<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 September 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)
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)
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
October 31, 1994 was 134,910,891.
<PAGE>
<PAGE 2> FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1994
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Nine and Three Months Ended September 30, 1994 and 1993.......... 3
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993......................... 5
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 1994 and 1993.................... 6
Consolidated Statements of Cash Flows
Nine Months Ended September 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........................................ 10
PART II. OTHER INFORMATION........................................... 26
SIGNATURES........................................................... 28
EXHIBITS............................................................. 29
-2-
<PAGE>
<PAGE 3> FLEET FINANCIAL GROUP, INC.
<TABLE> CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
September 30
Dollars in millions, except share amounts 1994 1993
------- -------
<S> <C> <C>
Interest income:
Interest and fees on loans and leases............. $ 603 $ 588
Taxable securities................................ 238 207
Tax-exempt securities............................. 9 6
---- ----
Total interest income....................... 850 801
Interest expense: ---- ----
Deposits...................................... 208 179
Short-term borrowings......................... 89 42
Long-term debt................................ 59 58
---- ----
Total interest expense...................... 356 279
---- ----
Net interest income............................... 494 522
---- ----
Provision for credit losses....................... 11 61
---- ----
Net interest income after provision for credit losses 483 461
---- ----
Noninterest income:
Mortgage banking.............................. 93 107
Service charges, fees and commissions......... 80 79
Investment services revenue................... 44 45
Student loan servicing fees................... 15 13
Securities available for sale gains........... 1 127
Other......................................... 54 74
---- ----
Total noninterest income.................... 287 445
---- ----
Noninterest expense:
Employee compensation and benefits............ 229 257
Occupancy..................................... 42 44
Equipment..................................... 32 33
Legal and other professional.................. 21 17
Marketing..................................... 17 13
FDIC assessment............................... 17 17
Acquired servicing rights amortization........ 17 52
Core deposit and goodwill amortization........ 14 14
OREO expense ................................. 10 13
Printing and mailing.......................... 10 10
Restructuring charge.......................... 7 125
Other......................................... 85 92
---- ----
Total noninterest expense................... 501 687
---- ----
Income before income taxes........................ 269 219
Applicable income taxes........................... 102 87
---- ----
Net income before minority interest............... 167 132
Minority interest................................. 3 5
---- ----
Net income........................................ $ 164 $ 127
==== ====
Net income applicable to common shares............ $ 161 $ 123
==== ====
Weighted average common shares outstanding:
Primary....................................... 160,207,621 156,600,218
Fully diluted................................. 160,208,842 156,977,787
Earnings per share:
Primary....................................... $ 1.01 $0.78
Fully diluted................................. 1.01 0.78
Dividends declared................................ 0.35 0.25
<FN>
See accompanying condensed notes to consolidated financial statements
</TABLE>
-3-
<PAGE>
<PAGE 4> FLEET FINANCIAL GROUP, INC.
<TABLE> CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Nine Months Ended
September 30
Dollars in millions, except share amounts 1994 1993
------- -------
<S> <C> <C>
Interest income:
Interest and fees on loans and leases......... $1,741 $ 1,756
Taxable securities............................ 683 640
Tax-exempt securities......................... 24 21
----- -----
Total interest income....................... 2,448 2,417
Interest expense: ---- ----
Deposits...................................... 544 577
Short-term borrowings......................... 234 126
Long-term debt................................ 170 177
---- ----
Total interest expense...................... 948 880
---- ----
Net interest income............................... 1,500 1,537
----- -----
Provision for credit losses....................... 45 215
---- ----
Net interest income after provision for credit losses 1,455 1,322
----- -----
Noninterest income:
Mortgage banking.............................. 278 303
Service charges, fees and commissions......... 235 231
Investment services revenue................... 131 130
Student loan servicing fees................... 39 38
Securities available for sale gains........... 21 259
Other......................................... 159 185
----- -----
Total noninterest income.................... 863 1,146
----- -----
Noninterest expense:
Employee compensation and benefits............ 727 768
Occupancy..................................... 129 131
Equipment..................................... 100 97
Acquired servicing rights amortization........ 69 198
Legal and other professional.................. 57 55
FDIC assessment............................... 53 58
Marketing..................................... 44 38
Core deposit and goodwill amortization........ 42 41
Restructuring charge.......................... 32 125
Printing and mailing.......................... 32 32
OREO expense.................................. 22 49
Other......................................... 259 280
---- ----
Total noninterest expense................... 1,566 1,872
---- ----
Income before income taxes........................ 752 596
Applicable income taxes........................... 296 241
---- ----
Net income before minority interest............... 456 355
Minority interest................................. 8 3
---- ----
Net income........................................ $ 448 $ 352
==== ====
Net income applicable to common shares............ $ 435 $ 334
==== ====
Weighted average common shares outstanding:
Primary....................................... 161,037,511 153,935,320
Fully diluted................................. 161,163,382 154,397,390
Earnings per share:
Primary....................................... $ 2.70 $2.17
Fully diluted................................. 2.70 2.16
Dividends declared................................ 1.00 0.725
<FN>
See accompanying condensed notes to consolidated financial statements
</TABLE>
-4-
<PAGE>
<PAGE 5> FLEET
FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> September 30, December 31,
Dollars in millions, except share amounts 1994 1993
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................ $ 2,349 $ 2,213
Securities available for sale: (1994 at market;1993 at
cost, market value $12,931 at December 31, 1993).... 12,779 12,577
Securities held to maturity (market value: $943 at
September 30, 1994, $1,580 at December 31, 1993)... 940 1,546
Loans and leases..................................... 27,048 26,310
Reserve for credit losses............................ (969) (1,000)
Mortgages held for resale............................ 581 2,622
Premises and equipment............................... 793 733
Acquired servicing rights............................ 793 560
Deferred taxes....................................... 478 360
Accrued interest receivable ......................... 364 347
Excess cost over net assets of subsidiaries acquired. 189 187
Other intangibles.................................... 160 166
Foreclosed property and repossessed equipment........ 99 136
Trading account securities........................... 67 91
Other assets......................................... 1,317 1,075
------ ------
Total assets......................................... $ 46,988 $ 47,923
======= =======
LIABILITIES:
Deposits:
Demand............................................ $ 6,272 $ 6,473
Regular savings, NOW, money market................ 15,576 16,437
Time.............................................. 11,764 8,175
------- -------
Total deposits.................................. 33,612 31,085
------- -------
Federal funds purchased and securities sold
under agreements to repurchase..................... 2,576 1,961
Other short-term borrowings.......................... 2,540 6,146
Accrued expenses and other liabilities............... 1,418 1,648
Long-term debt:
Senior............................................ 2,310 2,357
Subordinated...................................... 1,086 1,087
------- -------
Total liabilities............................... 43,542 44,284
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock ..................................... 379 501
Common stock (issued 141,440,134 and
137,381,588 shares)................................ 141 137
Common surplus....................................... 1,543 1,492
Retained earnings.................................... 1,830 1,509
Net unrealized gain/(loss) on securities............. (251) -
Less: Treasury stock, at cost, 5,081,100 shares...... (196) -
------- -------
Total stockholders' equity........................... 3,446 3,639
------- -------
Total liabilities and stockholders' equity........... $ 46,988 $ 47,923
======= =======
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
<PAGE 6> FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
Nine Months ended September 30 COMMON UNREALIZED
Dollars in millions, except share PREFERRED STOCK COMMON RETAINED GAIN/(LOSS) ON TREASURY
amounts STOCK $1 PAR SURPLUS EARNINGS SECURITIES STOCK TOTAL
- --------------------------------------- --------- ------- ------- -------- -------------- -------- -----
1993
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992...............$ 604 $ 123 $ 1,066 $ 1,217 - - $ 3,010
Net income................................. - - - 352 - -
Cash dividends declared on common
stock ($.725 per share).................. - - - (99) - -
Cash dividends declared on preferred
stock.................................... - - - (18) - -
Purchase of Series III preferred stock..... (50) - - (14) - -
Purchase of Series IV preferred stock...... (50) - - (11) - -
Common stock issued in connection with:
Common stock offering, net of issuance
costs of $10.......................... - 12 379 - - -
Employee benefit and stock option plans
and conversion of preferred stock..... (3) 2 34 (3) - -
Other items................................ - - 1 (5) - -
------- ------ ------- -------- --------- ----- --------
Balance at September 30, 1993..............$ 501 $ 137 $ 1,480 $ 1,419 - - $ 3,537
========================================================================================================================
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................................. - - - 448 - -
Cash dividends declared on common
stock ($1.00 per share).................. - - - (138) - -
Cash dividends declared on preferred
stock.................................... - - - (13) - -
Redemption of preferred stock.............. (122) - - - - -
Common stock issued in connection with
employee benefit and stock option plans - 1 12 (1) - -
Adjustment to valuation reserve-
securities available for sale............ - - - - (475) -
Treasury stock purchased................... - - - - - (196)
Other items, net........................... - 3 39 25 - -
------ ------ ------- ------- ------- ------- ------
Balance at September 30, 1994 $ 379 $ 141 $ 1,543 $ 1,830 $ (251) $ (196) $3,446
========================================================================================================================
<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>
Nine months ended September 30 (Dollars in millions) 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income............................................. $ 448 $ 352
Adjustments for noncash items:
Amortization of acquired servicing rights and
other intangible assets......................... 111 239
Depreciation and amortization of premises
and equipment................................... 81 71
Provision for credit losses....................... 45 215
Deferred income tax expense (benefit)............. 29 (106)
Securities gains.................................. (21) (259)
Restructuring accrual............................. 32 125
Originations and purchases of mortgages held for resale (9,312) (13,558)
Proceeds from sale of mortgages held for resale........ 11,354 13,594
Net decrease in trading account securities............. 23 39
Net decrease in due from FDIC.......................... 18 35
Increase in accrued receivables, net................... (52) (252)
(Decrease) increase in accrued liabilities, net........ (176) 154
Other-net.............................................. (52) 17
------- ------
Net cash flow provided by operating
activities................................. 2,528 666
------ ------
Cash Flows from Investing Activities
Purchases of securities available for sale............. (20,023) (7,223)
Proceeds from maturities and sales of
securities available for sale........................ 20,765 6,549
Purchases of securities held to maturity............... (762) (45)
Proceeds from maturities of securities held to maturity 617 166
Loans made to customers, nonbank subsidiaries.......... (934) (2,502)
Principal collected on loans made to customers,
nonbank subsidiaries................................. 779 2,301
Proceeds from sales of loans........................... 61 396
Net increase in loans and leases, banking subsidiaries. (752) (242)
Putable loans transferred to FDIC...................... 70 212
Proceeds from sales of OREO............................ 68 96
Proceeds from sale of subsidiary....................... 76 -
Purchases of premises and equipment.................... (137) (163)
Purchases of acquired servicing rights................. (316) (185)
------- ------
Net cash flow used by investing activities... (488) (640)
------- ------
Cash Flows from Financing Activities
Net increase (decrease) in deposits.................... 1,902 (1,653)
Net (decrease) increase in short-term borrowings....... (3,226) 842
Proceeds from issuance of long-term debt............... 230 641
Repayments of long-term debt........................... (360) (678)
Proceeds from issuance of common and preferred
stock................................................ 12 420
Redemption and repurchase of common and preferred
stock................................................ (318) (269)
Cash dividends paid.................................... (144) (109)
------- -------
Net cash flow used by financing activities... (1,904) (806)
------- -------
Net increase (decrease) in cash and cash equivalents... 136 (780)
Cash and cash equivalents at the beginning of
the period........................................... $ 2,213 $ 3,037
------- -------
Cash and cash equivalents at the end of
the period........................................... $ 2,349 $ 2,257
===============================================================================
<PAGE>
<PAGE 8>
Supplemental disclosure for Statements of Cash Flows
Cash paid during the period for:
Interest expense..................................... $ 940 $1,054
Income taxes, net of refunds......................... 167 330
Supplemental disclosure of noncash investing and financing activities:
Transfer of loans to foreclosed property and
repossessed equipment.............................. 54 114
See accompanying condensed notes to consolidated financial statements.
-7-
<PAGE>
<PAGE 9>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 Corporation, 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 nine months ended September 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. ACQUISITIONS
On August 15, 1994, Fleet completed its acquisition of the $1-billion Sterling
Bancshares Corp. ("Sterling"), Waltham, Mass. Under the terms of the
acquisition, Fleet acquired Sterling for approximately $125 million in stock,
or $39.50 for each share of Sterling common stock. The acquisition agreement
provided Sterling stockholders with 1.096 shares of Fleet common stock for each
share of Sterling common stock. The transaction was treated as a pooling of
interests. Due to the immateriality of this transaction, the Corporation has
not restated prior periods; however, all 1994 information has been restated to
include the acquisition as if it occurred on January 1, 1994.
On September 6, 1994, the Corporation executed a definitive agreement to
purchase Plaza Home Mortgage Corp. ("Plaza"), Santa Ana, Calif., for
approximately $120 million in cash. The acquisition will add approximately
$9.2 billion in mortgage servicing and will expand Fleet's mortgage banking
franchise by adding 40 new offices. The transaction is expected to be
completed by early 1995.
During the second quarter of 1994, the Corporation agreed to acquire the $2.5
billion NBB Bancorp, Inc. (NBB), the parent company of New Bedford Institution
for Savings (NBIS), for approximately $420 million in stock and cash and 2.5
million warrants to purchase Fleet common stock. As of September 30, 1994, the
Corporation has repurchased 5.1 million shares of Fleet common stock in the
public market, some or all of which will be issued to NBB shareholders.
-8-
<PAGE>
<PAGE 10>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 (continued)
NOTE 3. LONG-TERM DEBT
During the third quarter of 1994, the Corporation issued $200 million of 7.25%
Notes due 1999. On October 21, 1994, the Corporation issued an additional $200
million of 7.25% Notes due 1997. The Corporation intends to use the proceeds
of these issuances for general corporate purposes, including the repurchase of
its common stock in connection with the NBB Bancorp merger and repayments of
current maturities of long-term debt. On November 2, 1994, the SEC declared
effective Fleet's universal shelf registration statement that combined Fleet's
existing debt and preferred stock shelf registrations and registered an
additional $500 million of securities. Such universal shelf registration
statement provides for the issuance of common stock, warrants to purchase
common stock, preferred stock, warrants to purchase preferred stock, senior or
subordinated debt securities, and warrants to purchase senior or subordinated
debt securities. The total amount of funds available under this universal
shelf registration is $1.1 billion.
NOTE 4. INTEREST-RATE SWAPS ACCOUNTING POLICY
The Corporation enters into interest-rate swaps to manage exposure to
interest-rate risk and, to a lesser extent, for trading purposes. For
interest-rate swaps that are hedges of assets and liabilities, the net
differential to be paid or received on the swaps is accounted for as an
adjustment to the yield on the hedged item. Interest-rate swaps classified as
trading instruments are marked to market and reflected as a component of
noninterest income.
The Corporation applies hedge accounting to an interest-rate swap if the asset
or liability being hedged exposes the Corporation to interest-rate risk, and
the swap is designated and effective as a hedge of specific assets or
liabilities or pools of assets or liabilities. To be effective as a hedge, the
interest-rate swaps must contribute to an overall interest-rate sensitivity
that is within the Corporation's asset/liability management guidelines and, for
interest-rate swaps hedging a variable rate asset, there must be correlation
between the interest-rate index on the asset and the variable rate paid on the
swap. Initial and ongoing correlation is measured by statistical analysis of
the relative movements of the interest-rate indices over time. If correlation
were to cease, hedge accounting would be discontinued and the interest-rate
swap would be accounted for as a trading instrument.
If an interest-rate swap is terminated, the gain or loss is deferred and
amortized over the shorter of the remaining contract life or the maturity of
the hedged item. If a hedged item is sold or settled or the balance of the
hedged item falls below the notional amount of the swap, hedge accounting is
discontinued to the extent that the notional amount exceeds the balance and
accounting for trading instruments is applied.
-9-
<PAGE>
<PAGE 11>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERALL PERSPECTIVE
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 Dollars in millions, September 30
1994 1993 except per share data 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings
$164 $127 Net income $448 $352
- -------------------------------------------------------------------------
Per Common Share
$1.01 $0.78 Fully diluted earnings $2.70 $2.16
0.35 0.25 Cash dividends declared 1.00 0.725
22.50 22.17 Book value 22.50 22.17
- -------------------------------------------------------------------------
Operating Ratios
1.30 % 1.09 % Return on average assets 1.22 % 1.03 %
20.08 16.37 Return on common equity 17.87 15.76
Return on realized common
19.05 16.37 equity (a) 17.61 15.76
63.30 66.08 Efficiency ratio 64.42 66.50
7.33 7.54 Equity to assets (period-end) 7.33 7.54
- -------------------------------------------------------------------------
At September 30
$46,988 $46,920 Total assets $46,988 $46,920
3,446 3,537 Stockholders' equity 3,446 3,537
526 736 Nonperforming assets 526 736
- -------------------------------------------------------------------------
<FN>
(a) Excludes average unrealized losses of $172 million and $48 million
for the three and nine months ended September 30, 1994, respectively,
as a result of the adoption of FASB No. 115 on January 1, 1994.
</TABLE>
Net income for the three months and nine months ended September 30, 1994
increased 29% and 27%, respectively, from the same periods in 1993. Return on
assets and return on equity also improved significantly. The improved results
reflect favorable loan growth trends, ongoing expense reduction efforts,
continued improvement in credit quality, and significant expansion of our
banking and financial services franchises.
Return on average assets and return on common equity continue to show
improvement over the already high levels reported in previous quarters. Return
on assets for the third quarter of 1994 was 1.30% and return on common equity
was 20.08% (return on realized equity was 19.05%), compared to 1.09% and 16.37%
for the third quarter of 1993, and 1.22% and 18.31% for the second quarter of
1994.
Loan growth on both the commercial and consumer sides of our business continues
to be encouraging as average loans and leases increased 10% on an annualized
basis when compared to the previous quarter. In addition, during the third
quarter, the banking and financial services franchises were strengthened
through acquisitions and mortgage servicing purchases. The Corporation
completed the acquisition of Sterling Bancshares, signed a definitive agreement
to acquire Plaza Home Mortgage Corp., and purchased nearly $10 billion in
mortgage loan servicing.
-10-
<PAGE>
<PAGE 12>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
NET INTEREST INCOME
<TABLE>
<CAPTION>
For the Nine Months Ended September 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........ $ 52 $ 2 4.45% $ 243 $ 5 3.00%
Securities...................... 16,343 727 5.94 12,748 672 7.05
Loans and leases................ 26,450 1,681 8.49 26,109 1,663 8.52
Other........................... 1,411 67 6.36 2,116 102 6.42
------- ------- ----- -------- ------- -----
Total interest-earning assets 44,256 2,477 7.48% 41,216 2,442 7.92%
------- ------- ----- -------- ------- -----
Other nonearning assets......... 4,878 - - 4,326 - -
------- ------- ----- -------- ------- -----
Total assets.................... $ 49,134 $ 2,477 - $ 45,542 $ 2,442 -
======== ======= ===== ======== ======= =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits........................ $ 25,567 $ 544 2.84% $ 25,339 $ 577 3.05%
Borrowings...................... 11,764 404 4.60 9,276 303 4.37
-------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities................ 37,331 948 3.40 34,615 880 3.40
-------- ------- ----- -------- ------- -----
Net interest spread............. - 1,529 4.08 - 1,562 4.52
-------- ------- ----- -------- ------- -----
Demand deposits and other
noninterest bearing time
deposits...................... 6,715 - - 6,319 - -
Other liabilities............... 1,427 - - 1,198 - -
-------- ------- ----- -------- ------- -----
Total liabilities............... 45,473 948 - 42,132 880 -
-------- ------- ----- -------- ------- -----
Stockholders' equity............ 3,661 - - 3,410 - -
-------- ------- ----- -------- ------- -----
Total liabilities and
stockholders' equity........... $ 49,134 $ 948 - $ 45,542 $ 880 -
======== ======= ===== ======== ======= =====
Net interest margin............. 4.62% 5.06%
======== ======= ===== ======== ======= =====
</TABLE>
Net interest income on a fully taxable equivalent basis for the nine months
ended September 30, 1994, decreased $33 million, compared to the same period in
1993. The net interest margin for the nine months ended September 30, 1994 was
down 44 basis points compared to the same period in the prior year due to the
impact of the repositioning of the Corporation's investment portfolio and
rising short-term interest rates.
During 1993 and 1994 the Corporation repositioned its securities portfolio to
shorten its duration in anticipation of the rising interest-rate environment
and reduced the average maturity of the portfolio. This program, while better
positioning the portfolio for the current increasing interest-rate environment,
also resulted in a lower overall yield on the securities portfolio. The
increase in short-term borrowing costs also negatively impacted the net
interest margin as overall borrowing costs increased 23 basis points over the
prior year.
-11-
<PAGE>
<PAGE 13>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Late in the third quarter, the Corporation sold $4.4 billion of U.S. Treasury
bills at a loss of $11.6 million and used the proceeds to reduce short-term
borrowings. The Corporation also terminated $1.3 billion of interest-rate
swaps which resulted in a net deferred gain of approximately $61 million that
will be amortized over the original term of the interest-rate swaps, or
approximately 4 years. These swaps generated net interest expense of
approximately $3 million during the third quarter. As a result of these
transactions, the Corporation anticipates a positive impact on the net interest
margin and minimal impact on net interest income due to the narrow spread being
earned on the securities sold and the positive impact of terminating the
interest-rate swaps.
NONINTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 Dollars in millions 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating noninterest income:
$93 $107 Mortgage banking $278 $303
44 45 Investment services revenue 131 130
44 44 Service charges on deposits 130 129
19 16 Other service charges, fees and commissions 56 50
18 5 FDIC loan administration fees 42 18
15 13 Student loan servicing fees 39 38
10 9 Merchant discount fees 25 23
3 5 Brokerage fees and commissions 12 15
4 5 Insurance 12 14
30 48 Other 104 135
-------------------------------------------------------------------------------------------
280 297 Total operating noninterest income 829 855
-------------------------------------------------------------------------------------------
Trading income:
3 5 Securities 9 16
3 16 Foreign exchange/interest rate products 4 16
-------------------------------------------------------------------------------------------
6 21 Total trading income 13 32
-------------------------------------------------------------------------------------------
1 127 Securities available for sale gains 21 259
-------------------------------------------------------------------------------------------
$287 $445 Total noninterest income $863 $1,146
===========================================================================================
</TABLE>
Operating noninterest income decreased approximately 6% and 3%, respectively,
for the three months and nine months ended September 30, 1994 in comparison to
the same periods of the prior year. Mortgage banking revenue decreased $14
million from the third quarter of 1993 to the third quarter of 1994 and $25
million from the first nine months of 1993 compared to the first nine months of
1994.
-12-
<PAGE>
<PAGE 14>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Mortgage Banking Revenue
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 Dollars in millions 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$72 $ 62 Net loan servicing revenue $201 $166
1 45 Mortgage production revenue 28 116
20 0 Gains on sale of mortgage servicing 49 21
- ----------------------------------------------------------------------------------
$93 $107 Mortgage banking noninterest income $278 $303
==================================================================================
</TABLE>
The decrease in mortgage banking revenue is largely due to lower mortgage
production revenue. Net mortgage production revenue includes net revenue
related to the loan origination process and net gains on sales of mortgage
loans. Net mortgage production revenue decreased $44 million from the third
quarter of 1993 to the third quarter of 1994, and $88 million from the first
nine months of 1993 compared to the first nine months of 1994. The decrease,
primarily the component relating to gains on sale of loans, was a result of a
less favorable interest rate environment and a lower level of mortgage loan
production.
Net loan servicing revenue, which had been adversely affected throughout 1993
by prepayments, increased $10 million, or 16%, in the third quarter of 1994
compared to the third quarter of 1993, and $35 million, or 21%, for the first
nine months of 1994 compared to the same period in 1993. These increases were
primarily due to accelerated amortization charges on capitalized excess
servicing fees during the second and third quarters of 1993 combined with the
growth of the loan servicing portfolio experienced during 1994. Fleet Mortgage
Group's (FMG's) mortgage servicing portfolio grew to $82.8 billion at September
30, 1994 (excluding the recently announced acquisition of Plaza Home Mortgage
Corp. that is expected to be completed by early 1995) compared to $68.5 billion
a year earlier, an increase of 21%.
FDIC loan administration fees increased $13 million for the quarter due to a
higher volume of cash collections resulting in increased administration fees.
The $1 million year-to-year increase in student loan servicing fees is
attributable to the additional accounts added from the federal government's
direct student lending program. Brokerage fees and commissions decreased
approximately $3 million on a year-to-year basis due to decreased trading
activity.
Other operating noninterest income decreased $18 million on a
quarter-to-quarter basis primarily due to significant appreciation of Fleet
Equity Partners' investments in 1993, coupled with an $8 million decline in
consumer finance servicing income at Fleet Finance, Inc. due to a lower amount
of average loans being serviced.
Foreign exchange/interest rate products income decreased $13 million on a
quarter-to-quarter basis and $12 million on a year-to-year basis, due to the
recognition of $13.7 million of net gains on treasury options in 1993 compared
to a $5.7 million year-to-date loss in 1994. The treasury options were
purchased by FMG to mitigate the risk of residential loan prepayments due
to the low interest rate environment.
-13-
<PAGE>
<PAGE 15>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Trading revenue from interest-rate products and futures, and foreign exchange
contracts totaled $3.0 million and $6.6 million, respectively, for the nine
months ended September 30, 1994, compared to $779 thousand and $792 thousand,
respectively, for the same period in 1993. Securities available for sale gains
totaled $21 million for the nine months ended September 30, 1994, compared to
$259 million for the same period in 1993.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 Dollars in millions 1994 1993
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$229 $257 Employee compensation and benefits $727 $768
42 44 Occupancy 129 131
32 33 Equipment 100 97
17 52 Acquired servicing rights amortization 69 198
21 17 Legal and other professional 57 55
17 17 FDIC assessment 53 58
17 13 Marketing 44 38
14 14 Core deposit and goodwill amortization 42 41
10 10 Printing and mailing 32 32
12 11 Credit card 31 30
9 10 Telephone 28 29
7 7 Office supplies 22 25
10 13 OREO expense 22 49
7 7 Travel and entertainment 20 21
7 125 Restructuring charge 32 125
50 57 Other 158 175
------------------------------------------------------------------------------
$501 $687 Total noninterest expense $1,566 $1,872
==============================================================================
</TABLE>
Noninterest expense totaled $501 million in the third quarter of 1994 compared
to $562 million for the third quarter of 1993, prior to a $125 million
restructuring charge. This $61 million decrease is primarily attributable to
the Corporation's efficiency improvement program and a reduction in mortgage
servicing amortization resulting from a significant decline in mortgage
refinancings. Included in noninterest expense for the third quarter of 1994 is
a $7 million restructuring charge recorded at Fleet Mortgage Group related to a
four-month reengineering program that identified $40 million annually (pre-tax)
in sustainable profit improvements. This charge reflects anticipated severance
costs and other project-related costs expected to be incurred as a result of
this program. The majority of cash outlays associated with this program will
be paid during 1994 and early 1995 and are not expected to have an impact on
the Corporation's liquidity.
Employee compensation and benefits decreased $28 million, or 11% and $41
million, or 5%, respectively, for the three and nine months ended September 30,
1994 in comparison to the same periods of the prior year due to the reduction
in headcount as a result of the Corporation's efficiency improvement program.
-14-
<PAGE>
<PAGE 16>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The decrease in acquired servicing rights amortization reflects the accelerated
amortization of mortgage servicing assets experienced in 1993 due to the high
level of mortgage refinancings. During the third quarter of 1994, the
Corporation purchased $184 million of acquired servicing rights. The following
table shows the activity of the Corporation's acquired servicing rights.
Three months ended Nine months ended
September 30 September 30
1994 1993 Dollars in millions 1994 1993
- ------------------------------------------------------------------------------
$ 632 $ 549 Balance at beginning of period $ 560 $ 548
184 35 Additions 316 185
(6) - Servicing sales (14) (3)
(17) (33) Scheduled amortization (66) (89)
- (7) Accelerated amortization (3) (7)
- (12) Impairment charge - (102)
- ------------------------------------------------------------------------------
$ 793 $ 532 Balance at September 30 $ 793 $ 532
==============================================================================
Marketing expense increased by $4 million, or 31%, for the three months ended
September 30, 1994, compared to the three-month period ended September 30,
1993, due to promotions related to several new business initiatives undertaken
in 1994, including a cobranding arrangement with a major retail company. The
decrease in OREO expense for the three-month and nine-month periods was caused
by the continued improvement in credit quality as foreclosed property and
repossessed equipment decreased $73 million, or 42%, from September 30, 1993,
to $99 million at September 30, 1994.
Restructuring Accrual
As previously disclosed in the Corporation's 1993 Form 10-K and Form 10-Q for
the first quarter of 1994, the Corporation recorded charges aggregating to $150
million in connection with a program to restructure its banking operations.
The following table presents a summary of activity with respect to the
restructuring accrual.
<TABLE>
<CAPTION>
Nine Months Ended
September 30
Dollar in milllions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $119 $ 0
Provision charged against income 25 125
Cash outlays (39) -
Non-cash writedowns (36) -
- -----------------------------------------------------------
Balance, end of period $ 69 $125
===========================================================
</TABLE>
The cash outlays made through September 30, 1994, relate primarily to severance
costs and project-related costs. Non-cash writedowns relate to vacated
facilities and building and leasehold improvement write-offs.
-15-
<PAGE>
<PAGE 17>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
EARNINGS BY SUBSIDIARY
<TABLE>
<CATION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 Dollars in thousands 1994(c) 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANKING
$47,624 $32,554 New York $148,375 $115,776
41,427 34,609 Massachusetts 93,666 85,370
35,424 27,687 Rhode Island 88,212 48,237
16,657 48,572 Connecticut 55,789 124,520
8,729 11,238 Maine 22,444 21,363
5,136 5,738 New Hampshire 14,838 13,993
6,049 5,811 Fleet Investment Group 14,655 17,274
- ------------------------------------------------------------------------------
161,046 166,209 Total 437,979 426,533
- ------------------------------------------------------------------------------
FINANCIAL SERVICES
13,008 20,078 Fleet Mortgage(a) 32,531 13,131
4,789 887 Fleet Credit 14,568 8,126
2,110 10,083 Fleet Equity Partners 6,892 12,673
1,295 783 AFSA 2,990 2,331
622 1,102 Fleet Brokerage 2,429 2,622
972 1,423 Fleet Securities 2,118 4,318
0 2,252 Fleet Factors(b) 1,096 6,765
(8,039) 53 Fleet Finance (11,235) 2,876
- ------------------------------------------------------------------------------
14,757 36,661 Total 51,389 52,842
- ------------------------------------------------------------------------------
(11,910) (75,776) PARENT (41,627) (127,359)
- ------------------------------------------------------------------------------
$163,893 $127,094 Total Net Income $447,741 $352,016
==============================================================================
<FN>
(a) Net of minority interest of $3.1 million and $4.8 million for the
1994 and 1993 quarters, respectively, and $7.8 million and $3.1 million
year-to-date, respectively.
(b) Fleet Factors was sold in the first quarter of 1994.
(c) The internal allocation of the Corporation's restructuring charge has
not been reflected in the above table or in the discussion below.
</TABLE>
Excluding securities gains, the Banking Group's year-to-date earnings increased
$142.0 million from $290.9 million at September 30, 1993, to $432.9 million at
September 30, 1994. This 49% increase is primarily attributable to a decrease
in credit costs of $96.6 million (after-tax) as asset quality continues to
improve, and a $43.9 million (after-tax) 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
($53 million), Fleet-Rhode Island ($24 million) and Fleet-Connecticut ($11
million).
Fleet Mortgage, the Corporation's mortgage banking subsidiary, contributed
income of $36.0 million, excluding the $3.5 million (after-tax) restructuring
charge, in the nine-month period ended September 30, 1994, compared to $13.1
million in the same period of 1993. The improvement in earnings over the 1993
period was primarily due to the 1993 accelerated amortization related to
-16-
<PAGE>
<PAGE 18>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
mortgage servicing assets caused by the high level of mortgage loan
prepayments. Earnings also improved as a result of increased loan servicing
revenue and increased gains on sales of mortgage servicing. Earnings for the
nine months ended September 30, 1994 were negatively affected by the rising
interest-rate environment that adversely impacted net mortgage production
revenue and net interest income. See Noninterest Income section for more
information on mortgage banking revenue.
Fleet Credit's earnings increased by $6.4 million on a year-to-date basis due
to improved asset quality costs as nonperforming assets decreased from $46.2
million at September 30, 1993 to $13.0 million at September 30, 1994. Fleet
Equity Partners' income decreased by $5.8 million on a year-to-date basis as
the 1993 net income included significant unrealized gains on investments
primarily in the communications industry. Fleet Securities reported net income
of $2.1 million for the first nine months of 1994 compared to $4.3 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 $11.2 million in the nine-month period ended
September 30, 1994, compared to earnings of $2.9 million in the same period of
1993. The loss is attributable to lower net interest income and increased
provision for credit losses due to asset quality concerns.
LOANS AND LEASES
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31,
Dollars in millions 1994 1994 1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $11,327 $11,222 $10,734 $11,299
Consumer 7,623 7,519 7,450 7,531
Commercial real estate:
Construction 489 492 461 477
Interim/permanent 3,813 3,919 3,828 3,917
-----------------------------------------------------------------------------------------
Total commercial real estate 4,302 4,411 4,289 4,394
-----------------------------------------------------------------------------------------
Residential real estate 2,766 2,565 2,459 2,052
Lease financing 1,030 1,042 1,018 1,034
-----------------------------------------------------------------------------------------
Total loans and leases $27,048 $26,759 $25,950 $26,310
=========================================================================================
</TABLE>
Total loans increased over $1.2 billion, or 6% on an annualized basis, from
December 31, 1993, excluding the effect of the sale of the Corporation's
factoring business and the release of the FDIC from its federal financial
assistance agreements on certain loans purchased by Fleet as part of the
acquisition of the Bank of New England in 1991. This growth, principally in
commercial loans and residential loans, was achieved through new loan
originations across all banking franchises.
Average loans and leases increased more than $600 million, or approximately 10%
on an annualized basis, for the third quarter of 1994 compared to the second
quarter of 1994 primarily in commercial and consumer loans, as average loan
growth was noted in all Fleet banking markets, especially the Massachusetts,
New York and Rhode Island franchises.
-17-
<PAGE>
<PAGE 19>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
On July 14, 1994 the federal financial assistance agreement with the FDIC
relating to loans acquired as part of the Bank of New England acquisition in
1991 expired. During the third quarter of 1994, before the expiration date,
approximately $8 million of loans were put back to the FDIC.
NONPERFORMING ASSETS(a)
The balance of nonperforming assets is as follows:
<TABLE>
<CAPTION> September 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.................. $ 64 $ 52 $ 11 $ 127
Noncurrent....................... 77 55 169 301
OREO/ISF........................... 7 52 39 98
- -----------------------------------------------------------------------------
Total nonperforming assets at
September 30, 1994............... $ 148 $ 159 $ 219 $ 526
=============================================================================
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 ($86 million
and $77 million at September 30, 1994 and December 31, 1993, respectively,
which include approximately $64 million and $62 million of consumer loans,
respectively), or assets subject to federal financial assistance ($64
million and $118 million at September 30, 1994 and December 31, 1993,
respectively).
</TABLE>
Nonperforming assets were down $75 million from December 31, 1993, due to
continued improvement in the portfolio. The largest decreases were noted at
Fleet Bank-New York and Fleet Bank-Rhode Island.
The following reconciliation shows the activity in nonperforming assets by
quarter:
<TABLE>
<CAPTION>
3rd Quarter 2nd Quarter 3rd Quarter
Dollars in millions 1994 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period....... $ 564 $ 613 $ 852
Additions............................ 102 97 143
Reductions:
Payments/interest applied.......... (74) (65) (109)
Returned to accrual................ (9) (9) (38)
Sales/other........................ (27) (38) (37)
- -------------------------------------------------------------------------
Subtotal......................... (110) (112) (184)
- -------------------------------------------------------------------------
Charge-offs/write-downs............ (30) (34) (75)
- -------------------------------------------------------------------------
Total reductions..................... (140) (146) (259)
- -------------------------------------------------------------------------
Balance at end of period............. $ 526 $ 564 $ 736
=========================================================================
</TABLE>
-18-
<PAGE>
<PAGE 20>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
At September 30, 1994, nonperforming assets had decreased $210 million, or 29%,
from September 30, 1993, due to reduced inflows to nonperformers as third
quarter 1994 additions were $102 million compared to $143 million in the third
quarter of 1993. Nonperforming assets, as a percentage of total loans, leases
and OREO, and as a percentage of total assets, were 1.94% and 1.12%,
respectively, at September 30, 1994, compared to 2.27% and 1.25%, respectively,
at December 31, 1993.
RESERVE FOR CREDIT LOSSES
A summary of activity in the reserve for credit losses follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 Dollars in millions 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$977 $1,028 Balance, beginning of period $1,000 $1,029
Provisions charged against
11 61 income 45 215
Recoveries of loans and leases
19 17 charged off 67 61
(38) (88) Loans and leases charged off (138) (284)
0 (3) Acquisitions/other (5) (6)
-------------------------------------------------------------------------
$969 $1,015 Balance, end of period $ 969 $1,015
=========================================================================
</TABLE>
The Corporation's reserve for credit losses decreased by $31 million from
December 31, 1993 to September 30, 1994. 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 1.14% for the nine months ended
September 30, 1993 to 0.36% 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 184% and 226%, respectively, at
September 30, 1994, compared to 166% and 215%, respectively, at December 31,
1993.
-19-
<PAGE>
<PAGE 21>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
SECURITIES
<TABLE>
<CAPTION>
September 30, 1994 June 30, 1994 December 31, 1993
-----------------------------------------------------------------------
Amortized Market Amortized Market Amortized Market
Dollars in millions Cost Value Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and government agencies $ 5,314 $ 5,202 $ 7,853 $ 7,740 $ 5,775 $ 5,950
Mortgage-backed securities 7,444 7,154 7,501 7,290 5,739 5,878
State and municipal 0 0 0 0 733 747
Other debt securities 179 179 192 193 250 257
- ------------------------------------------------------------------------------------------------------------------
Total debt securities 12,937 12,535 15,546 15,223 12,497 12,832
- ------------------------------------------------------------------------------------------------------------------
Marketable equity securities 129 136 148 166 64 83
Other securities 108 108 107 107 16 16
- ------------------------------------------------------------------------------------------------------------------
Total securities available for sale $13,174 $12,779 $15,801 $15,496 $12,577 $12,931
==================================================================================================================
Total securities held to maturity $ 940 $ 943 $ 748 $ 751 $ 1,546 $1,580
==================================================================================================================
Total securities $14,114 $13,722 $16,549 $16,247 $14,123 $14,511
==================================================================================================================
</TABLE>
Total securities available for sale decreased $2.6 billion, principally U.S.
Treasury and government agencies securities, during the third quarter of 1994
primarily due to the previously mentioned sale of $4.4 billion of U.S. Treasury
bills at a loss of $11.6 million. During the third quarter of 1994, Fleet also
sold approximately $641 million of mortgage-backed securities resulting in $5.4
million of gains, sold $9 million of equity securities resulting in $3.2
million of gains and sold $89 million of the securities acquired as part of the
Sterling acquisition for a $4.3 million gain.
Fleet's mortgage-backed securities (MBSs) include $3.4 billion of
adjustable-rate mortgage (ARM) securities and $4.0 billion of fixed-rate
mortgage (FRM) securities. The ARM securities are almost entirely GNMA 1-year
adjustable-rate pass-throughs; the FRM securities are mainly FNMA and FHLMC
15-year fixed-rate pass-throughs. Fleet does not hold a material investment in
collateralized mortgage obligations (CMOs) or high-risk securities. Fleet's
MBSs are subject to prepayment and interest rate risk. As interest rates rise
and prepayments slow, the FRM securities will tend to extend in duration and
decline in market value. Similarly, as interest rates rise and coupon caps are
reached, the ARM securities will tend to extend in duration and decline in
market value.
-20-
<PAGE>
<PAGE 22>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
FUNDING SOURCES
<TABLE>
<CAPTION>
September 30, June 30, December 31,
Dollars in millions 1994 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand $ 6,272 $ 6,497 $ 6,473
Regular savings, NOW, money market 15,576 16,087 16,437
Time 8,272 7,736 7,616
Foreign 3,492 2,049 559
- ----------------------------------------------------------------------------------------------
Total deposits 33,612 32,369 31,085
- ----------------------------------------------------------------------------------------------
Borrowed funds:
Federal funds purchased 1,051 1,609 442
Securities sold under agreements to repurchase 1,525 2,510 1,519
Commercial paper 864 731 1,337
Other 1,676 3,686 4,809
- ----------------------------------------------------------------------------------------------
Total borrowed funds 5,116 8,536 8,107
Notes and debentures 3,396 3,341 3,444
- ----------------------------------------------------------------------------------------------
Total $42,124 $44,246 $42,636
==============================================================================================
</TABLE>
Total deposits increased $1.2 billion, or 3.8%, from June 30, 1994, to
September 30, 1994, primarily due to an increase in wholesale funding. In
addition, the Corporation's mix of total deposits has shifted slightly as
foreign deposits and time deposits have increased by $1.4 billion and $536
million, respectively, while regular savings, NOW and money market deposits
have decreased by $511 million. Total borrowed funds decreased $3.4 billion
from June 30, 1994 to September 30, 1994 primarily due to the decrease in
securities as a result of the investment security reduction initiative
discussed previously.
During the third quarter of 1994 the Corporation issued $200 million of 7.25%
Notes due 1999. The Corporation used the proceeds of this issuance for general
corporate purposes, including the repurchase of its common stock in connection
with the NBB Bancorp merger and repayments of current maturities of
long-term debt.
LIQUIDITY
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 nine months of 1994, the parent received $338.0
million in interest and dividends from subsidiaries and paid $259.6 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.
-21-
<PAGE>
<PAGE 23>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
As shown in the consolidated statement of cash flows, cash and cash equivalents
increased by $136 million during the nine-month period ended September 30,
1994. This increase was primarily due to $2.53 billion of net cash provided by
operating activities, partially offset by $488 million and $1.90 billion of net
cash used for investing activities and financing activities, respectively. Net
cash provided by operating activities was principally generated by income from
operations and proceeds from the sale of mortgages held for resale, offset
in part by originations and purchases of such mortgages. Net cash used for
investing activities was mainly attributable to net increases in loans and
leases at the banking subsidiaries and purchases of acquired servicing rights
offset in part by net sales of securities. Net cash used for financing
activities was primarily due to a net decrease in short-term borrowings, the
repurchase and redemption of common and preferred stock and repayments of
long-term debt offset by increased deposits.
At September 30, 1994 and December 31, 1993, the Corporation and its
subsidiaries had $3.0 billion and $2.55 billion, respectively, in confirmed
lines of credit, of which $485 million and $940 million were outstanding at
September 30, 1994 and December 31, 1993, respectively. The amounts
outstanding under the lines of credit relate to FMG at both September 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 September 30, 1994, Fleet had
commercial paper outstanding of $864 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.
At September 30, 1994, the Corporation had two registration statements filed
with the SEC which provided for the issuance of senior or subordinated debt
securities and preferred stock, respectively. Amounts remaining on these two
shelf registrations were $382 million and $445 million, respectively, at
September 30, 1994. On October 21, 1994, the Corporation issued $200 million
of 7.25% Notes under the debt securities shelf. On November 2, 1994, the SEC
declared effective the Corporation's universal shelf registration statement
that combined such existing debt and preferred stock shelf registrations with a
registration of an additional $500 million of securities. Such universal shelf
registration statement provides for the issuance of common stock, warrants to
purchase common stock, preferred stock, warrants to purchase preferred stock,
senior or subordinated debt securities and warrants to purchase senior or
subordinated debt securities. The total amount of funds available under this
universal shelf registration is $1.1 billion.
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
the balance sheet and resultant net interest income under alternative
interest-rate scenarios. 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.
-22-
<PAGE>
<PAGE 24>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Fleet uses interest-rate swaps to manage interest-rate risk and to establish
the proper interest-rate risk profile within clearly defined and prudent
parameters on the basis of the current interest-rate environment. Also, since
interest-rate swaps are used to hedge specific assets and liabilities, the
interest-rate sensitivity of specific portfolios is analyzed, as well as the
impact of interest-rate swaps on the entire balance sheet. The resulting
interest-rate sensitivity must be within the clearly defined parameters. As a
result, there are situations where interest-rate swaps will be executed which
increase existing asset or liability sensitivity (as measured by the gap
position), but the resulting risk profile is desired and within Fleet's
asset/liability management guidelines. Fleet considers the cost versus the
duration of the swap hedge program within its asset/liability management
parameters for interest-rate risk management.
On a consolidated basis, Fleet Financial Group had $5.5 billion (notional
amount) of interest-rate risk management swaps with external counterparties at
September 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 $2,698 1.2 $ (7) 6.94 % 5.43 %
Basis swaps 80 2.1 (3) (a) (a)
Index-amortizing swaps receive
fixed/pay variable 2,770 1.0 (97) 5.29 6.15
- ----------------------------------------------------------------------------------------
Total $5,548 1.1 $(107) 6.10 % 5.79 %
========================================================================================
<FN>
(a) Basis swaps are interest-rate swaps in which both amounts paid and received are
based on floating rates.
</TABLE>
The index amortizing swaps are intended to mitigate the repricing sensitivity
of floating-rate assets and consequently are designated as hedges of
Prime-based loans. Under the terms of the index amortizing swaps, Fleet
receives a fixed rate and pays a floating rate based on 6-month LIBOR. Each
index amortizing swap had an original minimum maturity of two years, a maximum
maturity of three years, and an amortization schedule based on 6-month LIBOR.
At the end of the two-year minimum period, and at six-month intervals through
the maximum maturity, if 6-month LIBOR is below a range, which for Fleet's
portfolio is 4.45% to 6.45%, all of the swap would amortize (i.e., the
swap matures). If 6-month LIBOR is above this range, none of the swap would
amortize. If 6-month LIBOR is within this range, a portion of the notional
amount amortizes.
-23-
<PAGE>
<PAGE 25>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The interest-rate risk management swap activity for the nine months ended
September 30, 1994 is summarized in the following table (all amounts are
notional amounts):
<TABLE>
<CAPTION>
Total
Receive Pay Index Portfolio
Dollars in millions Fixed Fixed Basis Amortizing Swaps
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at 12/31/93 $ 2,249 $ 985 $ - $ 2,770 $ 6,004
Additions 924 311 80 - 1,315
Maturities (475) - - - (475)
Terminations - (1,296) - - (1,296)
- ----------------------------------------------------------------------------------------
Balance at 9/30/94 $ 2,698 $ 0 $ 80 $ 2,770 $ 5,548
========================================================================================
</TABLE>
During 1994 Fleet added $924 million of receive-fixed swaps to hedge short-term
floating-rate loans and fixed-rate CDs. In September 1994, Fleet terminated
its entire portfolio of pay-fixed swaps resulting in a net deferred gain of $61
million. The gain is being amortized over the original term of the
interest-rate swaps, or approximately 4 years.
The total notional amount of all interest-rate swaps at September 30, 1994 was
$6.4 billion compared to $6.6 billion at December 31, 1993. These amounts
include $838 million and $614 million, respectively, of interest-rate swaps
executed with customers which are classified as trading and are carried at
market value.
CAPITAL
As of September 30, 1994 and December 31, 1993, Fleet's capital ratios, which
exceeded all minimum regulatory requirements, were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
Dollar in millions 1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Tier 1 Capital $ 3,530 $ 3,495
Total Capital 4,966 4,939
Risk adjusted assets 30,721 29,713
Tier 1 risk-based capital 11.5 % 11.8 %
Total risk-based capital 16.2 16.6
Leverage ratio 7.1 7.5
Common equity/assets 6.53 6.55
Total equity/assets 7.33 7.59
</TABLE>
-24-
<PAGE>
<PAGE 26>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Corporation's capital ratios have remained relatively stable from December
31, 1993 to September 30, 1994. Fleet exceeded the required minimum Tier 1
risk-based capital and required total risk-based capital by approximately $2.3
billion and $2.5 billion, respectively, at September 30, 1994 and approximately
$2.3 billion and $2.6 billion, respectively, at December 31, 1993. Fleet
exceeded the Federal Reserve Board's minimum leverage requirements by
approximately $1.5 billion and $1.6 billion at September 30, 1994 and December
31, 1993, respectively. The September 30, 1994 and December 31, 1993, Tier 1,
total capital and leverage ratios do not include any adjustments for unrealized
gains or losses relating to securities available for sale.
INCOME TAXES
The Corporation recognized income tax expense of $102 million and $296 million,
or effective tax rates of 38% and 39%, respectively, for the three months and
nine months ended September 30, 1994, compared to $87 million and $241 million,
respectively, for the three months and nine months ended September 30, 1993, or
an effective tax rate of 40% for both periods. 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. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," which requires disclo-
sures about derivative financial instruments--futures, forward, swap, and op-
tion contracts, and other financial instruments with similar characteristics.
This Statement amends Statement Nos. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentrations of Credit Risk" and 107, "Disclosures about Fair Value of
Financial Instruments." It requires that a distinction be made between
financial instruments held or issued for trading purposes and financial
instruments held or issued for purposes other than trading. For trading
instruments, required disclosures include the average fair value and net
trading gains and losses. For instruments held for purposes other than
trading, which for Fleet is hedging, required disclosures include information
about the purpose for holding the instruments and how the instruments are
reported in the financial statements. This statement is effective for fiscal
years ending after December 15, 1994.
The FASB has issued an amendment to Statement No. 114, "Accounting by Creditors
for Impairment of a Loan," which amends the methods allowed for recognition of
interest income on impaired loans to allow creditors to use existing methods.
The change does not alter the requirements on how loan impairment should be
measured or even the amount of interest income, only how such income is
recognized. The effect of adopting this amendment, as well as the statement
itself, has not been fully determined, but it is not expected to have a
material adverse impact on the Corporation's results of operations. Adoption
of this statement is required for fiscal years beginning after
December 15, 1994.
-25-
<PAGE>
<PAGE 27>
PART II. ITEM 1. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are involved in various legal proceedings
arising out of, and incidental to, their respective businesses. The following
legal proceedings were settled during the third quarter.
Alexander Class Action
The court gave its final approval of the Alexander class action settlement in
the third quarter of 1994. Pursuant to such settlement, Fleet Finance will
provide benefits that include cash payments to certain borrowers whose loans
included specified points or were foreclosed upon. In addition, pursuant to
the settlement, Fleet Finance will prospectively reduce the interest rates of
active loans it still owns and pay a monthly supplement on certain loans it has
sold.
At September 30, 1994, Fleet Finance had accrued $9.3 million related to the
settlement described above, and Fleet believes this accrual is sufficient to
cover the costs relating to this settlement. Through September 30, 1994, Fleet
Finance had disbursed $2.8 million relating solely to the attorneys' fees.
Starr Class Action
The court gave its preliminary approval of the Lillie Mae Starr class action
settlement in the third quarter of 1994. Final approval is expected in the
fourth quarter of 1994. Pursuant to such settlement, Fleet Finance will
provide certain benefits that include cash payments to certain borrowers whose
loans were above a specified interest rate and who actively participated in the
prosecution of the class action suit. In addition, Fleet Finance agreed to pay
approximately $2.2 million in attorneys' fees. At September 30, 1994, Fleet
Finance had accrued $6.0 million related to the settlement described above, and
Fleet believes this accrual is sufficient to cover the costs relating to this
settlement. Through September 30, 1994, Fleet Finance had disbursed none of
this settlement.
PART II. ITEMS 2 THROUGH 4. -- Not Applicable
-26-
<PAGE>
<PAGE 28>
PART II. ITEM 6.
(a) Exhibit Index
Exhibit Page of this
Number Report
-----------------------------------------------------------
4 Instruments defining the right of *
security holders, including debentures
11 Statement re-computation of 29
per share earnings
27 Financial Data Schedule 31
* 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) Four Form 8-Ks were filed during the period from July 1, 1994 to
the date of the filing of this report.
- Current Report on Form 8-K dated August 15, 1994 (reporting
the completion of the acquisition of Sterling Bancshares Corp.).
- Current Report on Form 8-K dated September 7, 1994 (reporting
the issuance of $200 million of its 7.25% Notes due 1999).
- Current Report on Form 8-K dated October 19, 1994 (announcing
Fleet's Third Quarter Earnings).
- Current Report on Form 8-K dated October 21, 1994 (reporting
the issuance of $200 million of its 7.25% Notes due 1997).
-27-
<PAGE>
<PAGE 29>
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: November 10, 1994
-28-
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 September 30
1994 1993
-------------------------- ---------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 139,842,907 139,842,907 136,723,498 136,723,498
Additional shares due to:
Stock options 874,550 875,771 763,473 835,811
Warrants 3,456,170 3,456,170 3,079,253 3,210,394
Series I preferred stock 0 0 0 41,656
Series II preferred stock 0 0 0 132,434
Dual convertible preferred stock 16,033,994 16,033,994 16,033,994 16,033,994
----------- ----------- ----------- -----------
Total equivalent shares 160,207,621 160,208,842 156,600,218 156,977,787
=========== =========== =========== ===========
Earnings per share:
Net income $ 163,893 $ 163,893 $ 127,094 $ 127,094
Less: Preferred stock dividends (2,463) (2,463) (4,401) (4,345)
----------- ----------- ----------- -----------
Adjusted net income $ 161,430 $ 161,430 $ 122,693 $ 122,749
=========== =========== =========== ===========
Total equivalent shares 160,207,621 160,208,842 156,600,218 156,977,787
=========== =========== =========== ===========
Earnings per share on net income $ 1.01 $ 1.01 $ 0.78 $ 0.78
=========== =========== =========== ===========
</TABLE>
-29-
<PAGE>
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 Nine Months Ended September 30
1994 1993
-------------------------- ---------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 140,750,735 140,750,735 134,114,160 134,114,160
Additional shares due to:
Stock options 868,108 927,822 769,591 862,837
Warrants 3,384,674 3,450,831 3,017,575 3,210,394
Series I preferred stock 0 0 0 42,606
Series II preferred stock 0 0 0 133,399
Dual convertible preferred stock 16,033,994 16,033,994 16,033,994 16,033,994
----------- ----------- ----------- -----------
Total equivalent shares 161,037,511 161,163,382 153,935,320 154,397,390
=========== =========== =========== ===========
Earnings per share:
Net income $ 447,741 $ 447,741 $ 352,016 $ 352,016
Less: Preferred stock dividends (12,658) (12,658) (17,893) (17,723)
----------- ----------- ----------- -----------
Adjusted net income $ 435,083 $ 435,083 $ 334,123 $ 334,293
=========== =========== =========== ===========
Total equivalent shares 161,037,511 161,163,382 153,935,320 154,397,390
=========== =========== =========== ===========
Earnings per share on net income $ 2.70 $ 2.70 $ 2.17 $ 2.16
=========== =========== =========== ===========
</TABLE>
-30-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1994 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,129
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 219
<TRADING-ASSETS> 67
<INVESTMENTS-HELD-FOR-SALE> 12,779
<INVESTMENTS-CARRYING> 940
<INVESTMENTS-MARKET> 943
<LOANS> 27,048
<ALLOWANCE> (969)
<TOTAL-ASSETS> 46,988
<DEPOSITS> 33,612
<SHORT-TERM> 5,116
<LIABILITIES-OTHER> 1,418
<LONG-TERM> 3,396
<COMMON> 1,684
0
379
<OTHER-SE> 1,383
<TOTAL-LIABILITIES-AND-EQUITY> 46,988
<INTEREST-LOAN> 1,741
<INTEREST-INVEST> 707
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,448
<INTEREST-DEPOSIT> 544
<INTEREST-EXPENSE> 948
<INTEREST-INCOME-NET> 1,500
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 1,566
<INCOME-PRETAX> 752
<INCOME-PRE-EXTRAORDINARY> 752
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.70
<YIELD-ACTUAL> 4.62
<LOANS-NON> 526
<LOANS-PAST> 86
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,000
<CHARGE-OFFS> 138
<RECOVERIES> 67
<ALLOWANCE-CLOSE> 969
<ALLOWANCE-DOMESTIC> 969
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 289
</TABLE>
