -------
<S> <C> <C>
William Barnet, III 110,959,185 1,182,130
Lafayette Keeney 110,931,100 1,210,215
Raymond C. Kennedy 110,961,812 1,179,503
Ruth R. McMullin 110,902,073 1,239,242
Terrence Murray 110,725,857 1,415,418
</TABLE>
2. Amendment and Restatement of the Corporation's 1992 Stock
Option and Restricted Stock Plan.
The second proposal voted on by stockholders of the Corporation,
to amend and restate the Corporation's 1992 Stock Option and
Restricted Stock Plan (the "1992 Plan"), was approved, with
98,849,835 votes cast for, 12,265,698 votes cast against,
1,025,782 abstentions and no broker non-votes. Such amendment
and restatement provided for an increase in the number of shares
issuable under the 1992 Plan, eliminated certain discretion
granted to the stock option committee, extended certain
post-active employment exercise rights and qualified stock
options, stock appreciation rights and restricted stock granted
under the 1992 Plan for an exemption from the deductibility
limitation set forth in certain IRS regulations.
-24-
<PAGE>
<PAGE 26>
PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(continued)
3. Adoption of a Performance-Based Bonus Plan.
The third proposal voted on by stockholders of the Corporation,
to adopt a performance-based bonus plan, was approved, with
104,200,543 votes cast for, 6,553,228 votes cast against, 1,387,544
abstentions and no broker non-votes. Such plan permits the awarding
of bonuses to certain executive officers of the Corporation based on
the Corporation's yearly financial performance as measured by return
on equity and net income of the Corporation, as adjusted for
extraordinary charges.
4. Ratification of Selection of Independent Auditors.
The proposal to appoint KPMG Peat Marwick to serve as independent
auditors of the Corporation for the current fiscal year ending
December 31, 1994 was approved, with 110,819,620 votes cast for,
866,584 votes cast against, 455,111 abstentions and no broker
non-votes.
(d) Not applicable.
PART II. ITEM 6.
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page of this
Number Report
-------------------------------------------------------------
<S> <C> <C>
4 Instruments defining the right of security *
holders, including debentures
11 Statement re-computation of per share 27
earnings
<FN>
* 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.
</TABLE>
(b) One Form 8-K was filed during the period from April 1, 1994 to the date
of the filing of this report.
- Current Report on Form 8-K dated May 10, 1994 (reporting the
execution of an Agreement and Plan of Merger with NBB Bancorp, Inc.).
-25-
<PAGE>
<PAGE 27>
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: August 12, 1994
-26-
<PAGE 1>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
For the Three Months Ended June 30
1994 1993
-------------------------- ---------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- -------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 137,705,272 137,705,272 136,372,599 136,372,599
Additional shares due to:
Stock options 1,004,458 1,007,416 696,051 794,897
Warrants 3,486,076 3,486,076 2,923,896 3,100,741
Series I preferred stock 0 0 0 43,050
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 158,229,800 158,232,758 156,026,540 156,479,170
=========== =========== =========== ===========
Earnings per share:
Net income $ 152,199 $ 152,199 $ 118,670 $ 118,670
Less: Preferred stock dividends (2,463) (2,463) (6,584) (6,527)
------- ------- ------- -------
Adjusted net income $ 149,736 $ 149,736 $ 112,086 $ 112,143
======= ======= ======= =======
Total equivalent shares 158,229,800 158,232,758 156,026,540 156,479,170
=========== =========== =========== ===========
Earnings per share on net income $ 0.95 $ 0.95 $ 0.72 $ 0.72
======= ======= ======= =======
</TABLE>
-27-
<PAGE>
<PAGE 2>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
For the Six Months Ended June 30
1994 1993
-------------------------- ---------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- -------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 137,616,774 137,616,774 132,787,867 132,787,867
Additional shares due to:
Stock options 922,817 1,028,072 785,802 837,325
Warrants 3,347,002 3,460,927 3,013,872 3,100,741
Series I preferred stock 0 0 0 43,088
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 157,920,587 158,139,767 152,621,535 152,936,904
=========== =========== =========== ===========
Earnings per share:
Net income $ 285,278 $ 285,278 $ 224,922 $ 224,922
Less: Preferred stock dividends (10,195) (10,195) (13,502) (13,388)
------- ------- ------- -------
Adjusted net income $ 275,083 $ 275,083 $ 211,420 $ 211,534
======= ======= ======= =======
Total equivalent shares 157,920,587 158,139,767 152,621,535 152,936,904
=========== =========== =========== ===========
Earnings per share on net income $ 1.74 $ 1.74 $ 1.39 $ 1.38
======= ======= ======= =======
</TABLE>
-28-
