<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1993 - 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)
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(401) 278-5800
(Registrant's telephone number, including area code)
<TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
Common Stock, $1 Par Value New York Stock Exchange
Preferred Stock with Cumulative and Adjustable Dividends, $1 Par Value New York Stock Exchange
Preferred Stock with Cumulative and Adjustable Dividends, $20 Par Value New York Stock Exchange
Depositary Shares representing a one-fourth interest in a share
of Series III, 10.12% Perpetual Preferred stock, $1 Par Value New York Stock Exchange
Depositary Shares representing a one-fourth interest in a share
of Series IV, 9.375% Perpetual Preferred Stock, $1 Par Value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing
requirements for the past 90 days: YES XX NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value on March 3, 1994 of the voting stock held by
nonaffiliates of the Registrant was $4.5 billion, which includes $274 million
held by banking subsidiaries of the Registrant under trust agreements and other
instruments.
The number of shares of common stock of the Registrant outstanding as of
March 3,1994 was 137,559,732.
DOCUMENTS INCORPORATED BY REFERENCE
1. Pertinent extracts from Registrant's accompanying 1993 Annual Report to
Shareholders (Parts I and II).
2. Pertinent extracts from Registrant's Proxy Statement for its annual meeting
on April 20, 1994, previously filed with the Commission. Such incorpor-
ation by reference shall not be deemed to specifically incorporate by
reference the information referred to in Item 402 (a)(8) of Regulation S-K.
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FORM 10-K
FLEET FINANCIAL GROUP, INC.
For the Year Ended December 31, 1993
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Table of Contents
<CAPTION>
Description Page Number
<S> <C> <C>
Part I. Item 1 - Business 3
Item 2 - Properties 10
Item 3 - Legal Proceedings 10
Item 4 - Submission of Matters to a Vote
of Security-Holders 10
Part II. Item 5 - Market for the Registrant's Common Stock
and Related Stockholder Matters 10
Item 6 - Selected Financial Data 10
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Item 8 - Financial Statements and Supplementary
Data 11
Item 9 - Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 11
Part III. Item 10 - Directors and Executive Officers of the
Registrant 11
Item 11 - Executive Compensation 13
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 13
Item 13 - Certain Relationships and Related
Transactions 13
Part IV. Item 14 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 13
Signatures 16
</TABLE>
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PART I.
Item 1. BUSINESS
Fleet Financial Group, Inc. (the "Registrant", "Corporation" or"Fleet")
is a diversified financial services company organized under the laws of the
State of Rhode Island. Fleet is a legal entity separate and distinct from its
subsidiaries, assisting such subsidiaries by providing financial resources and
management. By most measures, Fleet is among the 15 largest bank holding
companies in the United States, with total assets of $47.9 billion at December
31, 1993. Fleet has approximately 26,000 employees.
Fleet reported net income for 1993 of $488 million, or $3.01 per share.
This compared to net income of $280 million, or $1.77 per share in 1992. For
a more detailed discussion of the Corporation's financial results, refer to
"Management's Discussion and Analysis" (pages 9-23) of the accompanying 1993
Annual Report to Shareholders which is hereby incorporated by reference.
Banking Subsidiaries
Fleet is engaged in a general commercial banking and trust business
throughout the states of Rhode Island, New York, Connecticut, Massachusetts,
Maine and New Hampshire through its banking subsidiaries, Fleet Bank of New
York ("Fleet-Upstate"); Fleet Bank ("Fleet-Long Island"); Fleet National Bank
("Fleet-RI"); Fleet Bank, National Association ("Fleet-CT"); Fleet Bank of
Massachusetts, National Association ("Fleet-MA"); Fleet Bank of Maine
("Fleet-Maine") and Fleet Bank-NH ("Fleet-NH"). All of the subsidiary banks
are members of the Federal Reserve System, and the deposits of each are
insured by the FDIC to the extent provided by law.
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The following table shows the total offices, assets, deposits and equity
capital of Fleet's banking subsidiaries at December 31, 1993:
<CAPTION>
Equity
($ in millions) Offices Assets Deposits Capital
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<S> <C> <C> <C> <C>
Fleet-Upstate 258 $ 9,651 $ 7,567 $ 827
Fleet-CT 149 8,021 6,049 558
Fleet-MA 177 7,726 6,125 578
Fleet-RI 52 6,652 5,604 630
Fleet-Maine 106 2,895 2,164 225
Fleet-Long Island 72 2,795 2,263 173
Fleet-NH 39 1,776 1,313 123
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853 $39,516 $31,085 $3,114
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</TABLE>
Nonbanking Subsidiaries
Fleet provides, through its nonbanking subsidiaries, a variety of
financial services, including mortgage banking, asset-based lending, equipment
leasing, consumer finance, real estate financing, credit related life and
accident/health insurance, securities brokerage services, investment banking,
investment advice and management, data processing, and student loan servicing.
The following is a summary of these subsidiaries by line of business:
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Item 1. BUSINESS - (continued)
Mortgage Banking
Fleet Mortgage Group, Inc. ("FMG") is a Rhode Island corporation. FMG's
mortgage banking business consists primarily of the origination, purchase,
sale and servicing of residential first mortgage loans, and the purchase and
sale of servicing rights associated with mortgage loans. In 1992, the
Corporation sold a 19% interest in FMG, in a public offering of FMG's common
stock.
FMG currently ranks as the second largest mortgage servicer in the
nation. It produces mortgage loans through its 91 retail branch offices
located in 37 states and acquires mortgage loans through correspondent
lenders, which originate mortgage loans pursuant to guidelines provided by
FMG. FMG services a portfolio of approximately $70 billion in mortgage loans.
Asset-Based Lending
Fleet Credit Corporation ("Fleet Credit") engages primarily in middle
market equipment leasing. Fleet Credit had total assets of $1.4 billion as of
December 31, 1993, making it one of the largest bank-affiliated commercial
finance leasing firms in the U.S. Fleet Credit operates 23 offices in 14
states.
Fleet Factors Corporation ("Fleet Factors") is based in New York City,
and engages in factoring and commercial finance for various industries,
principally textiles, but also including hard goods and electronics. Fleet
Factors had total assets of approximately $350 million at December 31, 1993.
All of the outstanding common stock of Fleet Factors was sold on February 14,
1994.
Consumer Finance
Fleet Finance, Inc. ("Fleet Finance") located in Atlanta, Georgia,
engages primarily in consumer lending and home equity lending operations
through 130 offices in 22 states and underwrites credit life, accident and
health insurance. Fleet Finance services a portfolio of approximately $2.3
billion in loans, primarily secured by residential real estate. (Information
set forth in Note 16. Commitments, Contingencies, and Other Disclosures (page
47) of the accompanying 1993 Annual Report to Shareholders, which is hereby
incorporated by reference, provides a description of certain litigation
involving Fleet Finance, Inc.)
Securities Brokerage
Fleet Securities, Inc. is a full-service municipal securities underwriter
and dealer providing services throughout New York and New England.
Fleet Brokerage Securities, Inc., is engaged in providing securities
brokerage services (including clearing services), related securities credit
extension, and other incidental activities through offices in New York City
and throughout the country. Fleet Brokerage operates 12 offices in 11 states.
Trust and Investment Management
Fleet Investment Services Group which has responsibility for overall
management of the Corporation's trust activities provides personalized money
management and a full range of trust services for individuals, large and small
companies, religious and educational endowments and charitable organizations.
In total, the Fleet trust operations manage or have under custody
approximately $50 billion in assets.
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Item 1. BUSINESS - (continued)
Fleet Investment Advisors Inc. located in Providence, Rhode Island
handles investment policy matters and all personal and institutional portfolio
management.
Data Processing
Fleet Services Corporation ("Fleet Services") was formed to consolidate
the Corporation's previously existing data processing operations. Fleet
Services' principal function is to provide data processing services for the
banking and nonbanking subsidiaries of the Corporation.
AFSA Data Corporation ("AFSA") provides student loan processing and
portfolio management services for Federal Perkins and Federal Family student
loans to over 700 colleges, universities, and financial institutions
nationwide. AFSA is located in Long Beach, California and operates student
loan processing centers in Lombard, IL and Utica, NY. AFSA services a
portfolio of approximately $7 billion in student loans.
Competition
The Corporation's subsidiaries are subject to competition in all aspects
of the businesses in which they compete from domestic and foreign banks,
equipment leasing companies, finance companies, securities and investment
advisory firms, real estate financing companies, mortgage banking companies,
and other financial institutions. The Corporation principally competes on
interest rates and other terms of financing arrangements, including
specialized customer services and various banking arrangements and
conveniences to attract depositors, borrowers, and other customers. The
Corporation maintains a Products and Services Group to review existing
programs and institute new services.
Supervision and Regulation
Banking is a highly regulated industry, with numerous federal and state
laws and regulations governing the organization and operation of banks and
their affiliates. As a bank holding company, Fleet is subject to regulation
by the Board of Governors of the Federal Reserve Board (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956 (as amended) (the "BHCA").
Fleet-Maine, Fleet-NH, Fleet-Upstate and Fleet-Long Island as state-chartered
member banks are subject to regulation by the Federal Reserve Board and bank
regulators in their respective states. Fleet-CT, Fleet-MA and Fleet-RI are
national banks subject to regulation and supervision by the Office of the
Comptroller of the Currency (the "OCC"). Each subsidiary bank's deposits are
insured by the Federal Deposit Insurance Corporation (FDIC) and each bank
subsidiary is a member of the Federal Reserve System. Fleet is also subject
to the reporting and other requirements of the Securities Exchange Act of 1934
(the "Exchange Act").
The BHCA requires that Fleet obtain prior approval from the Federal
Reserve Board for bank and nonbank acquisitions and restricts the business
operations permitted to Fleet. The BHCA also restricts the acquisition of
shares of out-of-state banks unless the acquisition is specifically authorized
by the laws of the state in which the bank to be acquired is located. In
addition, Fleet's bank subsidiaries must obtain prior approval from their
respective primary regulators for most acquisitions. Virtually all aspects of
the subsidiary banks' businesses are subject to regulation and examination,
depending on the charter of the particular banking subsidiary, by the Federal
Reserve Board, the OCC, the banking regulatory agency of the state in which
they operate, or a combination of the above.
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<PAGE> 6
Item 1. BUSINESS - (continued)
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was signed into law. In general, FDICIA
subjects banks to significantly increased regulation and supervision. Among
other things, FDICIA requires federal bank regulatory authorities to take
"prompt corrective action" in respect of banks that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Under the OCC's regulations, a bank is defined to
be well capitalized if it maintains a risk-adjusted Tier I capital ratio of at
least 6%, a risk-adjusted total capital ratio of at least 10% and a Tier I
leverage ratio of at least 5%, and is not otherwise in a "troubled condition"
as specified by its appropriate federal regulatory agency. A bank is defined
to be adequately capitalized if it maintains a risk-adjusted Tier 1 ratio of at
least 4%, a risk-adjusted total capital ratio of at least 8%, and a Tier 1
leverage ratio of at least 4% (3% for certain highly rated institutions), and
does not otherwise meet the well capitalized definition. The three
undercapitalized categories are based upon the amount by which the bank falls
below the ratios applicable to adequately capitalized institutions. A
depository institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating. As of December 31, 1993, all of the
Registrant's banking subsidiaries met the requirements of a "well capitalized"
institution.
Under FDICIA, a bank that is not well capitalized is generally prohibited
from accepting brokered deposits and offering interest rates on deposits
higher than the prevailing rate in its market; in addition, "pass through"
deposit insurance coverage may not be available for certain employee benefit
accounts. Adequately capitalized institutions may apply to the FDIC for a
waiver of the prohibition against accepting brokered deposits.
Undercapitalized banks are subject to limitations on growth, on their
ability to borrow from the Federal Reserve System and on the payment of
dividends and are required to submit a capital restoration plan. If a bank
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. Significantly undercapitalized banks may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions (which are defined to include
institutions which still have a positive net worth) are generally subject to
the mandatory appointment of a receiver or conservator.
FDICIA directs that each federal banking agency prescribe new safety and
soundness standards for depository institutions and depository institution
holding companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth compensation, a maximum rate of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum ratio of
market value to book value for publicly traded shares and other standards
which the agencies deem appropriate. The federal banking regulators recently
issued a joint proposal to implement such standards. In general, the
standards are expected to increase the regulatory burden and expense of
conducting the banking business.
FDICIA also contains a variety of other provisions that may affect
Fleet's operations, including new reporting requirements, regulatory standards
for real estate lending, "truth in savings" provisions, and the requirements
that a depository institution give 90 days' prior notice to customers and
regulatory authorities before closing any branch. Fleet does not expect the
application of the standards to have a material adverse effect on its
business.
The OCC and the Federal Reserve Board have each issued guidelines which
impose upon national banks and state banks, that are members of the Federal
Reserve System, risk-based capital and leverage standards. The risk-based
capital ratio guidelines are based on an international agreement developed by
the Basle Committee of Banking Regulations and Supervisory Practices, which
consists of representatives of central banks and supervisory authorities in 12
countries, including the United States and the United Kingdom. The guidelines
establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk
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<PAGE> 7
Item 1. BUSINESS - (continued)
profiles among banking organizations, takes off-balance sheet exposure into
explicit account in assessing adequacy, and minimizes disincentives to holding
liquid, low-risk assets. The risk-based ratio is determined by allocating
assets and specified off-balance sheet commitments into four weighted
categories, with higher levels of capital being required for categories
perceived as representing greater risk.
Under these guidelines, a bank's capital is divided into two tiers. The
first tier includes common equity, non-cumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts of
consolidated subsidiaries less ineligible intangible assets. Supplementary
(Tier 2) capital includes, among other items, cumulative and limited life
preferred stock, mandatory convertible securities, subordinated debt and the
allowance for loan and lease losses, subject to certain limitations.
National banks and state-chartered member banks are required to maintain
a minimum total risk-based capital ratio of 8%, of which at least half must be
Tier I capital. The OCC and the Federal Reserve Board may, however, set
higher capital requirements for an individual bank when the bank's particular
circumstances warrant. In addition to the risk-based capital standard,
national banks and state-chartered member banks are also subject to a leverage
capital standard, with a numerator consisting of Tier I capital a denominator
consisting of total assets (as defined by the OCC's and the Federal Reserve
Board's rules). The OCC and the Federal Reserve Board established a 3%
minimum Tier I leverage ratio applicable only to banks meeting certain
specified criteria, including excellent asset quality, high liquidity, low
interest rate exposure, and the highest regulatory rating. Institutions not
meeting these criteria are expected to maintain a ratio which exceeds the 3%
minimum by at least 100 to 200 basis points.
Failure to meet applicable capital guidelines could subject a bank to a
variety of enforcement remedies available to the federal regulatory
authorities, including limitations on the ability to pay dividends, the
issuance by the appropriate bank regulatory agency of a capital directive to
increase capital, the termination of deposit insurance by the FDIC, and (in
severe cases) the appointment of a conservator or receiver.
In September 1993, the OCC and the Federal Reserve Board, in conjunction
with the FDIC, issued proposed revisions to their risk-based capital
regulations which provide for consideration of interest rate risk in the
overall determination of a bank's minimum capital requirement. The intended
effect of the proposal would be to ensure that banking institutions
effectively measure and monitor their interest rate risk and that they
maintain adequate capital for that risk. Under the proposal, an institution's
exposure to interest rate risk would be measured using either a supervisory
model, developed by the federal bank regulatory agencies, or the bank's own
internal model. An institution that exceeds the threshold level of interest
rate risk established by its primary federal regulator would be required to
allocate additional capital to cover such exposure. If such additional
capital was not available to be allocated, such institution would be required
to raise additional capital.
Pursuant to certain provisions of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), an insured depository
institution which is commonly controlled with another insured depository
institution is generally liable for any loss incurred, or reasonably
anticipated to be incurred, by the FDIC in connection with the default of such
commonly controlled institution, or any assistance provided by the FDIC to
such commonly controlled institution, which is in danger of default. The term
"default" is defined to mean the appointment of a conservator or receiver for
such institution. Thus, each subsidiary bank could incur liability to the
FDIC pursuant to this statutory provision in the event of the default of any
other subsidiary bank or any of the other insured depository institutions
owned or controlled by the Corporation. Such liability is subordinated in
right and payment to depository liabilities, secured obligations, any other
general or senior liability, and any obligation subordinated to depositors or
other general creditors, other than obligations owed to any affiliate of the
depository institution (with certain exceptions), and any obligations to
shareholders in such capacity.
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<PAGE> 8
Item 1. BUSINESS - (continued)
In its resolution of the problems of an insured depository institution in
default or in danger of default, the FDIC is obligated to satisfy its
obligations to insured depositors at the least possible cost to the deposit
insurance fund. In addition, the FDIC may not take any action that would have
the effect of increasing the losses to a deposit insurance fund by protecting
depositors for more than the insured portion of deposits (generally $100,000)
or creditors other than depositors. FDICIA authorized the FDIC to settle all
uninsured and unsecured claims in the insolvency of an insured bank by making
a final settlement payment after the declaration of insolvency. Such a
payment would constitute full payment and disposition of the FDIC's
obligations to claimants. The rate of such final settlement payment is to be
a percentage rate determined by the FDIC reflecting an average of the FDIC's
receivership recovery experience.
On August 10, 1993, the President signed into law legislation which
accords the claims of a receiver of an insured depository institution for
administrative expenses and the claims of holders of deposit liabilities of
such an institution (including the FDIC, as the subrogee of such holders)
priority over the claims of general unsecured creditors of such an institution
in the event of a liquidation or other resolution of such institution. Under
an FDIC interim rule, which became effective August 13, 1993, "administrative
expenses" of a receiver are defined as those incurred by a receiver in
liquidating or resolving the affairs of a failed insured depository
institution.
Fleet is a legal entity separate and distinct from its subsidiaries. In
addition to those discussed herein, there are various other statutory and
regulatory limitations on the extent to which banking subsidiaries of Fleet
can finance or otherwise transfer funds to Fleet or its nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments,
or asset purchases. Such transfers by any subsidiary bank to Fleet or any
nonbanking subsidiary are limited in amount to 10% of the bank's capital and
surplus and, with respect to Fleet and all such nonbanking subsidiaries, to an
aggregate of 20% of each such bank's capital and surplus. Furthermore, loans
and extensions of credit are required to be secured in specified amounts and
are required to be on terms and conditions consistent with safe and sound
banking practice.
In addition, there are regulatory limitations on the payment of dividends
directly or indirectly to Fleet from its banking subsidiaries. Under
applicable banking statutes, at December 31, 1993, Fleet's banking
subsidiaries could have paid additional dividends of approximately $417
million, of which $125 million and $95 million could have been paid by Fleet-
MA and Fleet-CT, respectively. Federal and state regulatory agencies have the
authority to limit further Fleet's banking subsidiaries' payment of dividends.
The payment of dividends by any subsidiary bank may also be affected by other
factors, such as the maintenance of adequate capital for such subsidiary bank.
Further, holders of Fleet's Dual Convertible Preferred Stock are entitled to
dividends equal to one-half of the total dividends declared (after the first
$15 million in dividends) to Fleet, if any, on the common stock of Fleet
Banking Group, the parent of Fleet-MA and Fleet-CT. Dividends on the Dual
Convertible Preferred Stock, if accrued and unpaid, will be cumulative.
Under the policies of the Federal Reserve Board, Fleet is expected to act
as a source of financial strength to each subsidiary bank and to commit
resources to support such subsidiary bank in circumstances where it might not
do so absent such policy. In addition, any subordinated loans by Fleet to
provide capital to any of the subsidiary banks would also be subordinate in
right of payment to deposits and to certain other indebtedness of such
subsidiary bank. The ability of holders of debt and equity securities of
Fleet to benefit from the distribution of assets of any subsidiary upon the
liquidation or reorganization of such subsidiary is subordinate to prior
claims of creditors of the subsidiary except to the extent that a claim of
Fleet as a creditor may be recognized.
The banking industry is also affected by the monetary and fiscal policies
of the federal government, including the Federal Reserve, which exerts
considerable influence over the cost and availability of funds obtained for
lending and investing. In addition, proposals to change the laws and
regulations governing the operations and taxation of banks, companies that
control banks, and other financial institutions are frequently raised in
Congress, in the state legislatures and before various bank regulatory
authorities. The likelihood of any major changes and the impact such changes
might have on Fleet are impossible to determine.
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<PAGE> 9
Item 1. BUSINESS - (continued)
Reference is made to Note 16 Commitments, Contingencies, and Other
Disclosures (pages 47-48) of the Notes to Consolidated Financial Statements
and to the "Capital" and "Liquidity" sections of Management's Discussion and
Analysis in the accompanying 1993 Annual Report to Shareholders for
information concerning restrictions on the banking subsidiaries' ability to
pay dividends and other regulatory matters and legal proceedings.
Executive Officers of the Corporation
The information required by this item is included in Item 10. Directors
and Executive Officers of the Registrant on pages 11 through 12 of this Form
10-K.
STATISTICAL INFORMATION BY BANK HOLDING COMPANIES
The following information set forth in the accompanying 1993 Annual
Report to Shareholders is hereby incorporated by reference:
Consolidated Average Balances/Interest Earned-Paid/Rates 1989-1993 table
(Page 52-53) for average balance sheet amounts, related taxable
equivalent interest earned or paid, and related average yields and rates
paid.
Rate/Volume Analysis table (page 54) for changes in the taxable
equivalent interest income and expense for each major category
of interest-earning assets and interest-bearing liability.
Note 3. Securities Available for Sale and Note 4. Investment
Securities of the Notes to Consolidated Financial Statements
(pages 32-34) for information regarding book values, market
values, maturities and weighted average yields of securities
(by category).
Note 5. Loans and Leases of the Notes to the Consolidated
Financial Statements (page 35) for distribution of loans of the
Registrant.
Loan and Lease Maturity table and Interest Sensitivity of Loans
Over One Year table (page 54) for maturities and sensitivities
of loans to changes in interest rates.
Note 7. Nonperforming Assets (page 36) and Note 1. Summary of
Significant Accounting Policies - Loans and Leases (page 30) of
the Notes to Consolidated Financial Statements for information
on nonaccrual, past due and restructured loans and the
Registrant's policy for placing loans on nonaccrual status.
"Loans and Leases" section of Management's Discussion and
Analysis (pages 13-15 and 44-45) for information regarding loan
concentrations of the Registrant.
"Reserve for Credit Losses" section of Management's Discussion
and Analysis (pages 17-18) for the analysis of loss experience,
the allocation of the reserve for credit losses, and a
description of factors which influenced management's judgment in
determining the amount of additions to the allowance charged to
operating expense.
Consolidated Average Balances/Interest Earned-Paid/Rates
1989-1993 table (pages 52-53) and the "Deposits" section of
Management's Discussion and Analysis (page 18) for deposit
information.
Selected Financial Highlights (page 1) for return on assets,
return on equity, dividend payout ratio and equity to asset
ratio.
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<PAGE> 10
Item 1. BUSINESS - (continued)
Note 8. Short-term Borrowings of the Notes to Consolidated
Financial Statements (page 37) for information on short-term
borrowings of the Registrant.
Item 2. PROPERTIES
The Registrant maintains its corporate headquarters in Providence, Rhode
Island, located in a building in which the Registrant has a partnership
interest through a subsidiary. The subsidiary is a partner with certain other
parties in the ownership and management of the building. Adjacent to the
Providence headquarters building, Fleet-RI owns a building which houses the
main branch of Fleet-RI and the offices of many of the Providence-based
subsidiaries. Fleet-RI also owns an operations center, located in Providence.
The Registrant also owns office buildings in Buffalo, NY and Albany, NY, which
house operational facilities of Fleet-Upstate. Fleet-LI owns an office
building in Melville, NY, which houses its headquarters. Portions of the
Fleet-RI, Fleet-Upstate and Fleet-LI buildings are leased to nonaffiliates.
As of December 31, 1993, the Registrant's subsidiaries also operated
approximately 1,200 domestic offices, of which approximately 500 are owned and
700 are leased from others. The Registrant also leases office space in
London. In general, all leases run from one to ten years and most contain
options to renew.
Item 3. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Registrant is hereby
incorporated by reference from Note 16. Commitments, Contingencies and Other
Disclosures (pages 47-48) of the Registrant's accompanying 1993 Annual Report
to Shareholders.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security-holders in the
fourth quarter.
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
For information regarding the Registrant common stock's principal U.S.
market, high and low quarterly sales prices, approximate number of holders,
and quarterly dividends declared and paid, see the Common Stock Price and
Dividend Information table (page 51) of the Registrant's accompanying 1993
Annual Report to Shareholders, which is hereby incorporated by reference.
Item 6. SELECTED FINANCIAL DATA
The information set forth in Selected Financial Highlights (page 1) of
the Registrant's accompanying 1993 Annual Report to Shareholders is hereby
incorporated by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth in Management's Discussion and Analysis (pages
9-23) of the Registrant's accompanying 1993 Annual Report to Shareholders is
hereby incorporated by reference.
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<PAGE> 11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information set forth in the Registrant's accompanying 1993
Annual Report to Shareholders is hereby incorporated by reference.
The Consolidated Financial Statements together with the report
thereon by KPMG Peat Marwick (pages 25-29); the Notes to the
Consolidated Financial Statements (pages 30-50); and the
unaudited information presented in the Quarterly Summarized
Financial Information table (page 51).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
and financial disclosure as defined by Item 304 of Regulation S-K.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" (page
2-7) in the Registrant's Proxy Statement with respect to the name of each
nominee or director, his age, his positions and offices with the Registrant,
his service on the Registrant's Board, his business experience, his
directorships held in other public companies, and certain family relationships
is hereby incorporated by reference.
The names, positions, ages and business experience during the past five
years of the executive officers of the Corporation as of March 25, 1994 are
set forth below. The term of office of each executive officer extends until
the annual meeting of the Board of Directors, and until a successor is chosen
and qualified or until they shall have resigned, retired, or have been
removed.
<TABLE>
<CAPTION>
Name Positions with the Corporation Age
---- ------------------------------ ---
<S> <C> <C>
Terrence Murray Chairman, President & Chief Executive Officer 54
Robert J. Higgins Vice Chairman 48
H. Jay Sarles Vice Chairman 49
Michael R. Zucchini Vice Chairman 47
Eugene M. McQuade Executive Vice President & Chief Financial Officer 45
James P. Murphy Executive Vice President 63
John B. Robinson, Jr. Executive Vice President 47
Peter C. Fitts Senior Vice President 52
William C. Mutterperl Senior Vice President and General Counsel 47
Anne M. Slattery Senior Vice President 46
</TABLE>
Terrence Murray joined Fleet-RI in 1962. After serving in various
capacities for Fleet-RI and the Corporation, in April 1978, he was elected
President of the Corporation and Fleet-RI. He is a Director of the
Corporation, Fleet-RI and FMG. He became Chairman of the Board of Directors
of the Corporation and Fleet-RI in May of 1982. Mr. Murray has been a
Director of Fleet since 1976, a Director of Fleet-RI since 1977 and a Director
of FMG since 1985. Upon the merger of Fleet and Norstar in January 1988, he
became President and Chief Operating Officer of Fleet. Mr. Murray was elected
Chairman and Chief Executive Officer of Fleet in September 1988.
-11-
<PAGE> 12
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
(continued)
Robert J. Higgins joined Fleet-RI in 1971. In March 1984, he was named a
Vice President of the Corporation. He was elected President in February 1986.
In 1989, he was named an Executive Vice President of the Corporation and Chief
Executive Officer of Fleet-RI. In 1991, Mr. Higgins was named President of
Fleet-CT. In March 1993, he was named a Vice Chairman of the Corporation in
charge of commercial banking.
H. Jay Sarles joined Fleet-RI in 1968. In 1980, he was appointed a Vice
President of the Corporation. Mr. Sarles was appointed Executive Vice
President of the Corporation in February of 1986. In 1991, Mr. Sarles became
President and Chief Executive Officer of Fleet Banking Group, the parent
company of Fleet-MA and Fleet-CT. In March 1993, he was named a Vice Chairman
of the Corporation in charge of investment services and administration.
Michael R. Zucchini joined the Corporation in August 1987 as Executive
Vice President and Chief Information Officer responsible for all data
processing activities of the Corporation and its subsidiaries. Since 1974,
Mr. Zucchini had served in various capacities for General RE Corp., Stamford,
Connecticut and its subsidiary, General RE Services Corp., which engages in
data processing. In March 1993, Mr. Zucchini was named a Vice Chairman of the
Corporation in charge of consumer banking and operations.
Eugene M. McQuade joined the Corporation in 1992 as Senior Vice
President-Finance. From 1980 to 1991, Mr. McQuade served in various
capacities with Manufacturers Hanover Corporation and Manufacturers Hanover
Trust Company, having served as an Executive Vice President and Controller
from 1985 to 1991. In March 1993, Mr. McQuade was named an Executive Vice
President of the Corporation and in July 1993 was elected as Chief Financial
Officer of the Corporation.
James P. Murphy joined the Corporation in 1989 as an Executive Vice
President and Director of Public Policy and External Relations. Before
joining Fleet, Mr. Murphy had served as Executive Vice President of the New
York State Bankers Association since March 1976.
John B. Robinson, Jr., became an Executive Vice President of the
Corporation in 1988. Mr. Robinson had been associated with Norstar Bank
("Norstar") since 1970 when he joined Hempstead Bank (now Fleet-LI). He
served in various capacities with Norstar and in 1987, he became President of
Norstar. Mr. Robinson is currently in charge of government banking.
Peter C. Fitts joined the Corporation in May, 1991 as Senior Vice
President-Credit Administration and is responsible for corporate-wide credit
administration. In March 1994, Mr. Fitts was named senior credit officer for
the Corporation. From 1965 to 1991, Mr. Fitts served in various capacities
with Citibank, N.A., having last served as a Senior Vice President and Head of
Credit Policy, North America, from 1985 to 1991.
William C. Mutterperl joined Fleet-RI in 1977. In June 1985, Mr.
Mutterperl was named Vice President, Secretary, and General Counsel of the
Corporation. In 1989, Mr. Mutterperl was named a Senior Vice President of the
Corporation.
Anne M. Slattery joined the Corporation in January, 1994 as Senior Vice
President and head of Consumer and Community Banking. From 1969 through 1993,
Ms. Slattery served in various capacities with Citicorp, having last served as
a managing director of U.S. Consumer Banking.
-12-
<PAGE> 13
Item 11. EXECUTIVE COMPENSATION
Pursuant to Instructions to Form 10-K and Item 402 of Regulation S-K,
information set forth in the following sections of the Corporation's Proxy
Statement (pages 7-18) are hereby incorporated by reference: "Committees of
the Board of Directors", "Compensation Committee Interlocks and Insider
Participation", "Compensation Committee Report on Executive Compensation",
"Directors' Compensation", "Executive Compensation", "Option/SAR Grants in
Last Fiscal Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and FY
Option/SAR Values", "Pension Plans", "Change in Control Contracts", and
"Stockholder Return Performance Graph". Such incorporation by reference shall
not be deemed to specifically incorporate by reference the information
required by Item 402(a)(8) of Regulation S-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to Instructions to Form 10-K and Item 403 of Regulation S-K,
information set forth in the "Securities of the Corporation and Fleet Mortgage
Group, Inc. Owned by Management" (page 9) of the Corporation's Proxy Statement
is hereby incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Instructions to Form 10-K and Item 404 of Regulation S-K,
information set forth in the "Indebtedness and Other Transactions" section
(pages 18-20) of the Corporation's Proxy Statement is hereby incorporated by
reference.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)1. The financial statements of Fleet required in response to
this Item are listed in response to Item 8 of this Report and
are incorporated by reference.
(a)2. All schedules to the consolidated financial statements
required by Article 9 of Regulation S-X and all other schedules
to the financial statements of the Registrant have been omitted
because the information is either not required, not applicable,
or is included in the financial statements or notes thereto.
(b) Two Current Reports on Form 8-K were filed during the fourth
quarter of 1993; one dated October 11, 1993 (describing the merger
agreement with Sterling Bancshares Corporation), and a second dated
December 16, 1993 (announcing a settlement agreement with the
Georgia Attorney General and the Governor's Office of Consumer
Affairs relative to suits filed against Fleet Finance, Inc.).
(c) Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page of this
Number Report
- ----------------------------------------------------------------------------
<S> <C> <C>
3 Restated Articles of Incorporation and By-Laws (1)
4(a) Shareholder Rights Plan of Registrant (2)
4(b) Instruments defining the rights of security
holders, including indentures (3)
4(c) Form of Rights Certificate for stock purchase
rights issued to Whitehall Associates, L.P.,
and KKR Partners II, L.P. (4)
10(a) 1992 Stock Option and Restricted Stock Plan (5)
10(b) Form of 1992 Restricted Stock Agreement entered
into with each of the following executive
officers and the number of shares of restricted
stock awarded to each under the Amended and Re-
stated 1988 Stock Option and Restricted Stock
Plan: Terrence Murray, 50,000 shares; William C.
Mutterperl, 10,000 shares; John B. Robinson, Jr.,
10,000 shares and Michael R. Zucchini, 25,000
shares (6)
</TABLE>
-13-
<PAGE> 14
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
<TABLE>
<S> <C> <C>
10(c) Form of 1993 Restricted Stock Agreement entered
into with each of the following executive officers
and the number of shares of restricted stock
awarded to each under the 1992 Stock Option and
Restricted Stock Plan: Robert J. Higgins, 15,000
shares and H. Jay Sarles, 20,000 shares (7)
10(d) Form of Change in Control Agreement together with
Schedule of Persons who have entered into such
contacts (8)
10(e) Stock Purchase Agreement dated July 12, 1991
between Registrant and Whitehall Associates,
L.P., and KKR Partners II, L.P. (9)
10(f) Assistance Agreement dated as of July 12, 1991,
among the FDIC, the Registrant, Fleet Banking
Group, Inc., the FDIC, (in its capacity as Re-
ceiver of the Bridge Banks), Fleet Bank of
Maine, Fleet Bank of Massachusetts, National
Association and Fleet Bank, National Association (10)
10(g) Shareholders' Agreement dated as of July 14, 1991,
among the FDIC, the Registrant, Fleet Banking
Group, Inc., Fleet Bank of Massachusetts, National
Association and Fleet Bank, National Association (11)
10(h) Service Agreement dated as of June 1, 1991, among
the FDIC, the Registrant, RECOLL Management
Corporation, New Bank of New England, National
Association, New Connecticut Bank and Trust
Company, National Association and New Maine
National Bank, as amended by Amendment No. 1,
dated July 14, 1991 (12)
10(i) Supplemental Compensation Plan for former Norstar
directors 17
10(j) Fleet Finanical Group Directors Retirement Plan 19
10(k) Supplemental Executive Retirement Plan 20
11 Statement re computation of per share earnings 28
12 Statement re computation of ratios 29
13 1993 Annual Report to Shareholders 31
21 Subsidiaries of the Registrant 91
23 Accountants' consent 92
<FN>
(1) Incorporated by reference to Exhibit 1 of Registrant's Form 10-Q
Quarterly Report dated June 30, 1992.
(2) Incorporated by reference to Registrant's Registration Statement Form
8-A dated November 29, 1990, as amended by First Amendment to Rights
Agreement dated March 28, 1991 and as further amended by Second
Amendment to Rights Agreement dated July 12, 1991, as reported on
Form 8 Amendment to Application or Report dated September 6, 1991.
(3) 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.
(4) Incorporated by reference to Exhibit 4(c) of the Registrant's Form
8-K Current Report dated July 12, 1991.
</TABLE>
-14-
<PAGE> 15
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
[FN]
(5) Incorporated by reference to Exhibit 4(a) of Registrant's
Registration Statement on Form S-8/S-3 dated June 25, 1992
(No. 33-48818).
(6) Incorporated by reference to Exhibit 10(b) of the Registrant's 1992
Form 10-K Annual Report filed March 31, 1993.
(7) Incorporated by reference to Exhibit 10(c) of the Registrant's 1992
Form 10-K Annual Report filed March 31, 1993.
(8) Incorporated by reference to Exhibit 10 of Registrant's 1989 Form
10-K filed March 31, 1990. (In January 1994, Ms. Slattery entered
into a contract in the same form as set forth in such Exhibit 10.)
(9) Incorporated by reference to Exhibit 4 of Registrant's Form 8-K
Current Report dated July 12, 1991.
(10) Incorporated by reference to Exhibit 4(a) of the Registrant's Form
8-K Current Report dated July 14, 1991.
(11) Incorporated by reference to Exhibit 10(d) of the Registrant's Form
10-K Annual Report dated December 31, 1991.
(12) Incorporated by reference to Exhibit 4(b) of the Registrant's Form
8-K Current Report dated July 14, 1991.
(d) Financial Statement Schedules - None
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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 and Chief Financial Officer
Dated March 30, 1994
/s/ Robert C. Lamb, Jr.
-----------------------
Robert C. Lamb, Jr.
Chief Accounting Officer and Controller
Dated March 30, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated.
<TABLE>
<S> <C>
/s/ Terrence Murray /s/ Ruth R. McMullin
---------------------- ---------------------
Terrence Murray, Chairman, President, Ruth R. McMullin, Director
Chief Executive Officer and Director
/s/ William Barnet III /s/ Arthur C. Milot
----------------------- ---------------------
William Barnet III, Director Arthur C. Milot, Director
/s/ Bradford R. Boss /s/ Thomas D. O'Connor
---------------------- ------------------------
Bradford R. Boss, Director Thomas D. O'Connor, Director
/s/ Michael B. Picotte
---------------------- ------------------------
James E. Chandler, Director Michael B. Picotte, Director
/s/ Paul J. Choquette, Jr. /s/ James J. Preble
--------------------------- ----------------------
Paul J. Choquette, Jr., Director James J. Preble, Director
/s/ James F. Hardymon /s/ John D. Reardon
---------------------- ---------------------
James F. Hardymon, Director John D. Reardon, Director
/s/ Robert M. Kavner /s/ John A. Reeves
--------------------- ---------------------
Robert M. Kavner, Director John A. Reeves, Director
/s/ Lafayette Keeney /s/ John R. Riedman
--------------------- ---------------------
Lafayette Keeney, Director John R. Riedman, Director
/s/ E. Douglas Kenna /s/ John S. Scott
--------------------- -------------------
E. Douglas Kenna, Director John S. Scott, Director
</TABLE>
/s/ Raymond C. Kennedy
-----------------------
Raymond C. Kennedy, Director
-16-
<PAGE> 1
EXHIBIT 10(i)
SUPPLEMENTAL COMPENSATION PLAN
FOR NORSTAR DIRECTORS
1. EFFECTIVE DATE
July 1, 1986
2. ELIGIBLE DIRECTOR
A member of the Board of Directors of Norstar on the Effective Date shall
be considered Eligible Director if his death or other termination of service
as a Director takes place when he is not an officer of Norstar or one of its
subsidiaries.
A member who joins the Board of Directors of Norstar after the Effective
Date shall be considered an Eligible Director if (i) he dies while a member
and when he is not an officer of Norstar or one of its subsidiaries, or (ii)
his termination of service as a Director (other than on account of death)
takes place after two years of membership and when he is not an officer of
Norstar or one of its subsidiaries.
3. SUPPLEMENTAL COMPENSATION
Except as set forth in Paragraph 4 below, Norstar will pay to, or in
respect of, each Eligible Director, upon his death or termination of service
as a Director, 40 quarterly payments of $5,000 each commencing on the first
day of the first calendar quarter following the calendar quarter of his death
or termination of service as a Director. The payments shall be made to the
former Director, if alive, and otherwise to one or more beneficiaries
designated in writing from time to time by the Eligible Director to the
secretary of Norstar. The service of a Norstar Director will not be deemed to
have terminated so long as the Director serves in any compensated capacity
with Norstar, any subsidiary of Norstar or any successor to Norstar
or a subsidiary of a successor.
4. CONDITIONS OF PAYMENT
A Director will forfeit all payments under this Plan if he serves as an
officer, director or employee of, or acts as a consultant for, any corporation
or other entity whose business is competitive with Norstar or with any
corporation that was a subsidiary of Norstar on his last day of service as a
Director. The forfeiture provided above will be inapplicable to any
relationship disclosed to the Board that exists on the Effective Date, or at
the time a Director first joins the Board, or if the relationship is
determined by the Board to be not contrary to the interests of Norstar.
<PAGE> 2
5. EVIDENCE OF INSURABILITY
It is Norstar's current intention to fund the payments due under this Plan
through the purchase of life insurance that will name Norstar as beneficiary.
Eligible Directors will, therefore, be required, at Norstar's request, to
submit evidence of insurability and to take any required physical
examinations. In no event, however, shall an eligible Director be denied
payments hereunder based on lack of insurability.
6. AMENDMENT AND TERMINATION
The Plan may be amended or terminated at any time. The amendment or
termination may not adversely affect any person then drawing benefits under
the Plan without his consent. The amendment or termination may affect any
Eligible Director provided the amendment or termination is approved by a
majority of the Board of Directors of Norstar (but not a successor of Norstar)
and applies to Directors of Norstar in general.
7. MERGER, ETC. OF NORSTAR
For purposes of this Plan, a corporation with which Norstar merges or
consolidated or with which its business is otherwise combined under common
ownership will be considered to be Norstar if Norstar shareholders, prior to
such transaction, own immediately after such transaction, and as a result of
their Norstar ownership, a majority of the voting shares of the combined
entity. Otherwise, such corporation will be considered a successor of
Norstar.
8. ADMINISTRATION
This plan will be administered and interpreted by the Board of Directors
of Norstar or of a successor.
<PAGE> 1
EXHIBIT 10(j)
FLEET FINANCIAL GROUP, INC.
RETIREMENT PLAN FOR QUALIFIED DIRECTORS
The following is a description of the Fleet Financial Group, Inc. (the
"Corporation") Retirement Plan for Qualified Directors (the "Plan"):
Under the Plan, a Qualified Director is entitled to receive an annual
benefit of twenty thousand dollars ($20,000). Such benefit is payable for
each year of service up to a maximum aggregate benefit of two hundred thousand
dollars ($200,000). "Qualified Director" means any director of the
Corporation who is not a former director of Norstar Bancorp, Inc.
A director is eligible to receive benefits under the Plan after such
director has served as a director of the Corporation for a minimum of five (5)
years and has reached the age of sixty-five (65). Any director who retires
before the age of sixty-five (65) and who has served as a director for a
minimum of five (5) years will be entitled to receive his/her annual retainer
until the date of their regularly scheduled retirement. After such
retirement, the director will be entitled to receive payments under the Plan.
<PAGE> 1
EXHIBIT 10(k)
FLEET FINANCIAL GROUP, INC.
Supplemental Executive Retirement Plan
(Effective January 1, 1994)
<PAGE> 2
ARTICLE I. INTRODUCTION.
1.1 Purposes of Plan. The purpose of the Plan is to facilitate the
retirement of select key executive employees by further supplementing the
benefits to which they are entitled under the Fleet Financial Group, Inc.
Pension Plan.
1.2 Status. The Plan is intended to be a plan which is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of the
Employees Retirement Income Security Act of 1974 (ERISA), and shall be
interpreted and administered accordingly.
ARTICLE 2. DEFINITIONS.
Unless defined herein, any word, phrase or term used in this Plan shall
have the meaning given to it in the Basic Plan. However, the following terms
have the following meanings unless a different meaning is clearly required by
the context:
2.1 "Administrator" means the Company or other person or persons
designated to administer the Plan pursuant to Section 6.1.
2.2 "Basic Plan" means the Fleet Financial Group, Inc. Pension Plan, as
amended and in effect from time to time. Reference to any Article or Section
of the Basic Plan shall include reference to any comparable or successor
provisions of the Basic Plan, as amended from time to time.
<PAGE> 3
2.3 "Beneficiary" means any individual other than the Participant entitled
to receive benefits under the terms of the Basic Plan.
2.4 "Company" means Fleet Financial Group, Inc.
2.5 "Eligible Employee" means each executive Employee of the Employer who
participates in the Basic Plan.
2.6 "Participant" means any Eligible Employee selected to participate in
the Plan in accordance with Article 3.
2.7 "Plan" means the Fleet Financial Group, Inc. Supplemental Executive
Retirement Plan as set forth herein and in all subsequent amendments hereto.
ARTICLE 3. PARTICIPATION.
3.1 Selection of Participants. The Administrator shall select from time
to time those Eligible Employees who will be Participants in the Plan.
3.2 Termination of Participation. The Administrator may terminate a
Participant prospectively or retroactively for any reason. Any such
termination of participation will likewise terminate any right of the
Participant (and his beneficiaries) to receive any benefit under the Plan.
ARTICLE 4. SOURCE OF BENEFIT PAYMENTS.
4.1 Obligation of Employer. Each Employer will establish on its books a
liability with respect to its obligation for benefits payable under the Plan
to those
<PAGE> 4
Participants (and their Beneficiaries) who are employed by such Employer.
Each Participant and Beneficiary will be an unsecured general creditor of his
or her Employer with respect to all benefits payable under the Plan.
4.2 No Funding Required. Nothing in the Plan will be construed to
obligate an Employer to fund the Plan. However, an Employer may but shall not
be required to establish a trust of which the Employer is treated as the owner
under Subpart E of Subchapter J, Chapter 1 of the Internal Revenue Code of
1986, as amended (a "grantor trust") and may deposit funds with the trustee
of the trust sufficient to satisfy the benefits provided under the Plan.
4.3 No Claim to Specific Benefits. Nothing in the Plan will be construed
to give any individual rights to any specific assets of an Employer, or any
other person or entity.
ARTICLE 5. BENEFITS.
5.1 Amount of Benefits. The amount of the benefit payable under the Plan
to a Participant (or to the Participant's Beneficiary, in the event of the
Participant's death) will be equal to (a) minus (b), but not less than zero,
where (a) is the amount of the benefit the Participant (or Beneficiary) would
have been entitled to receive under the Basic Plan if (i) the term
"Compensation" under the Basic Plan included bonus awards to which the
Participant is entitled under the Corporate Executive Incentive Plan or other
incentive award program and (ii) limitations of sections 401(a)(17) and 415 of
the Code (and provisions of the Basic Plan applying those limitations) did not
exist; and (b) is the sum of
<PAGE> 5
(i) the benefit payable to the Participant (or Beneficiary) under the Basic
Plan and (ii) the benefit payable to the Participant (or Beneficiary) under
the Fleet Financial Group, Inc. Restated Retirement Income Assurance Plan, as
in effect from time to time.
5.2 Payment of Benefits. Benefits payable under the Plan shall be paid in
the same form, and shall commence at the same time, as the benefit payable to
the Participant (or Beneficiary) under the Basic Plan.
5.3 Death Benefits. In the event of the death of the Participant,
benefits under the Plan will become payable to the Participant's Beneficiary,
under the same terms and conditions specified in the Basic Plan.
5.4 Effect of Termination of Benefits under the Basic Plan. If for any
reason a Participant or Beneficiary is not entitled to receive or ceases to
have the right to receive benefits under the Basic Plan, such Participant or
Beneficiary shall also not be entitled to receive and shall cease to have the
right to receive benefits under the Plan.
ARTICLE 6. ADMINISTRATION.
6.1 Selection of Administrator. The Administrator shall be the Company,
unless some other individual or entity is designated by the Board of
Directors.
6.2 Removal of Administrator. The Board of Directors may at its
discretion remove the Administrator at any time from time to time.
<PAGE> 6
6.3 Powers of the Administrator. The Administrator will have full
discretionary power to administer the Plan in all of its details. For this
purpose the Administrator's discretionary power will include, but will not be
limited to, the following authority:
(a) to make and enforce such rules and regulations as it deems necessary
or proper for the efficient administration of the Plan, or required to
comply with applicable law;
(b) to interpret the Plan;
(c) to select and terminate Participants, and to decide all questions
concerning the Plan and the eligibility of any person to participate
in the Plan;
(d) to compute the amounts to be distributed to any Participant, former
Participant, spouse or Beneficiary in accordance with the provisions
of the Plan, and to determine the person or persons to whom such
amounts will be distributed;
(e) to authorize the payment of distributions; and
(f) to establish and administer a claims procedure consistent with the
requirements of Section 503 of ERISA.
Any interpretation of the Plan or other determination with respect to the
Plan by the Administrator shall be final and conclusive on all persons in the
absence of clear and convincing evidence that the Administrator acted
arbitrarily and capriciously.
<PAGE> 7
ARTICLE 7. AMENDMENT OR TERMINATION OF PLAN.
The Company hopes and expects to continue the Plan in effect, but the
Company necessarily reserves the right to amend the Plan at any time, and from
time to time in any respect including without limitation retroactive
amendment, or to terminate the Plan. Any amendment or termination shall be
stated in an instrument in writing, and signed by a duly authorized
representative of the Company.
ARTICLE 8. MISCELLANEOUS.
8.1 No Assignment or Alienation. None of the benefits, payments, proceeds
or claims of any Participant or Beneficiary shall be subject to any claim of
any creditor of the Participant or Beneficiary or to attachment or garnishment
or other legal process by any such creditor; nor shall any Participant or
Beneficiary have any right to alienate, anticipate, commute, pledge, encumber
or assign any of the benefits, payments or proceeds which he or she may expect
to receive, contingently or otherwise, under the Plan.
8.2 Limitation of Rights. Neither the establishment of the Plan, nor any
amendment thereof, nor the payment of any benefits will be construed as giving
any individual any legal or equitable right against the Company, any
Affiliated Company, or the Administrator. In no event will the Plan be deemed
to constitute a contract between any Employee and the Company, Affiliated
Company, or the Administrator. This Plan shall not be deemed to be
consideration for, or an inducement for the performance of services by any
Employee.
<PAGE> 8
8.3 Receipt and Release. Any payment under the Plan to any Participant or
Beneficiary, or to any individual as described in Section 8.4 shall be in
satisfaction of all claims with respect to benefits under the Plan against the
Company, any Affiliated Company, and the Administrator.
8.4 Payment for the Benefit of an Incapacitated Individual. If the
Administrator of the Basic Plan determines that payments due to a Participant
under the Basic Plan must be paid to another individual because of a
Participant's incapacitation, benefits under the Plan will be paid to that
same individual designated for that purpose under the applicable provisions of
the Basic Plan.
8.5 Governing Law. The Plan will be construed, administered, and governed
under the laws of the State of Rhode Island, to the extent not preempted by
federal law.
8.6 Severability. If any provision of this Plan is held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining
provisions shall continue to be fully effective.
8.7 Headings and Subheadings. Headings and subheadings are inserted for
convenience only and are not to be considered in the construction of the
provision of the Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer this 1st day of February, 1994.
FLEET FINANCIAL GROUP, INC.
By: /s/ William C. Mutterperl
-------------------------
<PAGE> 1
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
<TABLE>
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in thousands, except per share data)
<CAPTION>
For the Twelve Months Ended December 31
1993 1992 1991
-------------------- -------------------- --------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 134,905,446 134,905,446 122,257,504 122,257,504 116,239,467 116,239,467
Additional shares due to:
Stock options 730,776 766,256 673,853 938,613 388,855 510,470
Warrants 2,996,091 3,062,547 2,504,307 2,996,947 738,230 894,832
8.5% convertible debt 0 0 0 373,840 0 1,663,604
Series I preferred stock 0 31,977 0 43,878 0 45,034
Series II preferred stock 0 99,775 0 133,889 0 138,948
Dual convertible preferred stock 16,033,994 16,033,994 16,033,994 16,033,994 7,599,674 7,599,674
----------- ----------- ----------- ----------- ----------- -----------
Total equivalent shares 154,666,307 154,899,995 141,469,658 142,778,665 124,966,226 127,092,029
=========== =========== =========== =========== =========== ===========
Earnings per share:
Net income $ 488,049 $ 488,049 $ 279,843 $ 279,843 $ 97,672 $ 97,672
Less: Preferred stock dividends (22,209) (22,089) (27,736) (27,508) (14,031) (13,799)
Plus: Int. on 8.5% conv. debt 0 0 0 466 0 1,855
----------- ----------- ----------- ----------- ----------- -----------
Adjusted net income $ 465,840 $ 465,960 $ 252,107 $ 252,801 $ 83,641 $ 85,728
=========== =========== =========== =========== =========== ===========
Total equivalent shares 154,666,307 154,899,995 141,469,658 142,778,665 124,966,226 127,092,029
=========== =========== =========== =========== =========== ===========
Earnings per share on net income $ 3.01 $ 3.01 $ 1.78 $ 1.77 $ 0.67 $ 0.67
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
<TABLE>
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
EXCLUDING INTEREST ON DEPOSITS
(Dollars in thousands)
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 488,049 $279,843 $ 97,672 $(73,687) $ 371,346
Adjustments:
(a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748
(b) Fixed charges:
(1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111
(2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718
(c) Preferred dividends 36,927 49,706 21,958 12,990 11,518
--------- ------- ------- ------- ---------
(d) Adjusted earnings $1,303,901 $974,022 $647,383 $651,602 $1,130,441
========= ======= ======= ======= =========
Fixed charges [b(1)+b(2)+c] $ 488,445 $465,653 $494,535 $814,925 $ 591,347
========= ======= ======= ======= =========
Adjusted earnings/fixed charges 2.67x 2.09x 1.31x 0.80x* 1.91x
========= ======= ======= ======= =========
</TABLE>
<TABLE>
INCLUDING INTEREST ON DEPOSITS
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 488,049 $ 279,843 $ 97,672 $ (73,687) $ 371,346
Adjustments:
(a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748
(b) Fixed charges:
(1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111
(2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718
(3) Interest on deposits 744,080 1,076,368 1,480,395 1,343,417 1,256,207
(c) Preferred dividends 36,927 49,706 21,958 12,990 11,518
--------- --------- --------- --------- ---------
(d) Adjusted earnings $2,047,981 $2,050,390 $2,127,778 $1,995,019 $2,386,648
========= ======= ======= ======= =========
Fixed charges [b(1)+b(2)+b(3)+c] $1,232,525 $1,542,021 $1,974,930 $2,158,342 $1,847,554
========= ======= ======= ======= =========
Adjusted earnings/fixed charges 1.66x 1.33x 1.08x 0.92x* 1.29x
========= ======= ======= ======= =========
<FN>
*Note that earnings are inadequate to cover fixed charges, the deficiency
being $163,323 for both the ratio excluding and including interest on
deposits.
</TABLE>
<PAGE> 2
EXHIBIT 12 - (continued)
FLEET FINANCIAL GROUP, INC.
<TABLE>
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
(Dollars in thousands)
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 488,049 $279,843 $ 97,672 $(73,687) $ 371,346
Adjustments:
(a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748
(b) Fixed charges:
(1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111
(2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718
--------- ------- ------- ------- ---------
(c) Adjusted earnings $1,266,974 $924,316 $625,425 $638,612 $1,118,923
========= ======= ======= ======= =========
Fixed charges [b(1)+b(2)] $ 451,518 $415,947 $472,577 $801,935 $ 579,829
========= ======= ======= ======= =========
Adjusted earnings/fixed charges 2.81x 2.22x 1.32x 0.80x* 1.93x
========= ======= ======= ======= =========
</TABLE>
<TABLE>
INCLUDING INTEREST ON DEPOSITS
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1993 1992 1991 1990 1989
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 488,049 $ 279,843 $ 97,672 $ (73,687) $ 371,346
Adjustments:
(a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748
(b) Fixed charges:
(1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111
(2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718
(3) Interest on deposits 744,080 1,076,368 1,480,395 1,343,417 1,256,207
--------- --------- --------- --------- ---------
(c) Adjusted earnings $2,011,054 $2,000,684 $2,105,820 $1,982,029 $2,375,130
========= ======= ======= ======= =========
Fixed charges [b(1)+b(2)+b(3)] $1,195,598 $1,492,315 $1,952,972 $2,145,352 $1,836,036
========= ======= ======= ======= =========
Adjusted earnings/fixed charges 1.68x 1.34x 1.08x 0.92x* 1.29x
========= ======= ======= ======= =========
<FN>
*Note that earnings are inadequate to cover fixed charges, the deficiency
being $163,323 for both the ratio excluding and including interest on deposits.
</TABLE>
<PAGE> 1
HIGHLIGHTS FLEET FINANCIAL GROUP
HIGHLIGHTS
o Record 1993 earnings were $488 million, or $3.01 per fully diluted
share, an increase of 74% compared to 1992's $280 million, or $1.77 per fully
diluted share. Increased earnings were due primarily to a strong rebound in
income generated by Fleet's banks as a result of sharply lower credit costs and
a stronger net interest margin.
o Return on assets (ROA) and return on equity (ROE) improved markedly in
1993. ROA was 1.06% and ROE was 16.07%, compared to .62% and 11.01%,
respectively, in 1992. Fourth quarter ROA was 1.14% and ROE was 16.98%, versus
.72% and 12.65%, respectively, a year ago.
o The quarterly common stock dividend was increased three times in a
12-month period, culminating with a 20% increase in November to $.30 per share.
In all, the dividend was increased 50% from the $.20 per share dividend paid in
the fourth quarter of 1992. The annualized dividend is not $1.20 per share.
o Since April 1992, nonperforming assets have been reduced from $1.6
billion to $601 million, a decrease of almost two-thirds. Additionally, the
ratio of nonperforming assets to total assets was 1.25% at year-end, the lowest
level since the fourth quarter of 1989.
o Despite the strong improvement in credit quality, the reserve for loan
losses stood at $1 billion at year-end and 3.8% of loans and leases.
o The balance sheet continues to be exceptionally strong. Stockholders'
equity amounted to $3.6 billion at December 31, 1993, compared to $3.0 billion
at the end of 1992. The corporation's total equity-to-assets ratio at December
31, 1993, was 7.6%. Total assets were $48 billion at year-end 1993 versus $47
billion a year earlier.
o In excess of 12 million shares of common stock, representing $400
million in new capital, were sold in February 1993 through a well-received
stock offering.
o Fleet continued to expand its banking franchise in 1993 by agreeing to
acquire Sterling Bancshares Corp., Waltham, Massachusetts, and assuming the
deposits of Jefferson National Bank, Watertown, New York. The Sterling
acquisition is expected to be completed in the spring of 1994, subject to
regulatory approvals. In addition, Fleet received regulatory approval to
acquire approximately $700 million in consumer deposits of 29 upstate New York
branches of Chemical Bank. This acquisition is expected to be completed by the
end of the first quarter of 1994.
THE CORPORATION
Fleet Financial Group, founded in 1791, is a $48-billion diversified
financial services company with 1,200 offices nationwide. Based in Providence,
Rhode Island, 26,000 employees work at seven banks, with branches throughout
New England and New York State, and at more than 10 major financial services
companies located throughout the country, including Atlanta; Columbia, South
Carolina; Long Beach, California; Milwaukee; Providence; and New York City.
CONTENTS
ONE Selected Financial Highlights
TWO Letter to Stockholders
SIX Management Overview
EIGHT Financial Table of Contents
NINE Management's Discussion and Analysis
TWENTY-SIX Consolidated Financial Statements and Supplemental
Financial Information
FIFTY-FIVE Affliliates
FIFTY-SIX Officers and Directors
<PAGE> 2
HIGHLIGHTS FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
SELECTED FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------------------------
December 31
Dollars in millions, except per share data 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Interest income (FTE)(a) $ 3,245 $ 3,446 $ 3,375 $ 3,373 $ 3,158 $ 2,637
Interest expense 1,161 1,463 1,930 2,126 1,816 1,403
Net interest income (FTE)(a) 2,084 1,983 1,445 1,247 1,342 1,234
Provision for credit losses 271 486 509 762 160 107
Securities gains (losses) 282 207 173 (37) 26 12
Noninterest income 1,465 1,368 1,082 735 576 484
Noninterest expense 2,424 2,318 1,819 1,289 1,128 1,049
Net income (loss) 488 280 98 (74) 371 336
PER COMMON SHARE
Earnings (loss) $ 3.01 1.77 $ 0.67 $ (0.75) $ 3.30 $ 3.01
Market value (year-end) 33.38 32.75 24.88 11.00 26.13 25.50
Cash dividends declared 1.025 0.825 0.80 1.25 1.31 1.1975
Book value (year-end) 22.84 19.50 18.15 17.65 19.87 17.84
AT YEAR-END
Assets $ 47,923 $ 46,939 $ 45,445 $ 32,507 $ 33,441 $ 29,052
Securities available for sale 12,577 10,857 10,523 - - -
Investment securities 1,546 1,803 102 5,270 5,524 4,676
Loans and leases, net of unearned income 26,310 26,647 26,761 20,465 21,633 19,748
Reserve for credit losses 1,000 1,029 1,021 700 341 315
Deposits 31,085 32,735 35,245 23,191 21,677 20,701
Short-term borrowings 8,107 6,399 3,474 3,600 6,455 3,802
Long-term debt 3,444 3,812 3,004 3,064 2,204 1,675
Total stockholders' equity 3,639 3,010 2,510 2,069 2,289 2,049
OPERATING RATIOS
Return on average common equity 16.07% 11.01% 4.02% (3.93)% 17.70% 18.15%
Return on average assets 1.06 0.62 0.25 (0.21) 1.25 1.24
Common dividend payout ratio 28.71 36.12 96.66 N/A 38.30 36.52
Net interest margin 5.02 4.80 4.09 3.92 4.96 5.11
Efficiency ratio 66.25 68.08 72.00 65.04 58.82 61.00
Common stockholders' equity-to-assets (year-end) 6.55 5.13 4.82 5.98 6.47 6.60
Average total stockholders' equity-to-assets(b) 7.51 5.78 5.84 6.39 7.32 7.15
==========================================================================================================================
</TABLE>
(a)This schedule is prepared on a fully taxable equivalent (FTE) basis.
The FTE adjustment included in interest income was $33 million in 1993;
$30 million, 1992; $46 million, 1991; $94 million, 1990; $90 million,
1989; and $85 million, 1988.
(b)The 1993 ratio includes dual convertible preferred stock, which was
reclassified to stockholders' equity on December 31, 1992.
1
<PAGE> 3
LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP
TO OUR STOCKHOLDERS:
Compared to the turbulent and uncertain years that marked the beginning of
the decade, 1993 can be characterized as a significantly more progressive and
rewarding year for Fleet. Earnings rebounded--growing, in fact, to record
levels--and management was able to focus with renewed intensity on the
corporation's forward direction, resulting in a new vision of Fleet's future.
The section immediately following this letter addresses certain elements of that
still-evolving vision. I urge you to read it.
In addition to being encouraged by Fleet's record 1993 earnings of $488
million, we were equally satisfied to achieve a sizeable reduction in
nonperforming assets (NPAs). Since April 1992, we have cut NPAs from $1.6
billion to $601 million, a reduction of almost two-thirds in our troubled loan
portfolio. Furthermore, our ratio of NPAs to total assets at December 31, 1993,
was 1.25%, which is the lowest level since the fourth quarter of 1989.
1993 FINANCIAL RESULTS. Fleet's strong 1993 earnings of $488 million
($3.01 per fully diluted share) represented an increase of 74% compared to
1992's $280 million ($1.77 per fully diluted share).
The significant earnings increase was due primarily to a strong rebound in
income generated by Fleet's seven banks throughout the Northeast as a result of
sharply lower credit costs than we experienced in 1992 and a stronger net
interest margin.
While the corporation's banks performed exceptionally well last year, the
Financial Services Group did not fare as well, earning $42 million compared to
the $106 million it contributed to earnings in 1992. The decrease was primarily
attributable to a $100-million charge related to mortgage servicing assets at
Fleet Mortgage Group in the second quarter and a $29-million loss at Fleet
Finance relating to the settlement of litigation.
Fleet's return on assets (ROA) and return on equity (ROE) improved
markedly in 1993. ROA was 1.06% and ROE was 16.07%, compared to .62% and 11.01%,
respectively, in 1992.
At December 31, 1993, for the second consecutive quarter, we continued to
experience growth in our earning assets as average loans and leases were up $172
million from the third quarter. After several years of declining commercial
lending activity, this beginning of loan growth reflected a more stable economy
in the Northeast and better prospects for our commercial customers.
The corporation's balance sheet continues to be exceptionally strong.
Stockholders' equity amounted to $3.6 billion at December 31, 1993, compared to
$3.0 billion at the end of 1992. The corporation's equity-to-assets ratio as of
December 31, 1993, was 7.6%.
Fleet's Tier 1 risk-based capital ratio at year-end 1993 was 11.8%,
compared to 10.4% at December 31, 1992, and a regulatory minimum of 4%.
ACCOMPLISHMENTS IN 1993. Numerous other 1993 accomplishments deserve
mention.
Anticipating accelerated growth, an important reorganization early in the
year streamlined Fleet's management structure to improve operating efficiencies
and communications. Replacing a matrix-style management organization that had
served us well for many years but eventually became overly cumbersome, the new
functional approach follows product lines, gives Fleet a slimmer organizational
alignment, and prepares us to take advantage of full national interstate branch
banking when it arrives.
Elected vice chairmen were Robert J. Higgins, H. Jay Sarles, and Michael
R. Zucchini; Eugene M. McQuade, named an executive vice president, later
succeeded John W. Flynn, who retired in June, as chief financial officer.
Bob Higgins was given responsibility for Fleet's commercial banking
franchise, with all Fleet bank presidents reporting to him. His role encompasses
all commercial lending and related areas.
Jay Sarles assumed responsibility for strategic planning, mergers and
acquisitions, chairmanship of the Asset/Liability Committee, all of the
corporation's investment management businesses, and the corporation's staff
functions.
2
<PAGE> 4
LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP
Mike Zucchini took control of Fleet's entire consumer franchise, including
consumer banking at Fleet's banks, operations and technology, mortgage banking,
consumer finance, and several other key areas.
Gene McQuade became responsible for Fleet's entire financial operations,
ranging from financial accounting, operations and control, and corporate finance
activities, to financial management information and profitability, corporate
treasury, Fleet's $14-billion investment portfolio, and regulatory compliance.
We believe this improved approach to managing the corporation makes Fleet
a stronger, more forward-thinking competitor, more outward-looking, and better
at meeting our customers' needs.
An extremely well-received stock offering sold in excess of 12 million
shares of Fleet common stock last year, representing $400 million in new
capital.
Fleet continued to expand its banking franchise by agreeing to acquire
Sterling Bancshares Corp., Waltham, Massachusetts, and assuming the deposits of
Jefferson National Bank, Watertown, New York. We also received regulatory
approval to acquire approximately $700 million in consumer deposits of 29
upstate New York branches of Chemical Bank. At the same time, we determined that
factoring is not a core business of strategic importance for our company, and
accordingly agreed to sell Fleet Factors Corp. to GFC Financial Corp., Phoenix,
Arizona, in an all-cash transaction.
FLEET FOCUS '94. A sweeping, top-to-bottom review of Fleet's entire Northeast
operations, designed to strengthen our competitive position by dramatically
improving the corporation's efficiency ratio to an estimated 55% by mid-1995,
was launched in 1993. Known as Fleet Focus '94, it is a thorough analysis of how
we do business, conducted by our own employees and management, with assistance
from an outside consulting team.
In the concluding months of 1993, employees at every level of our
organization did an outstanding job of identifying thousands of
revenue-generating and cost-saving ideas, and our best management talent
analyzed the relative merits and risks of those ideas. All potential changes in
our business practices and staffing have been reviewed by the company's
senior-most officers and will be implemented throughout this year.
Fleet Focus will require difficult decisions and sacrifices, including
the elimination of positions throughout our organization, always one of
management's most painful responsibilities. Improving our efficiency, however,
ultimately will boost earnings. Sustained earnings performance will, in turn,
increase the value of Fleet's stock and heighten the company's appeal to a
broader investment community.
Competition for today's customer is intense, and wise consumers are
demanding quality at a fair price. Only a highly efficient company can afford
to provide both quality service and truly competitive pricing. For Fleet, the
issue is how to position the corporation for tomorrow's opportunities. Fleet
Focus '94 will provide many of the answers to that question.
Unlike many companies that have undertaken efficiency reviews, we launched
Fleet Focus '94 from a position of strength and solidity. The overhaul of our
operating efficiency is not a tactic for immediate survival. Rather, it is aimed
at building Fleet's competitive strength for the longer term.
Efficiency, customer focus, quality service, and positioning the
corporation for tomorrow's opportunities are the principal goals of this effort.
The sum of many reasons for conducting Fleet Focus '94 is that it is essential
if Fleet is to continue being a preeminent player in the financial services
industry. As the program's benefits begin to add up, Fleet will be strengthened,
becoming more agile and better able to offer customers the services they want,
configured the way they want them, and at competitive prices.
DIVIDEND. In November, the Board of Directors voted the third increase in a
12-month period in the quarterly dividend paid on Fleet's common stock. The
dividend was increased a total of 50% in that period. The most recent action,
boosting the quarterly dividend 20% to $.30 per share, brought the annualized
dividend rate to $1.20 per share. We are proud to continue honoring our
commitment to reward you,
3
<PAGE> 5
LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP
our stockholders, by ensuring that you share in Fleet's steadily increasing
earnings.
The board also increased pensions for retired Fleet employees by 5%. In
the same way that we took action to share the corporation's rising fortunes with
stockholders, we felt it was appropriate to recognize our retired employees for
their many years of service to the company.
SECOND MORTGAGE ISSUE. The corporation took significant steps toward ending a
second mortgage controversy at Fleet Finance, our Atlanta-based finance
subsidiary, by winning a Georgia Supreme Court case in which we had been charged
with usury and by reaching a settlement with Georgia state agencies. The
settlement included $70 million to be invested in affordable housing programs to
help low-income borrowers throughout Georgia and approximately $30 million in
various forms of relief to certain past and present Georgia customers of Fleet
Finance. Also, Fleet Finance reached an agreement in principle with class-action
plaintiffs, subject to final documentation and court approval. Moreover, Fleet
Finance continued to take numerous steps toward becoming a consumer finance
industry leader. We are proud of the company's new focus on building strong,
responsive relationships with its customers.
Over the past 18 months, Fleet Finance has made significant policy and
procedural changes to improve relationships with its customers, including
offering rates that are among the most competitive in its industry, developing a
centralized customer service department, and capping rates and broker/lender
points to ensure the best possible loan arrangements to meet each customer's
particular needs.
Fleet Finance also placed greater emphasis on quality and customer
satisfaction by strengthening its credit and risk management units, realigning
senior managers to improve oversight, developing innovative consumer credit
education programs in cooperation with the National Consumers League, and
committing $8 million--including $1.3 million in direct grants to homeowners--to
assist its Atlanta neighbors whose lives are being disrupted by work on the
Olympic stadium.
FLEET INCITY. Fleet generated extremely favorable headlines throughout the
country in February of this year as leading members of the U.S. Congress, along
with officials from the Clinton Administration, joined us in Washington to
announce our new $8-billion community lending and service program, Fleet INCITY.
A three-year program, Fleet INCITY is the most comprehensive lending
commitment ever made by a U.S. financial institution. Its principal goal is to
improve access to credit for low- and moderate-income people and small
businesses. Fleet renewed its commitment of $7.2 billion in affordable housing
and related initiatives and added $800 million of entirely new and original
community commitments. Fleet intends to become a national leader in meeting the
financial needs of low- and moderate-income neighborhoods and small and
minority-owned businesses by giving credit where credit is due.
Fleet INCITY encompasses government-sponsored affordable housing loans
totaling more than $7 billion; a Fleet affordable housing initiative and
mortgage outreach effort ($455 million); Fleet consumer loans totaling $225
million; Fleet small business loans and business microloans, including plans to
create a $15-million Fleet Community Development Corp. (CDC), which will
represent one of the largest initial capital investments ever made to a CDC by a
bank holding company; and several other community and cultural diversity
initiatives.
Senator Edward M. Kennedy (D-Mass.) commented, "This is an extraordinary
demonstration of responsible corporate and banking leadership, and it is a
challenge to the other banks and financial institutions in Massachusetts and
throughout the country to follow this incredible example."
PEOPLE. Significant appointments in 1993 and earlier this year included the
following.
o John B. Robinson, Jr., executive vice president in charge of Fleet's
New York, Maine, and New Hampshire banking franchises, was given additional
responsibility for government banking and Fleet Securities.
4
<PAGE> 6
LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP
o Anne M. Slattery, who had been a senior executive with Citicorp, joined
Fleet as a senior vice president. She is responsible for all consumer banking,
including Fleet's system of more than 800 banking offices at 7 banks throughout
the Northeast, the small business lending group, and the middle office support
group.
o Robert C. Lamb, Jr., was elected controller of the corporation.
o David M. Sheppard was named chairman and chief executive officer, and
Robert P. Drum was appointed president, of Fleet Services Corp.
o Erland E. Kailbourne was elected chairman and chief executive officer
of Fleet Bank of New York, succeeding Robert F. Macfarland, who retired.
o Dean T. Holt was named president and chief credit officer of Fleet Bank
of New York. He was succeeded as president and chief executive officer of Fleet
Bank-NH by Michael C. Whitney.
o Frederick C. Copeland, Jr., was named chairman and chief executive
officer of Fleet Bank, N.A.
o Georgina Macdonald was elected president of Fleet Management and
Recovery Corp. (FMRC).
o Agnes J. Bundy, former counsel to the U.S. Senate Budget Committee,
joined the corporation as a senior vice president, Fleet Corporate
Administration. She directs Fleet's Community Reinvestment Act (CRA) compliance
program.
o John S. Poelker, a financial services executive whose career has spanned
more than 25 years and included serving as an executive vice president and
treasurer of BankAmerica Corp., was named chairman and chief executive officer
of Fleet Finance.
o Frank H. Odell, retired chairman and chief executive officer of Fleet
Bank of New York, retired from the corporation's Board of Directors. He had
served on the board with distinction for years.
We were saddened last year by the death of Mary Agnes Kiernan Callahan,
widow of Peter D. Kiernan, Jr., Fleet's former chairman and chief executive
officer. Mrs. Callahan, who devoted considerable time and effort to community
service, is missed by her family and her wide circle of friends.
OUTLOOK. The financial services industry is moving forward on an evolutionary
path toward greater concentration. Superregional banks--relative newcomers on
the scene--are beginning to combine into megabanks, seeking to improve operating
efficiencies and enhance their ability to deliver superior customer service. As
a superregional, Fleet certainly fits the description of a company constantly on
the lookout for major new opportunities that make sense in this environment.
We have not uncovered opportunities of that magnitude since the Bank of
New England acquisition, but we are preparing for the day when we identify the
right one. Through the benefits that will accrue from Fleet Focus '94, a new
Fleet gradually will take shape. I hinted at it earlier: leaner, more agile, and
more than ever before in our history driven by an imperative to give customers
the best products, along with service at the highest quality levels, and all at
competitive prices.
I have no doubt that we will be successful in achieving these objectives,
given the strong commitment to them by management and employees throughout the
company. Fleet traces its beginnings back more than 200 years, to be sure, but
our most significant growth has occurred in the last 20 years. Significant new
growth, I am convinced, will be compressed into a far shorter time span. Thanks
to the evolutionary process I referred to earlier, most banks today are either
growing with remarkable speed or are disappearing from the scene at an equally
fast pace.
I can assure you that the new Fleet, now beginning to emerge, intends to
be numbered among the new breed of customer-oriented financial services
companies. We intend, in fact, to improve on our position of industry leadership
throughout the remainder of this century and well into the next. I believe
Fleet's potential truly is enormous, and your continued support as a
stockholder, always greatly appreciated, will be a more important ingredient
than ever as we strive to further shape, refine, and develop the new Fleet to
its fullest potential.
/s/ Terrence Murray
Terrence Murray
Chairman, President, and
Chief Executive Officer
5
<PAGE> 7
MANAGEMENT OVERVIEW FLEET FINANCIAL GROUP
CHANGE, VISION, AND VALUES
Fleet is a company that has changed dramatically in the past decade. We
continue to change, which we must do to be successful. We are taking the best
from our recent past and blending it with emerging innovations to create a
company ideally suited for growth in today's more competitive environment.
Vision, in the context of operating a successful business enterprise, has
no strict definition. Each company must create its own shades of meaning for
the concept of vision, based on the nature of its business and the goals of its
management. We believe there are two interrelated concepts critical for
success and growth: a strategic business vision and a set of corporate values.
STRATEGIC BUSINESS VISION
First, we continually develop and refine a clear, achievable strategic
business vision, answering questions such as, in which businesses are we
engaged, and in which ones do we intend to become active? How do we plan to
expand the company? Who are our customers? What do they need and want today
and in the future? How can Fleet efficiently meet their needs and wants? What
resources, people and otherwise, do we need to achieve that vision?
As noted earlier, answers to such critical questions are evolving rapidly
as a result of Fleet Focus '94 and senior management's continuing analysis of
our business strategies. We will report on the results of these initiatives in
future communications, but a few strategies are already evident.
o We will be customer-focused, understanding what our customers value and
incorporating that knowledge into the development and distribution of our
products and services.
o We will achieve greater penetration of our exceptionally rich franchise,
maximizing the significant growth potential inherent in our enormous customer
base.
o We will expand business activities that generate fee income, which is
less susceptible to fluctuations in the economy.
o We will continue to pursue an aggressive acquisition strategy recognizing
that the banking industry is rapidly consolidating to eliminate excess
capacity.
o We will employ technology creatively to serve our customers better and to
improve our productivity and efficiency.
o We will maintain consistent, responsible, disciplined standards for
evaluating risk and for approving credit, regardless of the pressures of the
marketplace. We will work to achieve a proper balance between an
entrepreneurial approach to business and one in which risk is evaluated and
accounted for.
Fleet's current management structure, organized along broad functional
lines in 1993, is streamlined and highly efficient in today's fast-changing
financial services industry. This structure positions the corporation to
expand and to take advantage of interstate branching when that possibility
becomes a reality.
Although Fleet's strategic business vision is still evolving, many
components of our business mix are so elemental that they have a secure place
in the company's future.
COMMERCIAL FINANCIAL SERVICES. Commercial and industrial lending, equipment
leasing, asset-based lending, commercial real estate, commercial products and
services, government and municipal securities, government banking, trade
services, and cash management, a significant segment of the Commercial
Financial Services Division, will continue to be core businesses for Fleet.
CONSUMER FINANCIAL SERVICES. The Consumer Financial Services Division is in a
strong position to offer retail customers high-quality service and a
commonality of products, while simultaneously capitalizing on efficiencies
necessary for improved earnings.
Fleet's consumer banking franchise includes 800 branches across
Connecticut, Maine, Massachusetts, New Hampshire, New York, and Rhode Island.
New technology will continue to enable nontraditional approaches to sales that
are unhindered by geography. Fleet's mortgage banking, consumer finance, and
student loan processing business lines also continue to have secure places in
Fleet's future.
INVESTMENT SERVICES. A group of Fleet subsidiaries, steadily increasing in
value to the corporation, offer comprehensive investment, trust, private
banking,
6
<PAGE> 8
MANAGEMENT OVERVIEW FLEET FINANCIAL GROUP
and brokerage services targeted to affluent customers. Included among the
several products that help clients manage their finances are money market
funds, annuities, and the Galaxy (sm) family of mutual funds.
In 1993, the private banking area was integrated with our investment
services subsidiary to offer a full range of investment products and services
and high-quality investment management services. Fleet's brokerage subsidiary,
one of the country's largest, augments Fleet's investment management activities
through its primary business of executing orders for buying and selling
securities.
CORPORATE VALUES
The second concept we consider essential is a set of corporate values that
serve as guide posts in our corporate life. These values answer such questions
as, how will we interact with our stockholders, customers, employees, and the
community-at-large? What is our corporate culture? How do we interpret
business ethics? How do we want Fleet to be seen by the world?
We should be succinct and unambiguous in stating our corporate values.
These, then, are our guide posts for corporate behavior.
PUTTING OUR CUSTOMERS FIRST. Fleet will deliver top-quality services when,
where, and how our customers want them. We will distinguish our institution by
our responsiveness, convenience, courtesy, and turnaround time. We will make
Fleet a preferred source for financial products and services by making customer
service an integral part of our corporate culture. We believe performance that
strengthens our earnings is entirely compatible with the best in customer
service. As we eliminate unnecessary processes at our branches, employees will
be able to devote more time to customers. Finally, when errors do occur,
despite our best efforts, our customers deserve to have them resolved promptly
and courteously.
RESPONSIBLE CITIZENSHIP. Fleet will distinguish itself as a good citizen of
the communities in which we do business, which means more than charitable
giving anad volunteer support, as important as they are. It also means putting
the full weight of our institution behind worthwhile community needs, such as
affordable housing.
Through sponsorships, special events, charitable gifts, and volunteer
programs, the corporation strives to improve the quality of life in the
communities we serve. During 1993, for example, Fleet contributed more than $5
million to these communities. The corporation is particularly committed to the
advancement of youth and to economic revitalization. In addition to providing
financial assistance to myriad worthwhile nonprofit entities, Fleet is proud of
the high level of volunteerism and board involvement exhibited by many of our
employees.
Fleet's new $8-billion affordable housing and community lending program,
Fleet INCITY, described earlier, is another example of our determination to be
a responsible corporate citizen.
HIGHEST ETHICAL STANDARDS. Fleet is renewing its dedication to the principles
of fairness, honesty, and integrity, as defined not merely by law, but by the
best and highest ethical precepts of contemporary society. We will maintain a
work environment that reinforces uncompromising ethical conduct by our
employees, and we will not tolerate deviations from those standards. We
recognize that we must live by these high ethical standards in all of our
interactions with customers, stockholders, government officials, and with one
another.
BUILDING STOCKHOLDER VALUE. Fleet will maintain an appropriate balance among
profitability, growth, and risk in a determined effort to build stockholder
value. We will set our dividend at a level that enables stockholders to
participate fully in Fleet's prosperity. We will continue to recognize that
our stockholders, because they own the company, have a high priority in all of
our considerations. Management is committed, on behalf of stockholders, to
enhancing the value of their holdings.
A REWARDING PLACE TO WORK. Fleet will recruit and retain quality employees by
providing an environment that rewards intelligence, commitment, and service to
our customers. By offering opportunities for advancement and incentives that
truly reward employees for producing business and providing high levels of
customer service, we will show sensitivity to the needs of outstanding
employees and gratitude for their contributions to Fleet's success.
7
<PAGE> 9
FINANCIAL TABLE OF CONTENTS FLEET FINANCIAL GROUP
FINANCIAL TABLE OF CONTENTS
NINE MANAGEMENT'S DISCUSSION AND ANALYSIS
TWENTY-FOUR MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
TWENTY-FIVE REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX Consolidated Statements of Income
TWENTY-SEVEN Consolidated Balance Sheets
TWENTY-EIGHT Consolidated Statements of Changes in
Stockholders' Equity
TWENTY-NINE Consolidated Statements of Cash Flows
THIRTY Notes to Consolidated Financial Statements
SUPPLEMENTAL FINANCIAL INFORMATION
FIFTY-ONE Ten-Year Statistical Summary
FIFTY-ONE Quarterly Summarized Financial Information
FIFTY-ONE Common Stock Price and Dividend Information
FIFTY-TWO Consolidated Average Balances/Interest
Earned-Paid/Rates 1989-1993
FIFTY-FOUR Rate/Volume Analysis
FIFTY-FOUR Loan and Lease Maturity
FIFTY-FOUR Interest Sensitivity of Loans over One Year
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
OVERVIEW
Fleet Financial Group (Fleet or, the corporation) reported net income
for 1993 of $488 million, or $3.01 per share, a $208-million (74%) increase
compared to 1992. Return on assets improved significantly to 1.06% as stronger
earnings were achieved with a relatively level asset base. Return on common
stockholders' equity also increased significantly to 16.07%. The improved
results reflect increased net interest income due to favorable interest-rate
spreads and reduced asset-quality costs as a result of a significant reduction
in nonperforming assets (NPAs) and a lower level of net credit losses. The
provision for credit losses decreased by $215 million, and other real estate
owned (OREO) expense declined by $97 million.
Included in the 1993 results are three significant items. First, the
corporation recorded a $125-million restructuring charge relating to Fleet's
efficiency-improvement program, Fleet Focus '94. The charge covers certain
onetime expenses such as severance, project costs, and other direct expenses
resulting from this program. Second, Fleet Mortgage Group (FMG) recognized a
charge of $100 million during the second quarter related to mortgage servicing
assets. Mortgage servicing assets consist of purchased mortgage servicing
rights (PMSRs) and deferred excess service fees. High prepayment activity
combined with projections of future prepayment activity significantly affected
the value of FMG's mortgage servicing assets. More than offsetting these
charges, the corporation recognized $282 million in gains from securities sold.
Other significant items described in detail later include the
settlement of certain lawsuits against Fleet Finance, the corporation's
consumer finance subsidiary, two dividend increases to an annualized rate of
$1.20, and the sale of 12.3 million shares of common stock generating $391
million in net proceeds.
<TABLE>
<CAPTION>
NET INTEREST INCOME
- -----------------------------------------------------------
Year ended December 31
Dollars in millions
FTE basis 1993 1992 1991
- -----------------------------------------------------------
<S> <C> <C> <C>
Interest income $3,212 $ 3,416 $3,329
Tax-equivalent adjustment 33 30 46
Interest expense 1,161 1,463 1,930
- ----------------------------------------------------------
Net interest income $2,084 $ 1,983 $1,445
==========================================================
</TABLE>
Net interest income on a fully taxable equivalent (FTE) basis for the
year ended December 31, 1993, increased by 5.1% compared to 1992, due primarily
to an improvement in net interest margin, as earning-asset levels were
relatively stable.
<TABLE>
<CAPTION>
NET INTEREST MARGIN AND INTEREST-RATE SPREAD
- --------------------------------------------------------------------------------
December 31 1993 1992
- --------------------------------------------------------------------------------
Taxable equivalent rates Average Average
Dollars in millions Balance Rate Balance Rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $12,938 6.85% $ 11,709 7.69%
Loans and leases 26,144 8.46 26,615 8.94
Other 2,453 6.04 2,904 5.77
- --------------------------------------------------------------------------------
Total interest-earning assets 41,535 7.81 41,228 8.36
- --------------------------------------------------------------------------------
Interest-bearing
liabilities 34,862 3.33 34,431 4.25
- --------------------------------------------------------------------------------
Interest-rate spread 4.48 4.11
Interest-free sources
of funds 6,673 - 6,797 -
- --------------------------------------------------------------------------------
Total sources of funds $41,535 2.79 $ 41,228 3.56
================================================================================
Net interest margin 5.02% 4.80%
================================================================================
</TABLE>
The net interest margin for 1993 increased 22 basis points (4.6%)
compared to 1992, primarily due to the decrease in the cost of liabilities
outpacing the decrease in the yield on assets. Decreases in consumer deposit
rates, the roll-off of higher rate wholesale liabilities, and the retirement of
high-coupon rate debt were major contributors to the decrease in the cost of
liabilities.
The yield on securities declined 84 basis points, due to sales and
maturities of higher-yielding mortgage-backed securities (MBS) and long-term
fixed-rate securities, replaced by the purchase of lower-yielding securities
during 1993. Those sales reduced prepayment sensitivity and shortened the
maturity of the portfolio. Proceeds from those sales were reinvested primarily
in short-term U.S. Treasury securities and lower-coupon, adjustable-rate MBS
that management believes were less susceptible to prepayment and interest-rate
risk.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
The yield on loans declined 48 basis points due to a significant run-off
of high-yielding loans, some of which were putable to the Federal Deposit
Insurance Corp. (FDIC), and refinancing of loans at increasingly competitive
rates. These items were partially offset by the benefit of a 38% decrease in
nonperforming loans from December 31, 1992, to December 31, 1993, and the
increased use of interest-rate swap agreements. (See the Interest-Rate
Sensitivity section for more information.) The factors that contributed to the
increase in net interest margin in 1993, particularly related to liabilities,
including favorable interest-rate conditions, are unlikely to occur in 1994.
Therefore, a similar increase in the net interest margin for 1994 is also
unlikely.
<TABLE>
<CAPTION>
NONINTEREST INCOME
- --------------------------------------------------------------------
Year ended December 31
Dollars in millions 1993 1992 1991
- -------------------------------------------------------------------
<S> <C> <C> <C>
Net loan servicing revenue $ 231 $ 234 $ 226
Mortgage production revenue 158 114 42
Gains on sales of mortgage
servicing 25 16 37
- --------------------------------------------------------------------
Total mortgage banking 414 364 305
Investment services revenue 174 160 119
Service charges on deposits 173 162 116
Other service charges, fees,
and commissions 105 94 84
Student loan servicing fees 51 61 65
Merchant discount fees 31 24 13
Brokerage fees and commissions 20 18 16
Insurance 19 21 18
Gain on sale/securitization
of bank loans 14 12 -
Other 154 103 82
- --------------------------------------------------------------------
Total operating noninterest
income 1,155 1,019 818
- --------------------------------------------------------------------
Securities available for sale gains 282 207 81
Investment securities gains - - 92
- --------------------------------------------------------------------
Total securities gains 282 207 173
- --------------------------------------------------------------------
Trading income:
Securities 20 20 16
Foreign exchange/interest-
rate products 8 1 26
- --------------------------------------------------------------------
Total trading income 28 21 42
- --------------------------------------------------------------------
Gain on partial sale of FMG - 121 -
Gain on sale of finance receivables - - 49
- --------------------------------------------------------------------
Total noninterest income $ 1,465 $ 1,368 $ 1,082
====================================================================
</TABLE>
Operating noninterest income (as defined above) for 1993 increased 13.3%
compared to 1992.
Net loan servicing revenue, which has been adversely affected by
prepayments in the mortgage servicing portfolio, decreased slightly from $234
million in 1992 to $231 million in 1993. This decrease was primarily due to the
increased amortization expense of deferred excess service fees. The
corporation's mortgage servicing portfolio totaled $69.9 billion at December
31, 1993, compared to $63.0 billion a year earlier, an increase of 11%.
The corporation's servicing portfolio is subject to reduction by normal
amortization, by sales of servicing rights, by prepayment, or by foreclosure of
outstanding loans. The value of the corporation's loan servicing portfolio may
be adversely affected if mortgage interest rates decline and loan prepayments
increase. The value is also adversely affected by unanticipated rates of
default. Conversely, as mortgage interest rates increase or as rates of default
decrease, the value of the corporation's loan servicing portfolio may be
positively affected. The weighted-average interest rate on the underlying
mortgage loans being serviced by the corporation as of December 31, 1993, was
8.26%. The corporation's PMSRs are subject to a great degree of volatility in
the event of unanticipated prepayments or defaults. Prepayments in excess of
those anticipated at the time PMSRs were recorded result in decreased future
net servicing income. Such decreases in future net servicing income would
result in accelerated amortization and/or impairment of PMSRs. The
corporation's net earnings, future net earnings, and liquidity are adversely
affected by unanticipated prepayments of the mortgage loans underlying its
PMSRs.
Mortgage production revenue increased 39% during 1993 as a result of an
increase in net marketing gains, due primarily to a declining interest-rate
environment as well as increased sales of mortgage loans in 1993. FMG produced
$22.9 billion in residential mortgage loans in 1993, compared to $19.6 billion
in 1992, an increase of 17%. Marketing results are generally more favorable
when interest rates decline. If interest rates remain stable or increase in
future periods, marketing gains would probably decrease.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
Gains on sales of mortgage servicing were $25 million, versus $16
million in 1992, as FMG sold mortgage servicing rights related to $2.3 billion
of mortgage loans in bulk transactions during 1993. FMG's decision to sell
mortgage servicing rights is based upon a variety of factors, including the
available markets and current market prices for such servicing rights and the
working capital requirements of FMG. Sales of mortgage servicing rights reduce
future servicing revenue. The likelihood or profitability of any such sales in
the future cannot be predicted.
Investment services revenue increased $14 million (9%) from 1992 to
1993 due to an increase in the fee structure. Student loan servicing fees
decreased from 1992 primarily due to the closing of AFSA Data's student loan
servicing center in Costa Mesa, California, during the second quarter of 1992.
This center had been temporarily established to service student loans for
another financial institution, a task that is now complete. AFSA's
profitability, however, was not adversely affected because cost reductions
related to the closing of the servicing center were also achieved.
Other noninterest income increased by $51 million from 1992 to 1993
due primarily to the recognition of $17 million of unrealized appreciation of
venture capital investments by Fleet Equity Partners and a $3-million increase
in administrative fees received from the FDIC for managing troubled assets on
its behalf.
Fleet has agreed to liquidate, collect, and manage the Bank of New
England (BNE) asset pool and the Maine Savings Bank (MSB) special asset pool
for the FDIC for a five-year period expiring in July 1996. (See the section on
Federal Financial Assistance under Loans and Leases for additional
information.) Fleet receives reimbursement for all allowable direct costs, a
general overhead payment, and an incentive fee. Such amounts are reflected in
noninterest income, net of expenses, in the statements of income and amounted
to $31 million and $12 million for the years ended December 31, 1993 and 1992,
respectively.
The corporation recognized $282 million in gains on the sale of
securities in 1993 compared to $207 million in 1992. The increase in the
securities gains was primarily due to the sale of approximately $6.5 billion of
MBS, fixed-rate U.S. Treasury notes, and equity securities in 1993.
<TABLE>
<CAPTION>
NONINTEREST EXPENSE
- ----------------------------------------------------------------
Year ended December 31
Dollars in millions 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Employee compensation and
benefits $ 1,018 $ 958 $ 747
Acquired servicing rights
amortization 240 107 99
Occupancy 174 165 134
Equipment 130 118 100
Legal and other professional 86 81 60
FDIC assessment 76 75 64
OREO expense 57 154 105
Core deposit and goodwill
amortization 54 45 33
Marketing 53 51 36
Printing and mailing 42 39 35
Telephone 40 38 32
Credit card 38 22 20
Office supplies 33 34 27
Travel and entertainment 28 26 18
Restructuring charge 125 - -
Other 230 405 309
- ----------------------------------------------------------------
Total noninterest expense $ 2,424 $ 2,318 $ 1,819
================================================================
</TABLE>
The $106-million increase in total noninterest expense from 1992 to
1993 was primarily due to the charge relating to the impairment of the carrying
value of mortgage servicing assets as demonstrated by the increase in acquired
servicing rights amortization from 1992 to 1993 and the $125-million
restructuring charge recognized in 1993, offset by a $97-million decrease in
OREO expense from 1992 to 1993.
The 6.3% increase in employee compensation and benefits from year to
year is due primarily to an increase in compensation at FMG resulting from
record levels of production activity, the impact of the December 1992
acquisitions of Eastland and Heritage banks, normal merit increases, and
increased benefits costs.
During the second quarter, FMG recognized a charge of $100 million
related to mortgage servicing assets. High prepayment activity combined with
projections of future prepayment activity significantly affected the value of
FMG's mortgage servicing assets. If the corporation continues to experience
high levels of prepayments, acceleration of amortization or impairment charges
to PMSRs may be required in the future.
The corporation, including FMG, continuously analyzes its mortgage
servicing portfolio to determine
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
if adjustments should be made to its amortization schedules or the carrying
values of its mortgage servicing assets due to changes in interest rates,
historic prepayment rates, expected prepayment rates, and other economic
factors. The corporation will continue to evaluate the use of various financial
instruments in an effort to offset the impact of future impairment adjustments;
however, future impairment of PMSRs and losses from financial instruments could
occur in the same period. If the corporation's prepayments continue at high
levels similar to those experienced in 1993, further impairment would probably
occur.
The $97-million (63%) decrease in OREO expense was primarily the
result of a $105-million (44%) decrease in foreclosed property and repossessed
equipment from $241 million at December 31, 1992, to $136 million at December
31, 1993, as well as stabilization and, in some instances, recovery of the
value of such properties. (See the Nonperforming Assets section for additional
information.)
The corporation recorded a restructuring charge of $125 million
relating to Fleet Focus '94 during the third quarter of 1993. This covers
certain onetime expenses such as severance costs and occupancy costs, project
costs, consulting fees, and other direct expenses resulting from this program.
Occupancy costs reflect the writedown of premises and equipment relating to
expected abandonment of facilities due to the expected reduction of employees.
The most significant portion of expense reductions will consist of savings of
employee compensation and benefits due to a reduction in employees. The
corporation does not anticipate a decrease in net revenues as a result of the
program. The majority of cash outlays associated with this program are expected
to be made during 1994 and are not expected to have an impact on the
corporation's liquidity. The charge includes only identified direct and
incremental costs associated with Fleet Focus '94; however, an additional
restructuring charge could be incurred to the extent that the ultimate savings
and costs to achieve them are greater than currently anticipated.
Fleet Focus '94 is intended to enhance the corporation's competitive
position through a comprehensive review of all its Northeast banking activities
and operations. The program consists of an intensive project phase followed by
implementation of recommended actions. The review is designed to build a more
efficient organization with enhanced customer service and focus. The
corporation's goal is to improve the existing efficiency ratio through revenue
enhancement and spending cuts in virtually all areas of its Northeast banking
operations from the current 66% to below 60% by year-end 1994.
<TABLE>
<CAPTION>
EARNINGS BY SUBSIDIARY
- ---------------------------------------------------------------
Year ended December 31
Dollars in millions 1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C>
BANKING GROUP
Connecticut $135 $ 68 $ (23)
Upstate New York 132 84 119
Massachusetts 124 84 17
Rhode Island 77 (31) (43)
Maine 34 23 (11)
Long Island 26 (27) (49)
New Hampshire 21 5 (11)
- --------------------------------------------------------------
Total Banking Group 549 206 (1)
- --------------------------------------------------------------
FINANCIAL SERVICES GROUP
Fleet Mortgage Group (FMG) 25(a) 100(a) 77
Fleet Equity Partners 13 4 -
Fleet Credit 11 1 21
Fleet Factors(b) 9 4 10
Fleet Securities 6 6 4
Fleet Brokerage 4 3 1
AFSA Data 3 (4) (2)
Fleet Finance (29) (8) 51
- --------------------------------------------------------------
Total Financial Services Group 42 106 162
- --------------------------------------------------------------
PARENT (103) (32) (63)
- --------------------------------------------------------------
Total $488 $ 280 $ 98
==============================================================
</TABLE>
(a)Net of minority interest of $6 million and $9 million for the years ended
December 31, 1993 and 1992, respectively.
(b)Fleet sold Fleet Factors Corp. to GFC Financial Corp. in the first quarter
of 1994.
The Banking Group's earnings increased $343 million, or 166%, for the
year ended December 31, 1993, compared to the prior year. The positive results
were attributable to (after-tax) improved net interest margins; an increase in
securities gains of $19 million; a decrease in OREO expenses of $53 million;
and a $123-million decrease in the provision for credit losses. These
credit-quality cost decreases were the result of a significant overall
improvement in asset quality due, in part, to the fourth quarter 1992 bulk sale
of problem assets.
The Financial Services Group's earnings decreased $64 million due
primarily to a $75-million decrease at FMG and a $21-million decrease at Fleet
Finance, offset by increases at Fleet Equity
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
Partners and Fleet Credit. Total assets and revenue of the Financial Services
Group were $7.6 billion and $1.1 billion, respectively, at December 31, 1993.
FMG contributed income of $25 million in 1993, compared to $100 million in
1992. Earnings for the 1993 period were adversely affected by a high level of
mortgage loan prepayments, which resulted in a high level of amortization of
mortgage servicing assets. (See the Noninterest Income and Noninterest Expense
sections for more information on mortgage banking revenue and mortgage
servicing assets amortization.)
Fleet Equity Partners recognized $10 million (after-tax) of unrealized
appreciation in two venture capital investments in 1993. As an investment
company, Fleet Equity Partners's investments are carried at fair value.
Accordingly, subsequent appreciation or depreciation in value is dependent upon
market conditions.
Fleet Finance's 1993 loss of $29 million was primarily related to the
settlement of potential litigation with the Georgia Attorney General and
Governor's Office of Consumer Affairs and a settlement in principle with
plaintiffs in a class-action lawsuit, as well as related asset-quality
deterioration. The 1992 results for Fleet Finance include a $15-million
(after-tax) charge related to its 10-point program to assist certain customers.
A small increase in NPAs was the result of a continuing deterioration of its
home equity loan portfolio, partially offset by the reduction in nonperforming
commercial real estate loans. The provision for credit losses (after-tax)
increased to $45 million in 1993 from $30 million in 1992, while expenses
related to OREO (after-tax) decreased to $8 million in 1993 from $13 million in
1992.
Fleet Credit reported net income of $11 million in 1993 compared to $1
million for 1992. The improvement in earnings was primarily attributable to an
improvement in asset quality and the loss on the sale of a subsidiary in 1992
of $4 million.
Fleet Factors's income for 1993 totaled $9 million, compared to $4 million
for 1992, primarily due to an increase in volume and improved asset quality.
Fleet announced in the fourth quarter of 1993 that it planned to sell Fleet
Factors to GFC Financial Corp. of Phoenix, Arizona, in an all-cash transaction,
which was completed in the first quarter of 1994. Fleet Factors had total
assets of approximately $350 million at December 31, 1993.
AFSA's 1993 net income improved $7 million versus 1992, primarily due to
operational charges incurred in 1992 to reflect increased rejections of claims
against guarantors of the student loans serviced by AFSA.
The parent's increased loss is due to the aforementioned restructuring
charge and the 1992 gain on partial sale of FMG, offset in part by a
$29-million (after-tax) gain in 1993 on the sales of securities available for
sale.
LOANS AND LEASES
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Loans and leases:
Commercial and industrial $11,104 $11,149
Consumer 7,531 7,116
Commercial real estate:(a)
Construction 477 1,062
Interim/permanent 3,917 3,798
- -------------------------------------------------------------------------------------------
Total commercial real estate 4,394 4,860
- -------------------------------------------------------------------------------------------
Residential real estate 2,052 2,154
Lease financing 1,034 1,092
Other 195 276
- -------------------------------------------------------------------------------------------
Total $26,310 $26,647
===========================================================================================
</TABLE>
(a) During 1993, the corporation adopted a revised definition for
classification of commercial real estate loans as either interim/permanent
or construction and, accordingly, approximately $600 million of loans were
reclassified from the construction category to interim/permanent.
Loan and lease portfolios inherently include credit risk. Fleet attempts
to control such risk through review processes that include careful analyses of
credit applications, portfolio diversification, and ongoing examination of
outstandings and delinquencies. Fleet strives to identify potential classified
assets early, to take charge-offs promptly based on realistic assessments of
probable losses, and to maintain strong loss reserves. The corporation's
portfolio is well-diversified by borrower, industry, product, and geographic
area, thereby reducing risk.
Total loans and leases were $26.3 billion at December 31, 1993, compared
to $26.6 billion at December 31, 1992, as modest increases in the commercial
and industrial and consumer loan portfolios during the latter portion of 1993
were offset, in part, by the reduction ($1.4 billion) of putable/loss share
loans included in commercial and industrial, and commercial real estate loans.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
COMMERCIAL AND INDUSTRIAL
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993
- -------------------------------------------------------------------
<S> <C>
Commercial loans secured by real estate(a) $ 1,076
Business services 1,050
Precious metals/jewelry 916
Health-care 827
Communications 825
Food/produce 779
Apparel and textiles 656
Bank and insurance 529
Transportation 520
Utilities/energy 447
Tourism and entertainment 429
Other 3,050
- -------------------------------------------------------------------
Total $11,104
===================================================================
</TABLE>
(a) Commercial loans secured by real estate represent loans made to commercial
borrowers to acquire land and buildings, but the primary source of
repayment is the cash flow generated by the operations of the borrower's
business.
Commercial and industrial lending consists primarily of middle-market
corporate customers and is well-diversified as to industry and companies within
each industry, thereby mitigating risk. Approximately two-thirds of the
portfolio is in the New England banks and one-third in the New York banks, with
approximately 14% of portfolio loans subject to federal financial assistance,
as compared to 22% in 1992. The decrease was due primarily to the run-off of
the putable/loss share loans.
COMMERCIAL REAL ESTATE--PRODUCT DIVERSIFICATION
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Office $ 1,019 $ 1,126
Apartments 877 779
Retail 865 949
Industrial 380 448
Hotel 240 274
Land 169 200
Residential 151 81
Condominiums 70 71
Research and development 31 48
Other 592 884
- -------------------------------------------------------------------------------------------
Total $ 4,394 $ 4,860
===========================================================================================
</TABLE>
Fleet's commercial real estate portfolio decreased by $466 million in 1993
due in part to a $473-million decrease in loans putable to the FDIC and a
$111-million decrease in loss share loans. The putable loans were acquired as
part of the 1991 federally assisted BNE acquisition while the loss share loans
were acquired as part of the federally assisted acquisitions of Eastland and
Heritage banks in December 1992.
In 1993, the corporation entered several new lines of business, including
national lending, public project finance, real estate investment trusts, and
portfolio finance. These areas are expected to be a source of growth in 1994.
Fleet continues to look into new opportunities to help rebalance the portfolio
and provide growth and diversity in order to improve the overall credit quality
of the commercial real estate portfolio.
CONSUMER AND RESIDENTIAL REAL ESTATE
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity $ 4,100 $ 3,983
Residential real estate 2,052 2,154
Installment 1,310 1,507
Credit card 1,060 579
Student loans 938 916
Other 123 131
- -------------------------------------------------------------------------------------------
Total $ 9,583 $ 9,270
===========================================================================================
</TABLE>
Approximately 64% of the consumer and residential real estate portfolio
represented loans secured by residential real estate, including second mortgage
and home equity loans and lines of credit. The corporation's subsidiaries
originated approximately $1.7 billion of home equity loans and lines of credit
during 1993; however, the home equity portfolio increased by only 3% due to
refinancings and prepayments.
Outstanding residential real estate loans secured by one- to four-family
residences were $2.1 billion at December 31, 1993, compared to $2.2 billion at
December 31, 1992. The decrease is primarily the result of increased
prepayments resulting from falling interest rates. The risks associated with
this type of lending are generally lower
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
than other types because the loans are secured by residential properties, whose
values have traditionally been more stable and have experienced lower default
rates than commercial real estate. Except for selected programs and loans held
in the portfolio for asset/liability management purposes, residential mortgage
loans in the corporation's banking franchise area are originated by FMG and are
sold in the secondary market.
Installment loans decreased 13% from $1.5 billion at December 31, 1992, to
$1.3 billion at December 31, 1993, as the corporation has made a strategic
decision to exit the indirect installment loan market.
Credit card outstandings doubled over the past two years to $1.1 billion
at December 31, 1993. The increase was due to new originations, special
promotions, and a change in rate structure to a rate that floats based on the
prime rate. Student loans increased slightly to $938 million, even though the
corporation recognized $11 million of gains on the sale of $100 million of
student loans in 1993.
The corporation manages the risk associated with most types of consumer
loans through the utilization of uniform credit standards when extending credit
together with enhanced computer systems that streamline the process of
monitoring delinquencies and assisting in customer contact.
LEASE FINANCING. The corporation provides equipment lease financing for mid- to
large-sized equipment through a nationwide network of sales offices. Total
lease financings declined slightly during the year. During 1992, lease
financings decreased as the corporation sold its small-ticket leasing
subsidiary based on a decision to exit this segment of the market.
FEDERAL FINANCIAL ASSISTANCE. Over the past three years, Fleet has completed
several acquisitions involving federal financial assistance. The most
significant were the 1991 acquisitions of BNE and MSB, and the 1992
acquisitions of Heritage and Eastland banks. For all of these acquisitions the
FDIC provided substantial loss protection related to specific loans.
Until July 1994, specified BNE loans ($2.8 billion at December 31, 1993),
comprised principally of commercial and commercial real estate loans, are
putable to the FDIC subject to certain conditions and discounts if such loans
become classified prior to that date. Fleet currently anticipates retaining the
majority of putable loans, which will result in additional risk weighting of
these loans when calculating regulatory capital ratios. The reclassification of
the putable loans will increase risk-adjusted assets by approximately $1.6
billion (assuming all loans are outstanding at July 14, 1994) and could have
caused a decrease at December 31, 1993, in the corporation's Tier 1 risk-based
capital ratio and total risk-based capital ratio of approximately 64 and 88
basis points, respectively. (See the Capital section for additional
information.)
Prior to February 1, 1993, specified MSB loans that became classified were
eligible to be put to a special asset pool (MSB special asset pool). The MSB
special asset pool ($195 million at December 31, 1993) will be acquired by the
FDIC on February 1, 1996, for cash. Fleet receives reimbursement for interest
carrying costs on the MSB special asset pool ($8.9 million and $15.0 million
for the years ended December 31, 1993 and 1992, respectively). Also, an
additional $4.3 million of incentive income was earned on the special asset
pool in 1993.
Certain of the Heritage and Eastland banks' loans totaling $514 million at
December 31, 1993, comprised principally of commercial and commercial real
estate loans, are subject to FDIC loss sharing agreements, whereby the FDIC
generally reimburses Fleet for 80% of net charge-offs for periods ranging from
three to five years from the date of acquisition.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
NONPERFORMING ASSETS
ACTIVITY IN NONPERFORMING ASSETS
<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 990 $ 1,609
Additions 633 1,217
Reductions:
Bulk sale -- (402)
Payments/interest applied (397) (514)
Returned to accrual (140) (186)
Charge-offs/writedowns (312) (517)
Sales/other (173) (217)
- -------------------------------------------------------------------------------------------
Total reductions (1,022) (1,836)
- -------------------------------------------------------------------------------------------
Balance at end of year $ 601 $ 990
===========================================================================================
</TABLE>
NPAs decreased $389 million, or 39%, from December 31, 1992. NPAs at
December 31, 1993, as a percentage of total loans, leases, OREO, and
insubstance foreclosures (ISFs), and as a percentage of total assets, were
2.27% and 1.25%, respectively. Fleet's nonperforming loans and leases decreased
$284 million and OREO and ISFs were reduced $105 million from December 31,
1992.
During 1993, nonperforming asset additions were $633 million, a significant
improvement over 1992. Reductions in NPAs during the year were primarily
attributable to payments, loan charge-offs, and sales.
NONPERFORMING ASSETS(a)
<TABLE>
<CAPTION>
Commercial Commercial
and Real
Dollars in millions Insustrial Estate Consumer Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonperforming loans
and leases:
Current or less than
90 days past due $111 $ 31 $ 5 $147
Noncurrent 108 50 160 318
OREO/ISFs 12 78 46 136
- --------------------------------------------------------------------------------------------------------
Total NPAs at
December 31, 1993 $231 $ 159 $ 211 $601
========================================================================================================
Total NPAs at
December 31, 1992 $428 $ 393 $ 169 $990
========================================================================================================
</TABLE>
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($77 million and
$118 million at December 31, 1993 and 1992, respectively), or assets
subject to federal financial assistance ($118 million and $163 million at
December 31, 1993 and 1992, respectively)
Consumer NPAs increased primarily due to a $22-million increase at Fleet
Finance, caused principally by increased delinquencies. Management believes that
part of the increase was a result of increased litigation and media attention,
whereby borrowers may have been encouraged to discontinue making payments. A
majority of these matters have now been resolved. (See Note 16 to the
Consolidated Financial Statements for further information.) Commercial NPAs
decreased from December 31, 1992, due to reduced inflow, workout measures, and
improving economic conditions.
At December 31, 1993 and 1992, loans in the 90 days past due and still
accruing interest category amounted to $77 million and $118 million,
respectively, which included approximately $62 million and $80 million,
respectively, of consumer loans. Although these amounts are not included in
NPAs, management reviews loans in this category when considering risk elements
to determine the adequacy of Fleet's credit loss reserve.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
December 31 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Loan Type to Loan Type to Loan Type to
Dollars in millions Amount Total Loans Amount Total Loans Amount Total Loans
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 299 42.2% $ 387 41.1% $ 321 38.0%
Consumer 180 28.7 199 26.6 150 25.8
Commercial real estate:
Construction(a) 7 1.8 39 3.9 - 4.7
Interim/permanent 135 14.9 209 14.0 256 14.8
- -------------------------------------------------------------------------------------------------------------------
Total commercial
real estate 142 16.7 248 17.9 256 19.5
- -------------------------------------------------------------------------------------------------------------------
Residential real estate 27 7.8 38 8.5 61 8.8
Lease financing 36 3.9 31 4.9 33 6.6
Other - 0.7 - 1.0 - 1.3
Unallocated 316 126 200
- -------------------------------------------------------------------------------------------------------------------
Total $1,000 100.0% $1,029 100.0% $ 1,021 100.0%
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31 1990 1989
- ----------------------------------------------------------------------------------------------------
Percent of Percent of
Loan Type to Loan Type to
Dollars in millions Amount Total Loans Amount Total Loans
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $223 38.1% $120 37.5%
Consumer 95 26.7 74 28.2
Commercial real estate:
Construction(a) - 8.2 -- 11.3
Interim/permanent 168 9.7 85 5.7
- ----------------------------------------------------------------------------------------------------
Total commercial
real estate 168 17.9 85 17.0
- ----------------------------------------------------------------------------------------------------
Residential real estate 57 7.6 20 7.1
Lease financing 26 9.7 27 10.2
Other - --
Unallocated 131 15
- ----------------------------------------------------------------------------------------------------
Total $700 100.0% $341 100.0%
====================================================================================================
<FN>
(a) Prior to 1992, the allocated commercial real estate reserve included construction loan reserves.
</TABLE>
Reserve for credit losses represents amounts available for future credit
losses and reflects management's ongoing detailed review of certain individual
loans and leases, supplemented by analysis of historic net charge-off experience
of the portfolio and an evaluation of current and anticipated economic
conditions and other pertinent factors. Based on these analyses, the corporation
believes that its year-end reserve is adequate.
Loans and leases (or portions thereof) deemed uncollectable are charged
against the reserve, while recoveries of amounts previously charged off are
added to the reserve. Loss provisions charged to earnings are added to the
reserve. Amounts are charged off once the probability of loss has been
established with consideration given to factors such as the customer's financial
condition, underlying collateral and guarantees, and general and industry
economic conditions. During 1993, the corporation refined its consumer loan
reserve methodology, which resulted in a lower allocated reserve partially
offset by an increase in the unallocated reserve.
Fleet's reserve for credit losses decreased $29 million from December 31,
1992, to December 31, 1993, as loans and leases charged off during the year
exceeded the amount of the provision and recoveries recognized during the year.
The corporation's ratios of reserve for credit losses to NPAs and reserve for
credit losses to nonperforming loans and leases have steadily increased due to
the decline in nonperforming loans and leases against a relatively flat reserve
position. The decrease in the provision for credit losses reflected the
reduction in charge-offs and NPAs as well as a general improvement in economic
conditions. Net charge-offs decreased $255 million in 1993, compared to 1992,
because charge-offs in 1992 included $129 million related to the bulk sale of
problem loans. The ratio of net charge-offs to average loans and leases
decreased to 1.11% at December 31, 1993, from 2.05% at December 31, 1992.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
RESERVE FOR CREDIT LOSS ACTIVITY
<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning
of year $ 1,029 $1,021 $ 700 $341 $315
Gross charge-offs:
Commercial and
industrial 148 226 139 131 64
Consumer 103 92 83 75 61
Commercial
real estate(a) 103 231 181 208 31
Residential
real estate 4 35 11 3 -
Lease financing 21 34 26 31 16
- ----------------------------------------------------------------------------------------------------------------------
Total charge-offs,
gross 379 618 440 448 172
- ----------------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial
and industrial 29 27 11 12 6
Consumer 29 22 20 21 17
Commercial
real estate 22 19 8 8 1
Residential
real estate - 2 1 - -
Lease financing 9 3 3 3 1
- ----------------------------------------------------------------------------------------------------------------------
Total recoveries 89 73 43 44 25
- ----------------------------------------------------------------------------------------------------------------------
Net charge-offs 290 545 397 404 147
Provision 271 486 509 762 160
Acquired/other (10) 67 209 1 13
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,000 $1,029 $1,021 $700 $341
======================================================================================================================
Ratio of net charge-
offs to average
loans and leases 1.11% 2.05% 1.65% 1.92% 0.72%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of reserve for credit
losses to year-end
loans and leases 3.80% 3.86% 3.81% 3.42% 1.58%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of reserve for
credit losses to
year-end NPAs 166% 104% 63% 51% 86%
- ----------------------------------------------------------------------------------------------------------------------
Ratio of reserve for
credit losses to year-
end nonperforming
loans and leases 215% 137% 97% 71% 108%
=======================================================================================================================
</TABLE>
(a)Included in 1993 and 1992 commercial real estate charge-offs are $17 million
and $65 million, respectively, of construction related charge-offs.
DEPOSITS
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Demand $ 6,473 $ 6,483
Regular savings, NOW, money market 16,437 15,783
Time 8,175 10,469
- -------------------------------------------------------------------------------------------
Total deposits $31,085 $32,735
===========================================================================================
</TABLE>
Total deposits decreased 5% to $31.1 billion at December 31, 1993,
from $32.7 billion at December 31, 1992. The decrease in time deposits was
primarily the result of a $1-billion decrease in relatively high-rate wholesale
deposits, which had been built up in 1989 and 1990 to increase liquidity.
However, other time deposits, such as individual retirement accounts (IRAs) and
retail certificates of deposit (CDs), have remained level from December 31,
1992, through December 31, 1993. As a result of these items and the declining
rate environment, the average yield on time deposits decreased from 5.37% in
1992 to 4.37% in 1993. Demand and savings deposits also remained relatively
stable from year to year; these deposits are stable sources of funds that are
less sensitive to interest-rate volatility.
Time certificates of deposit and other time deposits issued by
domestic offices in amounts of $100,000 or more as of December 31, 1993, will
mature as follows.
MATURITY OF TIME DEPOSITS
<TABLE>
<CAPTION>
December 31, 1993 Certificates All Other
Remaining maturity of Time
Dollars in millions Deposit Deposits
- --------------------------------------------------------------------------------------------
<S> <C> <C>
3 months or less $ 558 $ 31
3 to 6 months 180 38
6 to 12 months 316 16
Over 12 months 650 44
- -------------------------------------------------------------------------------------------
Total $ 1,704 $ 129
===========================================================================================
</TABLE>
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
CAPITAL
- -------------------------------------------------------------------------------------
December 31
Dollars in millions 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C>
Risk-adjusted assets $29,713 $29,232
Tier 1 risk-based capital (4% minimum) 11.8% 10.4%
Total risk-based capital (8% minimum) 16.6 15.4
Leverage ratio 7.5 6.7
Common equity-to-assets 6.55 5.13
Total equity-to-assets 7.59 6.41
Tangible total equity-to-assets 5.75 4.46
Capital in excess of minimum requirements:
Tier 1 risk-based $ 2,306 $ 1,882
Total risk-based 2,562 2,157
Leverage 1,626 1,693
=====================================================================================
</TABLE>
A financial institution's capital serves to support growth and provide
protection against loss to depositors and creditors. Equity capital represents
the stockholders' investment in the corporation. Management strives to maintain
an optimal level of capital on which an attractive return to the stockholders
will be realized over both the short and long term, while serving depositors'
and creditors' needs.
Banks and bank holding companies must also observe the minimum requirements
enforced by the federal and, if applicable, state banking regulators.
Regulatory capital is defined in terms of Tier 1 and Tier 2 capital (together,
total capital). Tier 1 capital consists of stockholders' equity (both common
and perpetual preferred stock) and minority interest, net of goodwill, and
certain intangible assets. Tier 2 capital consists of a limited amount of loss
reserves, subordinated debt (weighted relative to years to maturity), and
limited life preferred stock.
Regulatory capital requirements are set forth in terms of (1) the leverage
ratio (Tier 1/quarterly average assets); (2) risk-based Tier 1 capital (Tier
1/risk-weighted on- and off-balance-sheet risk); and (3) risk-based total
capital (total capital/risk-weighted on- and off-balance-sheet risk). The
minimum requirements for each of these ratios is 4%, 4%, and 8%, respectively.
In addition, under the FDIC Improvement Act (FDICIA), banks are categorized
according to their capital levels into one of five categories ranging from
"well-capitalized" to "critically undercapitalized." Each category serves to
determine a bank's deposit insurance premium (together with regulatory
evaluations) as well as any mandated restrictive regulatory actions. (As of
December 31, 1993, all of the Fleet affiliate banks were categorized as
"well-capitalized," which requires minimum leverage, Tier 1, and total capital
ratios of 5%, 6%, and 10%, respectively.)
In managing capital, the corporation develops a three-year capital plan
annually, which is updated and reviewed by the Board of Directors throughout
the year.
The increase in the corporation's regulatory ratios during 1993 was due to
the accumulation of retained earnings, the issuance of 12.3 million shares of
common stock with Fleet receiving net proceeds of $391 million, partially
offset by the corporation's repurchase of approximately 50% of the outstanding
shares of its Series III and Series IV preferred stocks, and all of the
outstanding amount of preferred stock issued to the FDIC in connection with the
BNE acquisition. During 1993, the corporation also issued $150 million of
6.875% subordinated notes and redeemed $150 million of floating-rate
subordinated capital notes due in 1996 and 1997.
LIQUIDITY
Liquidity is the ability of the corporation to meet each maturing
obligation or customer demand for funds. Liquidity is provided through issuing
liabilities, selling assets, or allowing assets to mature. The corporation's
Senior Asset/Liability Committee (Senior ALCO) is responsible for implementing
the Board of Directors' policies and guidelines for the maintenance of prudent
levels of liquidity. The Corporate Funds Committee is responsible for
monitoring the performance of each of the banking subsidiaries and the parent
company relative to the policies and guidelines established by the Senior ALCO
and the Board of Directors.
The primary sources of liquidity for the parent are interest and dividends
from subsidiaries and access to the capital and money markets. During 1993 the
parent received $331 million in interest and dividends from its subsidiaries
and paid $312 million in
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
interest and dividends to third parties. Dividends from banking subsidiaries
are limited by various regulatory requirements related to capital adequacy and
earnings trends. The dividend payment capacity of Fleet-Massachusetts and
Fleet-Connecticut is subject to agreements with the investment partnerships
that provided capital for the acquisition of BNE. (See Note 10 to the
Consolidated Financial Statements for further information.) Under applicable
banking statutes, as of December 31, 1993, Fleet's banking subsidiaries could
have paid $417 million of additional dividends, of which $125 and $95 million
could have been paid by Fleet-Massachusetts and Fleet-Connecticut,
respectively. Banking regulators have the authority to limit further the
dividends paid by the corporation's banking subsidiaries.
The corporation's subsidiaries rely on cash flow from operations, core
deposits, borrowings, short-term high-quality liquid assets, and in the case of
nonbanks, funds from the parent for liquidity. In conjunction with the initial
public offering of FMG stock in 1992, FMG established a separate funding
program. This included $1.75 billion of revolving lines of credit from a
diversified group of banks ranging from major international banks to domestic
regional banks, and a separate commercial paper and medium-term note (MTN)
program. Many alternatives for short-term borrowings are available to the
corporation's various subsidiaries, subject to a number of factors, including
market pricing and characteristics, availability of collateral, and
asset/liability matching.
At December 31, 1993, Fleet, including FMG, had commercial paper
outstanding of $1.3 billion, including $526 million placed directly by Fleet in
its local markets, compared to $743 million and $454 million, respectively, at
December 31, 1992. The corporation has backup lines of credit to ensure that
funding is not interrupted if commercial paper is not available.
At December 31, 1993, the corporation, including FMG, had $2.6 billion in
confirmed lines of credit, of which $940 million was outstanding, compared to
$2.8 billion of confirmed lines of credit and $995 million outstanding at
December 31, 1992. The amounts outstanding under the lines of credit relate
entirely to FMG at both December 31, 1993 and 1992.
Through the issuance of subordinated debt, senior debt, and the sale of the
corporation's common stock, the corporation raised $150 million, $150 million,
and $391 million, respectively, in 1993, thereby strengthening its liquidity
position. The corporation, including FMG, also has current shelf registrations
on file with the Securities and Exchange Commission (SEC) that provide for the
issuance of senior and subordinated debt securities and warrants to purchase
debt securities. As of December 31, 1993, $1.1 billion of debt securities have
been issued under this shelf registration statement, leaving $659 million in
debt securities available for future issuance. Also, the corporation has a
preferred stock shelf registration on file with the SEC that permits the
issuance of $445 million in preferred stock, all of which remained available
for issuance at December 31, 1993. The corporation has called for redemption
its $1 par and $20 par adjustable-rate preferred stock on April 1, 1994. The
redemption price of $50 for each share of $1 par or $20 par adjustable-rate
preferred stock, or approximately $125 million in the aggregate, will be paid
by the corporation from the cash flows generated from operations.
As shown in the Consolidated Statement of Cash Flows, cash and cash
equivalents decreased by $824 million during 1993. This decrease primarily
reflected the use of $294 million for financing activities and $1.2 billion for
investing activities, offset in part by $649 million provided by operating
activities. Net cash used for financing activities was largely the result of
decreases in customer deposits and repayment of long-term debt, partially
offset by increases in short-term borrowings and the issuance of long-term
debt. Net cash used for investing activities was mainly the result of the net
increase in loans and leases of banking subsidiaries and net purchases of
securities.
INTEREST-RATE SENSITIVITY
The asset/liability management process at Fleet ensures that the risk to
earnings from changes in interest rates is prudently managed. During the past
two years, Fleet has placed an increasing emphasis on the interest-rate risk
management process in recognition, first, of the economic conditions that have
caused an
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
increase in securities and, second, of an intensified effort by regulatory
agencies to develop interest-rate risk measurement guidelines under FDICIA.
Asset/liability management uses four key measurements to monitor
interest-rate risk: (1) the interest-rate sensitivity "gap" analysis, (2) a
"rate shock" to measure earnings volatility due to an immediate increase or
decrease in market interest rates of up to 200 basis points, (3) simulations of
balance sheet and interest-rate scenarios under alternative conditions, and (4)
the interest-rate risk reporting schedule, a methodology proposed jointly by
the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC),
and the FDIC to evaluate the change in an institution's economic value given
specific changes in interest rates.
Internal parameters have been established as guidelines for monitoring
these measurements, which are reported to both corporate and bank
asset/liability committees as well as the boards of directors. These guidelines
serve as benchmarks for determining actions to balance the current position
against overall strategic goals.
The following table represents the results of the interest-rate gap
analysis. This measurement provides a static analysis of the repricing
characteristics of the entire balance sheet. It is prepared by scheduling
assets and liabilities into time bands based on their next opportunity to
reprice. For a floating-rate instrument, this would be the next date on which
its rate could be reset and for a fixed-rate instrument, it would be the next
scheduled date on which a principal payment is expected. It may be necessary to
apply further assumptions to refine this process. For instance, in order to
recognize the potential for MBS to experience premature payments of principal,
a prepayment assumption based on management's expectations is layered on top of
the expected principal payments. Other categories that are scheduled using
management assumptions include noncontractual deposits, such as
interest-bearing checking, savings, and money market deposits. Management has
estimated, based on historic analysis of Fleet and industry data, that money
market and savings deposits are approximately 75% and 50% sensitive,
respectively, to interest-rate changes. In order to provide a more accurate
one-year gap position, 75% and 50% of these deposits are distributed in the 3
months or less category with the remainder in the after 5 years category. A
similar analysis of demand deposits has indicated that the interest-sensitive
component represents 20% of all balances. This portion is allocated evenly
between the 3 months or less category and the 1 to 5 years category. The
remaining 80% of demand deposits are considered noninterest sensitive, or core,
and are placed in the after 5 years category. Once all assets and liabilities
have been scheduled, a calculation is performed to determine the difference
between assets repricing in less than one year and liabilities repricing in
less than one year as a percent of total assets.
<TABLE>
<CAPTION>
INTEREST-RATE GAP ANALYSIS
- -----------------------------------------------------------------------------------
Cumulatively Repriced Within
- -----------------------------------------------------------------------------------
December 31, 1993
Dollars in millions, 3 Months 4 to 12 1 to 5 After 5
by repricing date or Less Months Years Years
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available
for sale $ 600 $ 2,984 $ 8,547 $ 446
Investment securities 121 306 788 331
Trading securities 91 - - -
Loans and leases 17,344 2,936 4,740 1,290
Mortgages held for resale 2,622 - - -
Foreclosed property and
repossessed equipment - - - 136
Other assets 294 597 393 3,357
- -----------------------------------------------------------------------------------
Total assets 21,072 6,823 14,468 5,560
- -----------------------------------------------------------------------------------
Deposits:
Demand 647 - 646 5,180
Savings 11,070 - - 5,367
Time 4,031 2,276 1,769 99
- -----------------------------------------------------------------------------------
Total deposits 15,748 2,276 2,415 10,646
- -----------------------------------------------------------------------------------
Short-term borrowings 8,050 10 47 -
Long-term debt 1,127 135 989 1,193
Other liabilities 69 399 3 1,177
Stockholders' equity 122 - - 3,517
- -----------------------------------------------------------------------------------
Total liabilities and equity 25,116 2,820 3,454 16,533
- -----------------------------------------------------------------------------------
Net off-balance-
sheet position (1,811) (235) 3,073 (1,027)
Periodic gap (5,855) 3,768 14,087 (12,000)
Cumulative gap (5,855) (2,087) 12,000 0
Cumulative gap as a
percent of total assets (12.2)% (4.4)% 25.0% 0%
===================================================================================
</TABLE>
On a consolidated basis, Fleet Financial Group had $6.6 billion (notional
amount) of interest-rate swaps with external counterparties at December 31,
1993. The use of interest-rate swaps for asset/liability management can have
substantial
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
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.
Fleet had $5 billion of interest-rate swaps to protect the corporation
against asset sensitivity, a more rapid repricing of assets than liabilities.
The majority of these swaps were executed to hedge a rapid downward repricing
of floating-rate assets, primarily short-term prime-based loans, in an
environment of declining interest rates. These swap transactions, in which
Fleet receives a fixed rate and pays a floating rate, principally London
interbank offered rate (LIBOR) based, were primarily executed during the past
year. These swaps have maturities averaging 1.6 years. Within the next two
years, $4.4 billion (87%) of these swaps are expected to mature. Of these, $2.6
billion have the potential to extend one additional year, while one five-year
$200-million swap has the potential to extend an additional two years.
The corporation also has $1 billion of interest-rate swaps at December 31,
1993, to protect the corporation against liability sensitivity, a more rapid
repricing of liabilities than assets. These swap transactions, in which Fleet
pays a fixed rate and receives a floating rate, principally LIBOR based, were
mostly executed during the last half of 1993. These swaps tend to have longer
final maturities, averaging 4.4 years. Nearly all of these swaps, including all
executed in the last half of 1993, had an original maturity of at least four
years. The maturities of these swaps are all fixed.
For swaps used to manage interest-rate risk, net interest income is
recognized as it accrues. In 1993, swaps generated $91 million of net interest
income compared to $44 million in 1992. At year-end, swaps were continuing to
generate $7 million of net interest income per month. This spread can be
expected to diminish, however, if market interest rates trend higher. For these
swaps, market value is measured but not recognized. At year-end, the unrealized
gain on these swaps was $70 million, relatively unchanged from December 31,
1992. This gain can be expected to decline over time as income is accrued.
Rising market interest rates would also tend to reduce the gain.
Fleet also provides interest-rate swaps to customers to facilitate their
own management of interest-rate risk. Fleet hedges the resulting positions with
offsetting interest-rate swaps and futures contracts.
Customer swaps and their offsets are held in a trading account and marked
to market. Any valuations changes are reported as earnings. The corporation has
$600 million of interest-rate swaps (as well as $1.3 billion of interest-rate
caps and floors), representing customer transactions and their offsets.
Fleet's credit exposure on swaps is related not to the notional balances of
the interest-rate swaps, but to the current and potential replacement costs.
Total current credit exposure, the cost of replacing all outstanding
transactions with positive market values ignoring any provision of collateral,
is $125 million. This exposure will tend to increase, along with the market
value of the swaps, if interest rates decline and decrease if interest rates
rise.
Individual corporate exposures are generally small and are managed within
existing credit relationships. Fleet's most important counterparties are highly
rated commercial banks, investment banks, or their subsidiaries. To mitigate
credit risk, Fleet has begun to negotiate master agreements providing for
bilateral netting and for collateralization of unrealized gains. At year-end,
Fleet held $12 million of collateral securing the value of its swaps. Fleet's
use of credit enhancements is expected to increase.
INCOME TAXES
The corporation's 1993 effective tax rates were lower than those in 1992
primarily due to lower state income taxes as a percentage of pretax income.
Additionally, retroactive to January 1, 1993, the federal tax rate increased to
35% from 34%. In accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," the corporation remeasured its deferred
tax balances. The impact of the federal tax-rate increase in current earnings
offset the remeasurement of the deferred tax balances.
The majority of the corporation's significant deferred tax assets will
reverse within the next five years.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
COMPARISON OF 1992 WITH 1991
Fleet reported net income for 1992 of $280 million, or $1.77 per share, an
increase of 187% over 1991 net income of $98 million, or $.67 per share. The
improved results reflected the benefit of owning the former BNE franchise for a
full year, along with higher net interest margin and higher noninterest income.
NPAs decreased $619 million during 1992 and fell below $1 billion for the first
time since the first quarter of 1990. Also, during 1992, Fleet completed six
government-assisted acquisitions that added $2.3 billion in deposits and $1.3
billion in loans.
<TABLE>
<CAPTION>
NET INTEREST MARGIN AND INTEREST-RATE SPREAD
- -------------------------------------------------------------------------
December 31 1992 1991
- -------------------------------------------------------------------------
Taxable equivalent rates Average Average
Dollars in millions Balance Rate Balance Rate
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $11,709 7.69% $ 8,163 8.41%
Loans and leases 26,615 8.94 23,995 10.31
Other 2,904 5.77 3,289 6.49
- -------------------------------------------------------------------------
Total interest-earning assets 41,228 8.36 35,447 9.52
- -------------------------------------------------------------------------
Interest-bearing
liabilities 34,431 4.25 30,552 6.32
- -------------------------------------------------------------------------
Interest-rate spread 4.11 3.20
Interest-free sources
of funds 6,797 - 4,895 -
- -------------------------------------------------------------------------
Total sources of funds $41,228 3.56 $35,447 5.43
=========================================================================
Net interest margin 4.80% 4.09%
=========================================================================
</TABLE>
Net interest income on an FTE basis increased 37% to $2 billion, reflecting
the higher interest-rate margin (71 basis points). The increase was primarily
attributable to banking consumer deposit rates being aggressively reduced as
well as increased volume due to the full-year impact of the BNE acquisition in
mid-1991, as average earning assets increased 16% compared to 1991.
Noninterest income increased 26% in 1992 to $1.4 billion. The primary
reasons for the increase were the $121-million gain on the partial sale of FMG
and the full-year impact of the BNE acquisition. Also, securities gains
increased by $34 million, or 20%, as the corporation decided to reposition its
portfolio due to the interest-rate environment and for other asset/liability
management purposes.
Noninterest expense totaled $2.3 billion in 1992, a 27% increase over 1991,
with the full-year impact of the BNE acquisition being the major factor in the
increase. In addition, Fleet recognized a $115-million loss relating to the
sale of problem assets in 1992.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement No.
112, "Employers' Accounting for Postemployment Benefits," which requires
accrual of a liability for benefits paid to former or inactive employees after
employment but before retirement. This standard was adopted by the corporation
effective January 1, 1994. The effect of adopting this standard will not have a
material impact on the corporation's results of operations.
The FASB has issued Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires that creditors value all loans for which
it is probable that the creditor will be unable to collect all amounts due
according to the terms of the loan agreement at the present value of expected
future cash flows discounted at the loan's effective interest rate, or
observable market price of the impaired loan, or the fair value of the
collateral if the loan is collateral-dependent. The effect of adopting this
statement has not been fully determined, but it is not expected to have a
material adverse impact on the corporation's results of operations. Adoption of
this standard is required for fiscal years beginning after December 15, 1994.
The FASB has issued Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," which the corporation adopted effective January
1, 1994. The standard requires, among other things, that securities available
for sale be reported at fair value, with unrealized gains and losses reflected
as a separate component of stockholders' equity. The corporation currently
reports securities available for sale at the lower of amortized cost or fair
value with any net unrealized loss included in earnings. The changes in the way
the corporation accounts for debt and equity securities could result in
increased volatility of capital levels. At December 31, 1993, the fair value of
the corporation's securities available for sale portfolio exceeded its
aggregate amortized cost by $354 million. If the corporation had adopted this
standard on December 31, 1993, the after-tax effect on the corporation's
stockholders' equity would have been an increase of $206 million and the
year-end common equity-to-assets ratio would have been 6.93% compared to the
actual ratio of 6.55%.
23
<PAGE> 25
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements and related notes
of the corporation were prepared by management in conformity with generally
accepted accounting principles. Management is responsible for the integrity and
fair presentation of these financial statements and related notes.
Management has in place an internal accounting control system designed
to safeguard corporate assets from material loss or misuse and to ensure that
all transactions are first properly authorized and then recorded in its
records. The internal control system includes an organizational structure that
provides appropriate delegation of authority and segregation of duties,
established policies and procedures, and comprehensive internal audit and loan
review programs. Management believes that this system provides assurance that
the corporation's assets are adequately safeguarded and that its records, which
are the basis for the preparation of all financial statements, are reliable.
The Audit Committee of the Board of Directors consists solely of directors
who are not employees of the corporation or its subsidiaries. During 1993, the
committee met five times with internal auditors, internal loan review
management, the independent auditors, and representatives of senior management
to discuss the results of examinations and to review their activities to ensure
that each is properly discharging its responsibilities. The independent
auditors, internal auditors, and loan review management have direct and
unrestricted access to the audit committee at all times.
The corporation's consolidated financial statements have been audited by
KPMG Peat Marwick, independent certified public accountants. Its independent
auditor's report, which is based on an audit made in accordance with generally
accepted auditing standards, expresses an opinion as to the fair presentation
of the consolidated financial statements. In performing its audit, KPMG Peat
Marwick considers the corporation's internal control structure to the extent it
deems necessary in order to issue its opinion on the consolidated financial
statements.
/s/ Terrence Murray /s/ Eugene M. McQuade
Terrence Murray Eugene M. McQuade
Chairman, President, and Executive Vice President
Chief Executive Officer and Chief Financial Officer
24
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS FLEET FINANCIAL GROUP
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Fleet Financial Group, Inc.:
We have audited the accompanying consolidated balance sheets of Fleet
Financial Group, Inc., as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1993.
These consolidated financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fleet
Financial Group, Inc., at December 31, 1993 and 1992, and the results of its
operations and cash flows for each of the years in the three-year period ended
December 31, 1993, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
Providence, Rhode Island
January 19, 1994
25
<PAGE> 27
CONSOLIDATED STATEMENTS OF INCOME FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions, except per share amounts 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans and leases $2,339 $2,514 $2,577
Interest on taxable securities 840 863 596
Interest on tax-exempt securities 27 24 66
Interest on short-term investments 6 15 90
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 3,212 3,416 3,329
- -----------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 744 1,076 1,480
Short-term borrowings 180 164 217
Long-term debt 237 223 233
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 1,161 1,463 1,930
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 2,051 1,953 1,399
- -----------------------------------------------------------------------------------------------------------------------
Provision for credit losses 271 486 509
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,780 1,467 890
- -----------------------------------------------------------------------------------------------------------------------
Noninterest income:
Mortgage banking 414 364 305
Service charges, fees, and commissions 348 319 247
Securities available for sale gains 282 207 81
Investment services revenue 174 160 119
Student loan servicing fees 51 61 65
Investment securities gains -- -- 92
Gain on securitization and sale of finance receivables -- -- 49
Gain on partial sale of FMG -- 121 --
Other 196 136 124
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,465 1,368 1,082
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 1,018 958 747
Acquired servicing rights amortization 240 107 99
Occupancy 174 165 134
Equipment 130 118 100
Legal and other professional 86 81 60
FDIC assessment 76 75 64
OREO expense 57 154 105
Core deposit and goodwill amortization 54 45 33
Marketing 53 51 36
Restructuring accrual 125 -- --
Loss on sale of problem assets -- 115 --
Nonrecurring expenses related to acquired banks -- 9 111
Other 411 440 330
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,424 2,318 1,819
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 821 517 153
Applicable income taxes 327 228 55
- -----------------------------------------------------------------------------------------------------------------------
Net income before minority interest 494 289 98
Minority interest (6) (9) --
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 488 $ 280 $ 98
=======================================================================================================================
Net income applicable to common shares $ 466 $ 252 $ 84
=======================================================================================================================
Weighted average common shares outstanding:
Primary 154,666,307 141,469,658 124,966,226
Fully-diluted 154,899,995 142,778,665 127,092,029
Earnings per share:
Primary $ 3.01 $ 1.78 $ 0.67
Fully-diluted 3.01 1.77 0.67
Dividends declared 1.025 0.825 0.80
=======================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE> 28
CONSOLIDATED BALANCE SHEETS FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
December 31
Dollars in millions, except share amounts 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash, due from banks and interest-bearing deposits $ 2,213 $ 2,501
Federal funds sold and securities purchased under agreements to resell -- 536
Securities available for sale (market value: $12,931 and $11,270) 12,577 10,857
Investment securities (market value: $1,580 and $1,793) 1,546 1,803
Loans and leases 26,310 26,647
Reserve for credit losses (1,000) (1,029)
- -----------------------------------------------------------------------------------------------------------------------
Net loans and leases 25,310 25,618
- -----------------------------------------------------------------------------------------------------------------------
Mortgages held for resale 2,622 2,087
Premises and equipment 733 654
Acquired servicing rights 560 548
Deferred taxes 360 239
Accrued interest receivable 347 324
Excess cost over net assets of subsidiaries acquired 187 188
Other intangibles 166 189
Foreclosed property and repossessed equipment 136 241
Trading account securities 91 127
Other assets 1,075 1,027
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 47,923 $ 46,939
=======================================================================================================================
LIABILITIES
Deposits:
Demand $ 6,473 $ 6,483
Regular savings, NOW, money market 16,437 15,783
Time 8,175 10,469
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 31,085 32,735
- -----------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 1,961 2,880
Other short-term borrowings 6,146 3,519
Accrued expenses and other liabilities 1,648 983
Long-term debt 3,444 3,812
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 44,284 43,929
- -----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 501 604
Common stock (outstanding 137,381,588 and 123,380,244 shares) 137 123
Common surplus 1,492 1,066
Retained earnings 1,509 1,217
- -----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,639 3,010
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 47,923 $ 46,939
=======================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE> 29
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLERS' EQUITY FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Common
December 31 Preferred Stock Common Retained
Dollars in millions, except share amounts Stock $1 Par Surplus Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $125 $110 $ 782 $1,052 $2,069
Net income -- -- -- 98
Cash dividends declared on common stock ($.80 per share) -- -- -- (95)
Cash dividends declared on preferred stock -- -- -- (14)
Preferred stock issued, net of issuance costs of $8 196 -- -- --
Common stock issued in connection with:
Common stock offering, net of issuance costs of $8 -- 10 213 --
Employee benefit and stock option plans and conversion
of preferred stock and convertible debentures -- 1 8 --
Dividend reinvestment -- -- 3 --
Adjustment of valuation account for marketable equity securities -- -- -- 24
Other items, net -- -- -- (3)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 321 121 1,006 1,062 2,510
Net income -- -- -- 280
Cash dividends declared on common stock ($.825 per share) -- -- -- (101)
Cash dividends declared on preferred stock -- -- -- (28)
Dual convertible preferred stock 283(a) -- -- --
Common stock issued in connection with:
Employee benefit and stock option plans and conversion
of preferred stock and convertible debentures -- 1 48 (1)
Dividend reinvestment -- 1 12 --
Adjustment of valuation account for marketable equity securities -- -- -- 5
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 604 123 1,066 1,217 3,010
Net income -- -- -- 488
Cash dividends declared on common stock ($1.025 per share) -- -- -- (140)
Cash dividends declared on preferred stock -- -- -- (22)
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 of $10 -- 12 379 --
Employee benefit and stock option plans and conversion
of preferred stock (3) 1 23 (4)
Dividend reinvestment -- 1 23 --
Other items, net -- -- 1 (4)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $501 $137 $1,492 $1,509 $3,639
============================================================================================================================
</TABLE>
(a) Shown separately at December 31, 1991.
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 30
CONSOLIDATED STATEMENTS OF CASH FLOW FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------------
December 31
Dollars in millions 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 488 $ 280 $ 98
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 95 76 66
Amortization of acquired servicing rights and other
intangible assets 294 152 132
Writedown of OREO to fair value 47 126 76
Provision for credit losses 271 486 509
Deferred income tax expense (benefit) (114) 2 (141)
Loss on sale of problem assets -- 115 --
Minority interest 6 9 --
Securities gains (282) (207) (173)
Gain on partial sale of FMG -- (121) --
Other gains on sales of assets (39) (28) (86)
Originations and purchases of mortgages held for sale (19,719) (17,408) (11,000)
Proceeds from sales of mortgages held for sale 19,184 17,117 10,525
Net decrease in trading account securities 36 13 (103)
Net decrease in due from FDIC 33 167 98
(Increase) decrease in accrued receivables, net (176) 663 (637)
Increase (decrease) in accrued liabilities, net 288 (148) 149
Other--net 237 162 159
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flow provided (used) by operating activities 649 1,456 (328)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (8,506) (7,080) (6,637)
Proceeds from maturities and sales of securities available for sale 7,439 7,215 4,486
Purchases of investment securities (60) (1,714) (6,510)
Proceeds from maturities of investment securities 308 12 1,791
Proceeds from sales of investment securities -- -- 3,997
Net cash and cash equivalents received from banking institutions acquired -- 400 5,807
Loans made to customers, nonbank subsidiaries (3,413) (2,796) (2,580)
Principal collected on loans made to customers, nonbank subsidiaries 3,386 3,105 2,776
Loans purchased from the FDIC (18) (1,061) --
Loans purchased from third parties (161) (831) (711)
Proceeds from sales of loans 344 871 979
Net (increase) decrease in loans and leases, banking (571) 405 1,093
Putable loans transferred to the FDIC 274 632 17
Proceeds from sales of OREO 148 259 152
Principal collected on OREO 61 92 75
Proceeds from sales of mortgage servicing 28 20 64
Proceeds from sales of premises and equipment 13 11 18
Purchases of premises and equipment (205) (124) (83)
Purchases of acquired servicing rights (246) (136) (102)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flow provided (used) by investing activities (1,179) (720) 4,632
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (1,650) (4,674) (3,354)
Net increase (decrease) in short-term borrowings 1,708 2,925 (3,108)
Proceeds from issuance of long-term debt 645 876 1,048
Repayments of long-term debt (1,013) (68) (385)
Proceeds from issuance of DCP stock and rights -- -- 283
Proceeds from issuance of common stock 432 27 428
Proceeds from issuance of FMG common stock -- 207 --
Repurchase of preferred stock held by the FDIC (143) -- --
Repurchase of preferred stock Series III and IV (126) -- --
Cash dividends paid (147) (125) (105)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash flow used by financing activities (294) (832) (5,193)
- -------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (824) (96) (889)
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of the year 3,037 3,133 4,022
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 2,213 $ 3,037 $ 3,133
===============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Fleet conform to generally
accepted accounting principles and prevailing practices within the banking
industry. Certain prior year amounts have been reclassified to conform to
current year classifications. The following is a summary of the significant
accounting policies.
BASIS OF PRESENTATION. The consolidated financial statements of Fleet include
the accounts of the corporation and its subsidiaries. All material
intercompany transactions and balances have been eliminated.
For purposes of the Consolidated Statements of Cash Flows, the corporation
has defined cash and cash equivalents to include cash, due from banks,
interest-bearing deposits, federal funds sold, and securities purchased under
agreements to resell.
SECURITIES. Securities are classified at the time of purchase, based on
management's intentions, as investment securities, securities available for
sale, or trading account securities. Investment securities are those that
management has the positive intent and ability to hold on a long-term basis or
until maturity and are carried at amortized cost.
Securities available for sale, which included marketable equity securities,
are those that management intends to hold for an indefinite period of time,
including securities used as part of the asset/liability management strategy,
and that may be sold in response to changes in interest rates, changes in
prepayment risk, changes in liquidity needs, the desire to increase capital,
and other similar factors. Securities available for sale are recorded at the
lower of aggregate cost or market value. Net unrealized losses on marketable
equity securities are reported as a reduction of retained earnings on a
net-of-tax basis.
Any portion of unrealized loss on an individual security deemed to be other
than temporary is recognized as a realized loss in the accounting period in
which such determination is made. The specific identification method is used to
determine gains and losses on sales of securities.
Trading account securities are stated at market value. Realized and
unrealized gains and losses from trading securities are reflected in income
currently.
LOANS AND LEASES. Loans and leases are placed on nonaccrual status either as a
result of past due status or a judgment by management that, although payments
are current, such action is prudent. Except in the case of most consumer and
residential real estate loans, loans and leases on which payments are past due
90 days or more are placed on nonaccrual status unless they are well-secured
and in the process of normal collection or renewal. Consumer loans, including
residential real estate, are placed on nonaccrual status at 120 days past due
and generally charged off at 180 days past due. When a loan is placed on
nonaccrual status, all interest previously accrued in the current year, but not
collected, is reversed against interest income. Any interest accrued in prior
years is charged against the reserve for credit losses. Assets can be returned
to accrual status when they become current as to principal and interest,
demonstrate a period of performance under the contractual terms for
restructured loans, and when, in management's opinion, they are estimated to be
fully collectable.
FORECLOSED PROPERTY AND REPOSSESSED EQUIPMENT. Property and equipment acquired
through foreclosure (other real estate owned, or OREO), including insubstance
foreclosures (ISFs), are stated at the lower of cost or fair value less selling
costs. Credit losses arising at the time of foreclosure are charged against the
reserve for credit losses. Any additional writedowns to the carrying value of
these assets that may be required are charged to expense and recorded in a
valuation reserve that is maintained on an asset-by-asset basis.
RESERVE FOR CREDIT LOSSES. The corporation continually evaluates its reserve
for credit losses by performing detailed reviews of certain individual loans
and leases, considering the historic net charge-off experience of the
portfolio, and performing an evaluation of current and anticipated economic
conditions and other pertinent factors. Based on these analyses, the reserve
for credit losses is maintained at levels considered adequate by management to
provide for loan and lease losses inherent in these portfolios.
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
Loans and leases, or portions thereof, deemed uncollectable are charged off
against the reserve while recoveries of amounts previously charged off are
credited to the reserve. Amounts are charged off once the probability of loss
has been established, giving consideration to such factors as the customer's
financial condition, underlying collateral and guarantees, and general and
industry economic conditions.
MORTGAGES HELD FOR RESALE. Mortgages held for resale are recorded at the lower
of aggregate cost or market value. Market value is determined by outstanding
commitments from investors or by current investor yield requirements. No
valuation allowance was required as of December 31, 1993 or 1992.
PURCHASED MORTGAGE SERVICING RIGHTS. The acquisition costs of bulk-servicing
purchases and servicing rights acquired through the purchase of mortgage loans
originated by others, net of aggregate gains from the sale of these purchased
loans, are capitalized as purchased mortgage servicing rights (PMSRs). The
acquisition costs capitalized do not exceed the present value of the expected
net future servicing income at the time of acquisition.
The cost of PMSRs is amortized on an accelerated basis over the estimated
period of net servicing revenues. The corporation evaluates PMSRs for
impairment by measuring the undiscounted disaggregated anticipated future net
cash flows utilizing market consensus prepayment predictions, adjusted, if
appropriate, for individual portfolio characteristics and other economic
factors. If recorded balances for any of the disaggregated PMSRs categories
exceed the undiscounted anticipated future net cash flows, a current impairment
adjustment is recorded. The corporation's method of disaggregation is to
evaluate individually large servicing acquisitions and to value correspondent
acquisitions by quarter of acquisition and channel of acquisition.
Additionally, the corporation will prospectively accelerate amortization of
PMSRs if the expected net servicing income discounted at market rates utilizing
market consensus prepayment predictions, adjusted, if appropriate, for
individual portfolio characteristics and other economic factors is less than
the carrying value.
EXCESS COST OVER NET ASSETS OF SUBSIDIARIES ACQUIRED. The excess cost over net
assets of subsidiaries acquired (goodwill) is being amortized on a
straight-line basis over periods of up to 40 years. Goodwill relating to
banking subsidiaries acquired subsequent to 1981 is amortized over 25 years or
less. On a periodic basis, the corporation reviews goodwill for events or
changes in circumstances that may indicate that the carrying amount of goodwill
may not be recoverable.
OTHER INTANGIBLE ASSETS. The excess of the purchase price over the fair value
of the tangible net assets of certain acquisitions has been allocated to core
deposits (core deposit intangible), based on valuations, and is being amortized
on a straight-line basis, generally over seven years.
On a periodic basis, the corporation reviews its intangible assets for
events or changes in circumstances that may indicate that the carrying amount
of the assets may not be recoverable.
INCOME TAXES. Effective January 1, 1993, the corporation changed its method of
accounting for income taxes from the deferred method to the liability method,
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," under which deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the change is enacted.
INTEREST-RATE PRODUCTS. The corporation enters into interest-rate swaps to
manage exposure to interest-rate risk and, to a lesser extent, as a
counterparty in transactions with customers. For swaps that are designated and
effective as hedges of assets and liabilities, the net differential to be paid
or received on the swaps is treated as an adjustment to the yield on the hedged
instrument.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
EARNINGS PER SHARE. Earnings per share is computed by dividing earnings (after
deducting dividends on preferred stock) by the weighted average number of
common shares and common stock equivalents outstanding during the period,
assuming the conversion of the convertible preferred stock. Common stock
equivalents include stock options and rights and the dual convertible preferred
(DCP) stock.
MINORITY INTEREST. Minority interest represents the minority stockholders'
proportionate share of the equity of Fleet Mortgage Group (FMG). At December
31, 1993, the corporation owned approximately 81% of FMG's capital stock. The
corporation accounts for subsidiary stock transactions in its statement of
income.
NOTE 2.
RESTRUCTURING CHARGE
A restructuring charge of $125 million was accrued for in 1993. The
charge relates to the corporation's efficiency-improvement program that was
undertaken during the year and reflects anticipated severance and occupancy
costs, project costs, consulting fees, and other direct expenses resulting from
this program. Occupancy costs reflect the writedown of premises and equipment
due to expected abandonment of facilities because of the expected reduction of
employees. The most significant portion of expense reductions will consist of
employee compensation and benefits due to a reduction of employees. The
corporation does not anticipate a decrease in net revenues as a result of this
program.
This program is intended to enhance the corporation's competitive
position through a comprehensive review of all its Northeast banking activities
and operations. The review is designed to build a more efficient organization
with enhanced customer service and focus. The charge includes only identified
direct and incremental costs associated with the efficiency program.
<TABLE>
<CAPTION>
NOTE 3.
SECURITIES AVAILABLE FOR SALE
======================================================================================
Gross Gross
December 31, 1993 Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value
======================================================================================
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 5,775 $ 180 $ 5 $ 5,950
State and municipal 733 15 1 747
Mortgage-backed
securities 5,739 143 4 5,878
Other debt securities 250 7 -- 257
- --------------------------------------------------------------------------------------
Total debt securities 12,497 345 10 12,832
Marketable equity
securities 64 19 -- 83
Other securities 16 -- -- 16
- --------------------------------------------------------------------------------------
Total securities
available for sale $ 12,577 $ 364 $ 10 $ 12,931
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================
Gross Gross
December 31, 1992 Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 3,884 $ 185 $ 10 $ 4,059
State and municipal 709 13 2 720
Mortgage-backed
securities 5,943 190 1 6,132
Other debt securities 181 6 -- 187
- --------------------------------------------------------------------------------------
Total debt securities 10,717 394 13 11,098
Marketable equity
securities 81 32 -- 113
Other securities 59 -- -- 59
- --------------------------------------------------------------------------------------
Total securities
available for sale $ 10,857 $ 426 $ 13 $ 11,270
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================
Gross Gross
December 31, 1991 Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 4,457 $ 274 $ -- $ 4,731
State and municipal 313 13 -- 326
Mortgage-backed
securities 5,392 287 3 5,676
Other debt securities 266 5 -- 271
- --------------------------------------------------------------------------------------
Total debt securities 10,428 579 3 11,004
Marketable equity
securities 48 (a) (a) 48
Other securities 47 -- -- 47
- --------------------------------------------------------------------------------------
Total securities
available for sale $ 10,523 $ 579 $ 3 $ 11,099
======================================================================================
<FN>
(a) At December 31, 1991, marketable equity securities gross unrealized gains
were $1.1 million, and gross unrealized losses were $8.4 million.
Stockholders' equity was reduced by valuation reserves established against
marketable equity securities in order to reflect the market values of the
securities. The reserve was $7.3 million at December 31, 1991.
</TABLE>
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
Net realized gains on sales of marketable equity securities were $49
million and $3 million in 1993 and 1992, respectively. There were no realized
gains or losses on sales of marketable equity securities in 1991.
At December 31, 1993 and 1992, securities available for sale with a
carrying value of $6.6 billion and $5.5 billion, respectively, were pledged to
secure public deposits, securities sold under agreements to repurchase, and for
other purposes.
The amortized cost and estimated market value of debt securities
available for sale by contractual maturity are shown in the following table.
Actual maturities will differ from contractual maturities because borrowers
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
MATURITIES OF SECURITIES AVAILABLE FOR SALE
=====================================================================================
December 31, 1993 Within 1 1 to 5 5 to 10 After 10
Dollars in millions Year Years Years Years Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury and
government
agencies $ 154 $ 5,443 $ 52 $ 126 $ 5,775
State and municipal 481 177 55 20 733
Mortgage-backed
securities -- 4 86 5,649 5,739
Other debt securities -- 200 1 49 250
- -------------------------------------------------------------------------------------
Total debt securities $ 635 $ 5,824 $ 194 $ 5,844 $ 12,497
=====================================================================================
Percent of total
debt securities 5.1% 46.6% 1.5% 46.8% 100.0%
Weighted average yield(a) 4.9 6.0 8.2 6.3 6.1
=====================================================================================
Market value $ 637 $ 6,009 $ 206 $ 5,980 $ 12,832
=====================================================================================
</TABLE>
(a) A tax-equivalent adjustment has been included in the calculations of the
yields to reflect this income as if it had been fully taxable. The
tax-equivalent adjustment is based upon the applicable federal and state
income tax rates.
Proceeds from sales of debt securities available for sale during 1993,
1992, and 1991 were $6.8 billion, $5.2 billion, and $4.5 billion, respectively.
Gross gains of $233 million and gross losses of $49 thousand were realized on
those sales in 1993, gross gains of $210 million and gross losses of $6 million
were realized on those sales in 1992, and gross gains of $81 million and no
losses were realized on those sales in 1991.
Income tax expense on securities available for sale gains was $117
million in 1993, $83 million in 1992, and $28 million in 1991.
The FASB has issued Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which the corporation adopted
effective January 1, 1994. The standard requires, among other things, that
securities available for sale be reported at fair value, with unrealized gains
and losses reflected as a separate component of stockholders' equity. The
corporation currently reports securities available for sale at the lower of
amortized cost or fair value with any net unrealized loss included in earnings.
The changes in the way the corporation accounts for debt and equity securities
could result in increased volatility of capital levels. At December 31, 1993,
the fair value of the corporation's securities available for sale portfolio
exceeded its aggregate amortized cost by $354 million. If the corporation had
adopted this standard on December 31, 1993, the after-tax effect on the
corporation's stockholders' equity would have been an increase of $206 million
and the year-end common equity-to-assets ratio would have been 6.93% compared
to the actual ratio of 6.55%.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 4.
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Gross Gross
December 31, 1993 Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 74 $ 2 - $ 76
Mortgage-backed
securities 1,382 32 - 1,414
Other debt securities 13 - - 13
- -------------------------------------------------------------------
Total debt securities 1,469 34 - 1,503
Other securities 77 - - 77
- -------------------------------------------------------------------
Total investment
securities $1,546 $34 - $1,580
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
December 31, 1992 Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ 77 $ - $ 1 $ 76
Mortgage-backed
securities 1,634 2 11 1,625
Other debt securities 12 - - 12
- -------------------------------------------------------------------
Total debt securities 1,723 2 12 1,713
Other securities 80 - - 80
- -------------------------------------------------------------------
Total investment
securities $1,803 $ 2 $12 $1,793
===================================================================
</TABLE>
At December 31, 1991, investment securities consisted primarily of Federal
Reserve Bank stock and private placement preferred stock with a total amortized
cost and market value of $102 million. Net realized gains on sales of
marketable equity securities were $6 million in 1991.
At December 31, 1993 and 1992, investment securities with a carrying value
of $820 million and $695 million, respectively, were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes.
The amortized cost and estimated market value of investment securities by
contractual maturity are shown in the following table. Actual maturities will
differ from contractual maturities because borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
MATURITIES OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
December 31, 1993 Within 1 1 to 5 5 to 10 After 10
Dollars in millions Year Years Years Years Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury and
government agencies $23 $ 1 $50 $ - $ 74
Mortgage-backed
securities - 1 - 1,381 1,382
Other securities 2 8 3 - 13
- ------------------------------------------------------------------------------------------------
Total debt securities $25 $10 $53 $1,381 $1,469
- ------------------------------------------------------------------------------------------------
Percent of total
debt securities 1.7% 0.7% 3.6% 94.0% 100.0%
Weighted average yield(a) 3.5 5.8 6.0 6.8 6.7
================================================================================================
Market value $26 $10 $55 $1,412 $1,503
================================================================================================
</TABLE>
(a) A tax-equivalent adjustment has been included in the calculations of the
yields to reflect this income as if it had been fully taxable. The
tax-equivalent adjustment is based upon the applicable federal and state
income tax rates.
Proceeds from sales of investment securities during 1991 were $3.9 billion.
No investment securities were sold in 1993 or 1992. Gross gains of $94 million
and gross losses of $8 million were realized on sales of investment securities
in 1991. Income tax expense relating to these gains was $35 million.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 5.
LOANS AND LEASES
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans:
Commercial and industrial $11,104 $11,149 $10,435 $ 8,093 $ 8,447
Consumer 7,531 7,116 6,738 5,442 6,024
Commercial real estate:
Construction(a) 477 1,062 1,292 1,729 2,548
Interim/permanent 3,917 3,798 4,061 2,070 1,279
Residential real estate 2,052 2,154 2,402 1,448 1,471
Other 195 276 353 - -
- ---------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 25,276 25,555 25,281 18,782 19,769
- ---------------------------------------------------------------------------------------------------------------------
Lease financing:
Lease receivables 1,161 1,165 1,632 1,903 2,153
Estimated residual value 161 161 165 161 146
Unearned income (288) (234) (317) (381) (435)
- ---------------------------------------------------------------------------------------------------------------------
Lease financing, net of unearned income(b) 1,034 1,092 1,480 1,683 1,864
- ---------------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income $26,310 $26,647 $26,761 $20,465 $21,633
=====================================================================================================================
</TABLE>
(a) During 1993, the corporation adopted a revised definition for
classification of commercial real estate loans as either interim/permanent
or construction and, accordingly, approximately $600 million of loans were
reclassified from the construction category to interim/permanent.
(b) The corporation's leases consist principally of full-payout, direct
financing leases. For federal income tax purposes, the corporation has the
tax benefit of depreciation on the entire leased unit and interest on the
long-term debt. Deferred taxes arising from leveraged leases totaled $13
million in 1993 and $19 million in 1992. Future minimum lease payments to
be received are $392 million in 1994; $226 million, 1995; $180 million,
1996; $130 million, 1997; $92 million, 1998; and $141 million, 1999 and
thereafter.
Total loans and leases include $3.5 billion and $5.2 billion of loans and
leases, primarily commercial and commercial real estate loans, subject to
either repurchase, including the Bank of New England (BNE) asset pool and Maine
Savings Bank (MSB) special asset pool, by, or loss sharing arrangements with,
the Federal Deposit Insurance Corp. (FDIC) at December 31, 1993 and 1992,
respectively. Approximately $2.8 billion of BNE loans are putable to the FDIC
until July 1994, subject to certain conditions and discounts if such loans
become classified prior to that date. The MSB special asset pool consisting of
$195 million of loans will be acquired by the FDIC on February 1, 1996, for
cash. Also, loans aggregating $514 million are subject to FDIC loss share
agreements, whereby the FDIC generally reimburses Fleet for 80% of net
charge-offs for periods ranging from three to five years from the date of
acquisition.
Certain directors and executive officers of the corporation and its
subsidiaries, including their immediate families and companies with which they
are affiliated, borrowed from the subsidiaries during 1993. Such loans were
made in the ordinary course of business under the subsidiaries' normal credit
terms, including interest rate and collateral.
Loans to these individuals, their immediate families, and affiliated
companies were as follows.
RELATED PARTY LOANS
<TABLE>
<CAPTION>
Dollars in millions
- ------------------------------------------------------------------------
Balance Balance
December 31, 1992 Additions Repayments December 31, 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
$290 $255 $284 $261
========================================================================
</TABLE>
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 6.
RESERVES FOR LOSSES
RESERVE FOR CREDIT LOSS ACTIVITY
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992 1991
- ----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning
of year $1,029 $1,021 $ 700
Provision charged
to income 271 486 509
Loans and leases charged off (379) (618) (440)
Recoveries of loans and
leases charged off 89 73 43
Acquisitions/other (10) 67 209
- ----------------------------------------------------------------
Balance at end of year $1,000 $1,029 $1,021
================================================================
</TABLE>
Acquisitions/other includes reserves acquired as a result of acquisitions
offset in part by reserve transfers to the FDIC. As part of the BNE
acquisition, the FDIC transferred a reserve of 1.25% of the book value of all
acquired loans to the corporation. As loans are put to the FDIC, the applicable
1.25% initial loan loss reserve that was established with these loans is also
transferred to the FDIC. As of December 31, 1993, the reserve associated with
loans acquired as part of the BNE acquisition aggregated $76 million. Until the
expiration of the putable period, all or part of the $76-million reserve could
be transferred to the FDIC if the corresponding loans were also transferred.
However, Fleet currently anticipates retaining the majority of the putable
loans, and the balance of the $76-million reserve would also be retained.
RESERVE FOR OREO ACTIVITY
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993
- -------------------------------------------------------
<S> <C>
Balance at beginning of year $ 12
Provision 47
Disposition, net (29)
- -------------------------------------------------------
Balance at end of year $ 30
=======================================================
</TABLE>
NOTE 7.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans and leases on a
nonaccrual basis:
Current $147 $359 $ 313 $ 328 $ -
Noncurrent 318 390 739 659 319
OREO/ISFs:
Current 6 9 17 36 -
Noncurrent 130 232 540 363 80
- ------------------------------------------------------------------------------
Total NPAs $601 $990 $1,609 $1,386 $399
==============================================================================
NPAs as a percent of
outstanding loans,
leases, and OREO 2.27% 3.68% 5.89% 6.64% 1.84%
==============================================================================
Accruing loans and leases
contractually past due
90 days or more $ 77 $118 $ 163 $ 157 $ 79
==============================================================================
</TABLE>
The corporation has no significant outstanding commitments to lend
additional funds to customers whose loans have been placed on nonperforming
status or the terms of which have been modified.
The gross interest income that would have been recorded if the
nonperforming loans and leases had been current in accordance with their
original terms and had been outstanding throughout the period (or since
origination if held for part of the period) was $58 million, $87 million, and
$101 million in 1993, 1992, and 1991, respectively. The actual amount of
interest income on those loans included in net income for the period was $16
million, $30 million, and $22 million in 1993, 1992, and 1991, respectively.
Renegotiated loans that have been returned to accrual status totaled $29
million at December 31, 1993. These loans, which are not included in
nonperforming assets (NPAs), were renegotiated at existing market interest
rates and are performing in accordance with their renegotiated terms. The
average current yield on these loans was 7.4% at December 31, 1993.
Additionally, approximately $21 million of loans renegotiated in 1993 are
reflected in NPAs as a sufficient payment-performance history has not yet been
established.
During the fourth quarter of 1992, Fleet sold approximately $515 million of
assets to multiple buyers in bulk-sale transactions resulting in net proceeds
to Fleet of $271 million. Approximately $402 million of the assets sold in
these transactions were nonperforming.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 8.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Securities
Federal Sold under Other Total
Funds Agreements to Commercial Short-Term Short-Term
Dollars in millions Purchased Repurchase Paper Borrowings Borrowings
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Balance at December 31 $ 442 $1,519 $1,337 $4,809 $8,107
Highest balance at any month-end 1,238 2,302 1,415 4,809 8,107
Average balance for the year 1,021 1,690 1,036 2,224 5,971
Weighted average interest rate as of December 31 3.01% 2.60% 3.38% 3.22% 3.12%
Weighted average interest rate paid for the year 3.08 2.64 3.52 3.06 3.02
======================================================================================================================
1992
Balance at December 31 $ 765 $2,115 $ 743 $2,776 $6,399
Highest balance at any month-end 981 2,706 866 2,776 6,399
Average balance for the year 853 1,856 610 1,434 4,753
Weighted average interest rate as of December 31 3.17% 2.91% 3.71% 4.26% 3.62%
Weighted average interest rate paid for the year 3.33 2.97 4.20 3.83 3.45
======================================================================================================================
1991
Balance at December 31 $1,147 $1,320 $ 506 $ 501 $3,474
Highest balance at any month-end 1,147 2,067 770 1,367 4,148
Average balance for the year 583 1,439 507 755 3,284
Weighted average interest rate as of December 31 4.31% 3.78% 4.80% 4.96% 4.27%
Weighted average interest rate paid for the year 5.67 5.34 6.13 10.02 6.60
======================================================================================================================
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date. Commercial
paper and other short-term borrowings generally mature within 90 days, although
commercial paper may have a term of up to 270 days.
Total credit facilities available, including revolving credit facilities,
were $2.6 billion with $940 million outstanding at December 31, 1993, compared
to $2.8 billion with $995 million outstanding at December 31, 1992. The amounts
outstanding under the lines of credit relate entirely to FMG at both December
31, 1993 and 1992. During 1993, the corporation and its subsidiaries paid
commitment fees ranging from .15% to .375% of the lines.
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 9.
LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
Dollars in millions Maturity Date 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
SENIOR NOTES AND DEBENTURES
Parent company:
MTNs 5.17%-10.22% 1993-1997 $ 280 $ 281
9.625%-11.25% notes 1993 - 300
9.375%-11.75% notes 1994 115 115
5.625% notes 1995 200 200
7.65% notes 1997 100 100
Other 1 3
- ------------------------------------------------------------------------------
Total parent company 696 999
- ------------------------------------------------------------------------------
Affiliates:
MTNs 5.35%-7.48% 1994-2003 373 157
Floating-rate notes 1993 - 627
Floating-rate notes 1994 250 250
Floating-rate notes 1995 400 -
9.80% notes 1995 250 250
9.98% notes 1996 70 70
6.125% notes 1997 150 150
6.50% notes 1999 150 150
Other 18 72
- ------------------------------------------------------------------------------
Total affiliates 1,661 1,726
- ------------------------------------------------------------------------------
Total senior notes
and debentures 2,357 2,725
- ------------------------------------------------------------------------------
SUBORDINATED NOTES AND DEBENTURES(a)
Floating-rate subordinated-
capital notes 1996 - 50
Floating-rate subordinated-
capital notes 1997 - 100
Floating-rate subordinated-
capital notes 1998 100 100
7.625% subordinated notes 1999 150 150
9.00%-9.90% subordinated notes 2001 325 325
6.875% subordinated notes 2003 150 -
8.125% subordinated notes 2004 250 250
8.625% subordinated notes 2007 107 107
Other 5 5
- ------------------------------------------------------------------------------
Total subordinated notes
and debentures 1,087 1,087
- ------------------------------------------------------------------------------
Total long-term debt $3,444 $3,812
==============================================================================
</TABLE>
(a) All subordinated debt is at the parent company with the exception of
$400,000 at an affiliate and is included in total risk-based capital.
The corporation and FMG have filed registration statements with the
Securities and Exchange Commission (SEC) for the issuance of up to $1.8 billion
of senior or subordinated debt securities. As of December 31, 1993, $1.1
billion of debt securities had been issued under these shelf registrations,
leaving $659 million in debt securities available for future issuance.
The $50 million of 11.75%, $65 million of 9.375%, $200 million of 5.625%,
and $100 million of 7.65% notes provide for a single principal payment and are
not redeemable prior to maturity. The fixed-rate subordinated notes all provide
for a single payment at maturity.
Long-term senior borrowings of affiliates include $373 million of
medium-term notes (MTNs), $150 million of 6.125% notes, and $150 million of
6.50% notes issued by FMG and $250 million of 9.80% and $70 million of 9.98%
notes issued by Fleet Finance. The $250-million floating-rate notes due 1994
and the $400-million floating-rate notes due 1995 were issued by subsidiary
banks. The rate floats with the London interbank offered rate (LIBOR) index,
and the notes are secured by the banks' qualifying student loan portfolios or
collateralized by mortgage-backed securities (MBS).
All the floating-rate subordinated notes are redeemable at the option of
the corporation, in whole or in part, at their principal amount plus accrued
interest. During 1993, the corporation redeemed the floating-rate
subordinated-capital notes due 1996 and 1997. The floating-rate
subordinated-capital notes due in 1998 pay interest at approximately the
three-month LIBOR index, reset quarterly.
The aggregate payments required to retire long-term debt are: 1994, $693
million; 1995, $956 million; 1996, $171 million; 1997, $292 million; 1998, $138
million; 1999 and thereafter, $1,194 million.
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
<TABLE>
NOTE 10.
PREFERRED STOCK
<CAPTION>
December 31
Dollars in millions, except share data 1993 1992
- ------------------------------------------------------------------------
<S> <C> <C>
10.12% Series III perpetual preferred stock, $1
par, 519,758 shares issued and outstanding
at December 31, 1993; 1,050,000 shares
issued and outstanding at December 31, 1992 $ 50 $100
9.375% Series IV perpetual preferred stock, $1
par, 478,838 shares issued and outstanding
at December 31, 1993; 1,000,000 shares
issued and outstanding at December 31, 1992 46 96
Preferred stock with cumulative and
adjustable dividends, $1 par, 1,000,000
shares issued and outstanding at
December 31, 1993 and 1992 49 49
Preferred stock with cumulative and
adjustable dividends, $20 par, 1,500,000
shares issued and outstanding at
December 31, 1993 and 1992 73 73
Dual convertible preferred stock, $200 stated
value, 1,415,000 shares issued and out-
standing at December 31, 1993 and 1992 283 283
Other(a) - 3
- ------------------------------------------------------------------------
Total $501 $604
========================================================================
<FN>
(a) During 1993, the corporation called for redemption all 31,000 outstanding
shares of its 6.5% Series II cumulative convertible preferred stock (Series
II stock) and converted all of its outstanding shares of 12% Series I
cumulative convertible preferred stock (Series I stock). The entire 31,000
outstanding shares of Series II stock were converted into 133,889 shares of
common stock. The Series I stock was converted into 43,165 shares of the
corporation's common stock.
</TABLE>
The corporation has authorized 16 million shares of $1 par value cumulative
preferred stock and 1.5 million shares of $20 par value preferred stock with
cumulative and adjustable dividends. The corporation has filed a shelf
registration statement with the SEC for the issuance of $445 million in
preferred stock, all of which remains available for issuance.
During 1993, the corporation purchased approximately 530,000 shares (2.121
million depositary shares) of its Series III preferred stock at a price of
approximately $30.50 per depositary share and approximately 521,000 shares
(2.085 million depositary shares) of its Series IV preferred stock at a price
of approximately $29.25 per depositary share, plus accrued dividends. The
Series III perpetual preferred stock is redeemable at the option of Fleet after
June 1, 1996, at $105.06 per share ($26.265 per depositary share), declining
each year to $100 per share ($25 per depositary share) on or after June 1,
2001, plus accrued and unpaid dividends thereon. The Series IV perpetual
preferred stock is redeemable at the option of Fleet after December 1, 1996, at
$100 per share ($25 per depositary share), plus accrued and unpaid dividends
thereon.
Both the $1 par and $20 par adjustable-rate preferred stock were
redeemable, at the corporation's option, at $50.00 per share plus accrued and
unpaid dividends thereon. The shares paid dividends quarterly. The dividend
rate on the $1 par and $20 par shares was calculated at 3.25% and 3.00%,
respectively, below the highest of the three-month U.S. Treasury bill rate, the
U.S. Treasury 10-year constant maturity rate, or the U.S. Treasury 20-year
constant maturity rate, but not lower than 6% or higher than 12% per annum for
the $1 par, or higher than 13% per annum for the $20 par. The corporation has
called for redemption its $1 par and $20 par adjustable-rate preferred stock on
April 1, 1994. The redemption price is $50 for each share of $1 par or $20 par
adjustable-rate preferred stock plus accrued dividends.
Except in certain circumstances, the holders of the preferred stock have no
voting rights.
In connection with the acquisition of BNE in 1991, the corporation issued
to limited partnerships managed by affiliates of Kohlberg, Kravis, Roberts &
Co. $283 million of DCP stock, $200 stated value, convertible into
approximately 16 million shares of Fleet common stock at a conversion price of
$17.65 per common share. Shares of DCP stock carry limited voting rights until
conversion and will pay dividends (if any, in excess of $15 million) equal to
50% of the common dividends paid by Fleet Banking Group, a wholly owned
subsidiary of the corporation, which owns all of the common stock of the Fleet
subsidiaries that acquired the Massachusetts and Connecticut banking franchises
of BNE. No such dividends have been declared to date nor are any anticipated to
be declared in 1994.
In certain instances, no sooner than six years after issuance (four years
with regulatory approval, or earlier if certain capital ratios of Fleet are not
met), DCP stockholders can convert into a 50% interest of Fleet Banking Group.
However, Fleet will have the option to redeem DCP stock at a
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
redemption price equal to 50% of the appraised value of Fleet Banking Group
less the sum of (1) the market value of the shares of Fleet common stock into
which the DCP stock is then convertible (and such shares of common stock will
be distributed to the holders of the DCP stock), and (2) the value of the
rights referred to below. Fleet has the option to pay such redemption price in
cash or in any combination of Fleet securities having a realizable market value
equal to such redemption price. It is the corporation's intent to exercise its
unilateral right to issue shares of its own common stock in connection with
such a conversion, and the corporation has reserved shares of its own common
stock for this purpose.
In addition, Fleet issued to the holders of the DCP stock nontransferrable
rights to purchase 6,500,000 shares of common stock at an exercise price of
$17.65 per share (the rights). The rights, which are exercisable immediately,
will expire on July 12, 2001, and are not transferrable. Fleet has the option
to pay appreciation on the rights in lieu of delivering the shares upon
exercise of the rights.
NOTE 11.
COMMON STOCK
At December 31, 1993, Fleet had 300 million shares of $1 par value common
stock authorized and 137 million shares outstanding. Shares reserved for
future issuance in connection with the corporation's stock plans, the DCP
stock, the rights, and stock options totaled 33 million.
During February 1993, the corporation sold approximately 12.3 million
shares of common stock, which produced net proceeds of approximately $391
million.
During 1990, Fleet's Board of Directors declared a dividend of one
preferred share purchase right for each outstanding share of Fleet common
stock. Under certain conditions, a right may be exercised to purchase 1/100 of
a new series of participating preferred stock at a price of $50, subject to
adjustment. The rights become exercisable if a party acquires 10% or more (in
the case of certain qualified investors, 15% or more) of the issued and
outstanding shares of Fleet common stock or after the commencement of a tender
or exchange offer for 10% or more of the issued and outstanding shares. When
exercisable, under certain conditions, each right would entitle the holder to
receive upon exercise of a right, that number of shares of common stock having
a market value of two times the exercise price of the right. The rights will
expire in the year 2000 and may be redeemed in whole, but not in part, at a
price of $.01 per share at any time prior to expiration or the acquisition of
10% of Fleet common stock.
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 12.
EMPLOYEE BENEFITS
Stock Option Plan. The corporation has a stock option plan under which key
employees may be granted options and stock appreciation rights (SARs) at not
less than fair market value at the date of grant. In most cases, options
granted under the plan vest in 5 equal installments and expire at the end of 10
years. Option plans resulted in charges to expense of $2 million in 1993, $7
million in 1992, and $2 million in 1991. At December 31, 1993, 1992, and 1991,
exercisable options totaled 1,832,072, 1,516,846, and 1,682,196, respectively.
The following table shows the activity for the plans.
STOCK OPTIONS
<TABLE>
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1(a) 4,249,946 3,358,596 3,544,126
Granted 1,747,200 1,588,550 110,000
Exercised 474,584 637,100 140,630
Expired or cancelled 144,000 60,100 154,900
- ------------------------------------------------------------------
Balance at December 31 5,378,562 4,249,946 3,358,596
==================================================================
</TABLE>
(a) At December 31, 1993, 1,472,286 options were issued in tandem with SARs
that entitle the holder to tender an option for cancellation and receive
the appreciation in value in cash and common stock of the corporation.
<TABLE>
<CAPTION>
Price range--high 1993 1992 1991
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $30.31 $29.19 $29.19
Granted 37.31 30.31 25.50
Exercised 28.44 26.63 23.16
Expired or cancelled 32.75 26.63 26.63
- ------------------------------------------------------------------
Balance at December 31 $37.31 $30.31 $29.19
==================================================================
==================================================================
Price range--low 1993 1992 1991
- ------------------------------------------------------------------
Balance at January 1 $11.00 $ 5.69 $ 5.69
Granted 29.19 27.56 11.00
Exercised 11.69 5.69 5.69
Expired or cancelled 11.69 11.69 11.69
- ------------------------------------------------------------------
Balance at December 31 $11.00 $11.00 $ 5.69
==================================================================
</TABLE>
Restricted Stock Plan. The corporation has a restricted stock grant plan
under which key employees are awarded shares of the corporation's common stock
subject to certain vesting requirements. Awards provide that restrictions lapse
on the fifth anniversary of the date of the agreement awarding such restricted
stock (or sooner if the price of Fleet common stock attains certain levels).
As of December 31, 1993 and 1992, 140,000 grants were outstanding with an
average grant price of $24.11.
Pension Plans. The corporation maintains a noncontributory, defined-benefit
retirement and pension plan covering substantially all employees. The
corporation maintains a supplemental plan to provide benefits to certain
employees whose calculated benefits under the qualified plan exceeds the
Internal Revenue Service (IRS) limitation. Benefit payments to retired
employees are based upon years of service and a percentage of qualifying
compensation during the final years of employment. The amounts contributed to
the plan are determined annually based upon the amount needed to satisfy the
Employee Retirement Income Security Act (ERISA) funding standards. Assets of
the plans are primarily invested in listed stocks, corporate obligations, and
U.S. Treasury and government agency obligations.
FUNDED STATUS OF PLANS
<TABLE>
<CAPTION>
Qualified Nonqualified
December 31 Plans Plans
Dollars in millions 1993 1992 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of accumulated
benefit obligations:
Vested benefits $ 86 $ 57 $ 11 $ 9
Nonvested benefits 13 5 1 -
- ----------------------------------------------------------------------
Accumulated benefit
obligations 99 62 12 9
Additional benefits related to
future compensation levels 84 68 4 5
- ----------------------------------------------------------------------
Projected benefits obligation
rendered to date 183 130 16 14
Plan assets at fair value 178 158 - -
- ----------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligations (5) 28 (16) (14)
Unrecognized net
transition (asset) obligation
being amortized (6) (7) 2 2
Unrecognized prior service
cost being amortized 13 14 1 1
Unrecognized net loss
from past experience
different from that assumed 33 18 6 4
Additional amounts recognized
due to minimum level funding - - (5) (2)
- ----------------------------------------------------------------------
Prepaid (accrued) pension cost $ 35 $ 53 $(12) $ (9)
======================================================================
</TABLE>
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
COMPONENTS OF PENSION EXPENSE
<TABLE>
<CAPTION>
Year ended December 31
Dollars in millions 1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits
earned during the period $ 20 $ 17 $ 9
Interest cost on projected
benefit obligation 14 11 8
Actual return on plan assets (14) (10) (31)
Net amortization and deferral 2 (2) 22
- ---------------------------------------------------------------
Net pension expense $ 22 $ 16 $ 8
===============================================================
</TABLE>
For December 31, 1993, 1992, and 1991, the assumed discount rate was 7.25%,
7.85%, and 8%, respectively, while the rate of increase in compensation levels
used to measure the projected benefit obligation was 5% in 1993, 1992, and
1991. The expected long-term rate-of-return on plan assets was 8.85% for 1993
and 9.00% for both 1992 and 1991.
Postretirement Health-Care Benefits. In addition to providing pension
benefits, the corporation provides health-care cost assistance and life
insurance benefits for retired employees. In 1990, the corporation froze the
health-care life insurance benefits at 1990 levels for all participating
retirees (approximately 2,800). For employees retiring after December 31, 1990,
these benefits have been eliminated with the exception of health-care for those
employees who had attained 20 years of service and age 55 at December 31, 1990.
Such employees (approximately 300) will be offered a reduced frozen level of
benefits upon retirement. Prior to 1993, the cost associated with these
benefits was expensed as paid. Effective January 1, 1993, the corporation
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," which requires the
accrual of expected costs for providing postretirement benefits. The
corporation has elected to amortize the transition obligation, which represents
the unfunded accumulated benefit obligation as of January 1, 1993, on a
straight-line basis over 20 years. The cost of providing these benefits was $10
million, $8 million, and $4 million in 1993, 1992, and 1991, respectively.
The following table presents the plan's funded status reconciled with
amounts recognized on the corporation's balance sheet.
FUNDED STATUS OF POSTRETIREMENT PLAN
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993
- ---------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $(61)
Fully eligible active plan participants (11)
Other active plan participants (3)
- --------------------------------------------------------------------
Total accumulated postretirement benefit obligation (75)
Plan assets -
- --------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (75)
Unrecognized transition obligation 72
- --------------------------------------------------------------------
Accrued postretirement benefit cost $ 3
====================================================================
</TABLE>
The components of the net periodic postretirement benefit cost of $10
million for the year ended December 31, 1993, includes interest cost and the
amortization of the transition obligation of $6 million and $4 million,
respectively. The discount rate of 7.25% was used in determining the
accumulated postretirement benefit obligation. The health-care cost trend rate
is 12.5% for 1994, decreasing gradually to 4.5% through the year 2001, and
level thereafter. The health-care cost trend rate assumption has a minimal
effect on the amounts reported. For example, increasing the assumed health-care
cost trend rate by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1993, by $1
million, and the aggregate of the service cost and interest cost components of
the net periodic postretirement benefit cost for 1993 by approximately $115
thousand.
Other Plans. Fleet and its subsidiaries have various savings and thrift
plans covering substantially all employees. The corporation's savings and
thrift plan expense was $15 million, $14 million, and $12 million for 1993,
1992, and 1991, respectively.
42
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 13.
INCOME TAXES
Effective January 1, 1993, the corporation changed its method of accounting
for income taxes from the deferred method to the liability method required by
the Financial Accounting Standards Board (FASB) Statement No. 109, "Accounting
for Income Taxes." Prior years' financial statements have not been restated.
Due to immateriality, the cumulative effect of this accounting change has not
been separately disclosed in the statement of income.
The effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1993,
are presented below.
<TABLE>
NET DEFERRED TAX ASSETS
<CAPTION>
December 31
Dollars in millions 1993
- --------------------------------------------------------------------
<S> <C>
DEFERRED TAX ASSETS:
Reserve for credit losses $341
Lease financing 129
Expenses not currently deductible 93
Amortization of PMSRs and marketing gains 92
Core deposit intangible 69
Other 118
- --------------------------------------------------------------------
Total gross deferred tax assets 842
Less: valuation reserve 5
- --------------------------------------------------------------------
Deferred tax assets 837
- --------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Lease financing 267
Purchase accounting adjustments 78
Subsidiary stock transaction 50
Depreciation 29
Other 53
- --------------------------------------------------------------------
Total gross deferred tax liabilities 477
- --------------------------------------------------------------------
Net deferred tax assets $360
====================================================================
</TABLE>
Deferred tax assets, net of the valuation reserve, are expected to be
realized from the reversal of existing deferred tax liabilities and from the
recognition of future taxable income. The $5-million valuation reserve was
established to reflect that portion of deferred tax assets that more likely
than not will not be realized for state income tax purposes.
The deferred tax benefit of $114 million includes a benefit of $3 million
due to a decrease from the beginning of the year in the deferred tax
asset-valuation reserve.
<TABLE>
INCOME TAX EXPENSE (BENEFIT)
<CAPTION>
December 31
Dollars in millions 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Federal $ 336 $165 $ 147
State and local 105 61 49
- ------------------------------------------------------------------------------
441 226 196
Deferred income tax expense (benefit):
Federal (85) (1) (116)
State and local (29) 3 (25)
- ------------------------------------------------------------------------------
(114) 2 (141)
Total:
Federal 251 164 31
State and local 76 64 24
- ------------------------------------------------------------------------------
$ 327 $228 $ 55
==============================================================================
</TABLE>
<TABLE>
COMPONENTS OF DEFERRED INCOME TAX EXPENSE (BENEFIT)
<CAPTION>
December 31
Dollars in millions 1992 1991
- ------------------------------------------------------------------
<S> <C> <C>
Gain on partial sale of FMG $ 49 $ -
Provision for credit losses 16 (48)
Write-down of marketable
equity securities - (6)
Capitalized excess servicing fees (net) - (11)
Pension funding (6) (5)
Lease financing transactions (9) (10)
Expenses not currently deductible (14) (43)
Purchase accounting adjustments (17) (7)
Other -- net (17) (11)
- ------------------------------------------------------------------
Total deferred income tax expense (benefit) $ 2 $(141)
==================================================================
</TABLE>
The income tax expense for the years ended December 31, 1993, 1992, and
1991, varied from the amount computed by applying the statutory income tax rate
to income before taxes. The reasons for the differences are as follows.
<TABLE>
STATUTORY RATE ANALYSIS
<CAPTION>
December 31 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 35.0% 34.0% 34.0%
Increases (decreases) in taxes
resulting from:
Tax-exempt income (2.0) (3.0) (18.8)
Alternative minimum tax - (1.4) (17.0)
Rate differential on carryback - - 21.3
State and local income taxes, net
of federal income tax benefit 6.0 8.2 10.8
Other--net .9 6.4 5.8
- ----------------------------------------------------------------------------------
Effective tax rate 39.9% 44.2% 36.1%
==================================================================================
</TABLE>
43
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 14.
OFF-BALANCE-SHEET ITEMS AND CONCENTRATION OF
CREDIT RISK
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
<TABLE>
<CAPTION>
December 31 Contract or Notional Amount
- ---------------------------------------------------------------------------------------
Dollars in millions 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contractual
amounts represent potential credit risk:
Commitments to extend credit $14,136 $10,980
Letters of credit, financial guarantees,
and foreign office guarantees
(net of participations) 1,303 1,284
Financial instruments whose notional or
contractual amounts exceed the amount
of potential credit risk:
Interest-rate swap transactions 6,618 3,012
Commitments to sell loans 3,106 2,591
Commitments to originate or
purchase loans 1,918 1,769
Foreign currency forward contracts 1,281 2,427
Interest-rate futures, forward
contracts, and option contracts 1,097 296
Interest-rate caps and floors:
Purchased 642 446
Sold 618 511
Assets sold with recourse 291 351
Foreign currency options:
Purchased 21 38
Sold 21 77
=======================================================================================
</TABLE>
Commitments to extend credit are agreements to lend to customers in
accordance with contractual provisions. These commitments usually are for
specific periods or contain termination clauses and may require the payment of
a fee. The total amounts of unused commitments do not necessarily represent
future cash requirements in that commitments often expire without being drawn
upon.
COMMITMENTS TO EXTEND CREDIT
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial loans $ 5,966 $ 4,387
Revolving, open-end loans secured by resi-
dential properties (e.g., home equity lines) 2,550 2,448
Credit card lines 1,828 1,127
Commercial real estate 600 270
Other unused commitments 3,192 2,748
- ---------------------------------------------------------------------------------------
Total $14,136 $10,980
=======================================================================================
</TABLE>
Letters of credit and financial guarantees are agreements whereby the
corporation guarantees the performance of a customer to a third party.
Collateral is required to support letters of credit in accordance with
management's evaluation of the creditworthiness of each customer. The credit
risk assumed in issuing letters of credit is essentially equal to that in other
lending activities. Management does not anticipate any material losses as a
result of these transactions.
The corporation's interest-rate swaps are used as an interest-rate risk
tool. The corporation is exposed to risk should the swap counterparty default.
However, the corporation minimizes this risk by performing normal credit
reviews on the counterparties and by limiting its exposure to any one
counterparty. Notional principal amounts are a measure of the volume of
agreements transacted, but the level of credit risk is significantly less. The
amount of credit risk can be estimated by calculating the cost to replace, on a
present value basis, and at current market rates, all profitable contracts
outstanding at year-end. Using this methodology, the corporation's
interest-rate swap portfolio had an exposure of $125 million on December 31,
1993. On the same date, the corporation had a notional principal amount
outstanding of $6.6 billion in interest-rate swap transactions with unrelated
(notional amount) parties, of which $5 billion of these swaps represent
agreements in which Fleet receives a fixed rate and pays a floating rate, and
$1.6 billion represented agreements in which Fleet pays a fixed rate and
receives a floating rate.
Commitments to sell loans have off-balance-sheet market risk to the extent
the corporation does not have available loans to fill those commitments, which
would require the corporation to purchase loans in the open market. Commitments
to originate or purchase loans have off-balance-sheet market risk to the extent
that the corporation does not have matching commitments to sell loans obtained
under such commitments, which could expose the corporation to lower-of-cost or
market-valuation adjustments in a rising interest-rate environment.
The corporation enters into forward exchange contracts for foreign
currencies. Credit risks may
44
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
arise from the possibility that counterparties will not be able to meet the
terms of their contracts. However, management controls these risks by entering
into agreements only in accordance with established credit guidelines and
limits.
The corporation transacts interest-rate options for the purpose of
assisting its customers to manage their interest-rate risk. Credit risks may
arise from the possibility that the counterparties that have sold options to
the corporation will not meet the terms of their contracts. The corporation
mitigates these risks by adhering to strict credit guidelines.
CONCENTRATIONS OF CREDIT RISK. Although the corporation is engaged in business
nationwide, the lending done by the banking subsidiaries is primarily
concentrated in the Northeast.
NOTE 15.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values are
based on estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future
expected loss experience, and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair values. Derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and assumptions used
to estimate fair values, Fleet's fair values should not be compared to other
banks.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not purport to
represent the underlying market value of the corporation.
The following describes the methods and assumptions used by Fleet in
estimating the fair values.
Cash and Cash Equivalents. The carrying amounts reported in the balance
sheet approximate fair values because maturities are less than 90 days.
Securities. Fair values are primarily based on quoted market prices.
Loans. The fair values of commercial, commercial real estate, and certain
consumer loans are estimated by discounting the contractual cash flows using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. For certain variable-rate consumer loans,
including home equity lines of credit and credit card receivables, the carrying
amounts approximate fair value. This method of estimating
45
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
the fair value of the credit card portfolio excludes the value of the ongoing
customer relationships, a factor that can represent a significant premium over
book value. For residential real estate loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources adjusted for servicing costs.
For nonperforming loans and certain loans where the credit quality of the
borrower has deteriorated significantly, fair values are estimated by
discounting expected cash flows at a rate commensurate with the risk associated
with the estimated cash flows, based on recent appraisals of the underlying
collateral or by reference to recent loan sales.
Mortgages Held for Resale. Fair value is estimated using the quoted market
prices for securities backed by similar types of loans and current dealer
commitments to purchase loans. These loans are priced to be sold with servicing
rights retained (as is the corporation's ordinary course of business).
Deposits. The fair value of deposits with no stated maturity is considered
to be equal to the carrying amount. The fair value of time deposits is
estimated by discounting contractual cash flows using interest rates currently
being offered on the deposit products. The fair value estimates for deposits do
not include the benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of alternative forms of funding (core
base intangibles).
Short-Term Borrowings. Short-term borrowings generally mature in 90 days or
less; therefore, the carrying amount reported in the balance sheet approximates
fair value.
Long-Term Debt. The fair value of Fleet's long-term debt, including the
short-term portion, is estimated based on quoted market prices for the issues
for which there is a market or by discounting cash flows based on current rates
available to Fleet for similar types of borrowing arrangements.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet
instruments are based on quoted market prices, current settlement values, or
established pricing models using current assumptions.
<TABLE>
ON-BALANCE-SHEET FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------------------------
<CAPTION>
December 31 1993 1992
- -------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Dollars in millions Value Value Value Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Financial assets for which
carrying value approx-
imates fair value $ 2,560 $ 2,560 $ 3,361 $ 3,361
Securities 14,123 14,511 12,660 13,063
Loans 24,302 25,136 24,575 25,252
Mortgages held for resale 2,622 2,630 2,087 2,094
Trading account securities 91 91 127 127
Other 187 236 423 446
Financial liabilities:
Deposits with no
stated maturity 22,910 22,910 22,266 22,266
Time deposits 8,175 8,271 10,469 10,747
Short-term borrowings 8,107 8,107 6,399 6,399
Long-term debt 3,444 3,620 3,812 3,883
Other 124 124 57 57
================================================================================================
</TABLE>
At December 31, 1993 and 1992, the fair value of Fleet's hedge-related
interest-rate swaps was $70 million and $71 million, respectively. The fair
values of all other off-balance-sheet financial instruments were not material.
Certain assets, which are not financial instruments and, accordingly, are not
included in the above fair values, contribute substantial value to the
corporation in excess of the related amounts recognized in the balance sheet.
These include the core deposit intangible and the related retail banking
network, the value of customer relationships associated with certain types of
consumer loans, particularly the credit card portfolio, lease financing
business, and mortgage servicing rights.
46
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 16.
COMMITMENTS, CONTINGENCIES, AND OTHER DISCLOSURES
The corporation's subsidiary, Fleet Finance, is a defendant in several
class-action lawsuits filed in federal and state courts in Georgia and Alabama.
Plaintiffs in these suits allege that they are borrowers from lenders from whom
Fleet Finance regularly purchased loans or that they are an obligor on a loan
that is the subject of a foreclosure action by Fleet Finance. Issues in the
cases involve Truth-in-Lending Act regulations, the Georgia Fair Housing Act,
laws regarding methods of computing finance charges, and other claims.
In December 1993, Fleet Finance of Georgia and Fleet Finance, a Rhode
Island corporation, entered into a settlement agreement with the Georgia
Attorney General and the Governor's Office of Consumer Affairs, to settle an
ongoing investigation by those offices. Pursuant to this settlement, Fleet
Finance agreed to invest $70 million in low- to moderate-income housing
programs administered by the Georgia Housing and Finance Authority, to provide
up to $30 million in relief to eligible current and former Fleet Finance
customers meeting specific criteria, to expand by $2 million (to a total of $10
million) its commitment to programs benefiting Atlanta's Olympic stadium
impacted neighborhoods, and to pay $2.75 million to Georgia as additional
compensation and to cover costs of the investigation.
Fleet Finance also reached an agreement in principle in the fourth quarter
of 1993 to settle the Alexander class-action lawsuit, subject to final
documentation and court approval. Fleet Finance anticipates that, pursuant to
such settlement, it will provide benefits that include cash payments to certain
borrowers whose loans included specified points or were foreclosed upon. In
addition, pursuant to the proposed 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.
In June 1993, the Georgia Supreme Court ruled in Fleet's favor in Fleet
Finance v. Jones, et al., ruling that the loans made or purchased by Fleet
Finance were not in violation of Georgia's usury statute. The action was
dismissed and subsequently appealed. Fleet believes that such appeal will not
be successful on the merits.
A class-action lawsuit filed by Lillie Mae Starr against Fleet Finance in
1992 alleges violations of the Federal Extortionate Credit Transaction Statute
(FECTS) and the Racketeer Influenced and Corrupt Organization (RICO) Act and
other claims, based on methods of computing and collecting finance charges. The
plaintiffs seek actual, compensatory, and punitive damages. The court granted
plaintiff's motion for class certification. The case is in discovery and is
scheduled to go to trial later in 1994.
Fleet Finance believes that it has meritorious defenses to the pending
suits and intends to defend them vigorously. Based on its current analysis of
the various suits, the corporation does not believe that they will have a
materially adverse effect on the corporation's financial position.
The corporation and its subsidiaries are involved in various other legal
proceedings arising out of, and incidental to, their respective businesses.
Management of the corporation, based on its review with counsel of the
development of these matters to date, does not anticipate that any losses
incurred as a result of these legal proceedings would have a materially adverse
effect on the corporation's financial position.
LEASE COMMITMENTS. The corporation has entered into a number of noncancellable
operating lease agreements for premises and equipment. The minimum annual
rental commitments under these leases at December 31, 1993, exclusive of taxes
and other charges, were $83 million in 1994; $72 million, 1995; $62 million,
1996; $43 million, 1997; $39 million, 1998; and $215 million, 1999 and
subsequent years. Total rental expense for 1993, 1992, and 1991, including
cancellable and noncancellable leases, amounted to $103 million, $89 million,
and $69 million, respectively.
47
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
Certain leases contain escalation clauses, which correspond with increased
real estate taxes and other operating expenses, and renewal options calling for
increased rents as the leases are renewed. No restrictions are imposed by any
lease agreement regarding the payment of dividends, additional debt financing,
or entering into further lease agreements.
REGULATORY MATTERS. As a bank holding company, Fleet is subject to regulation
by the Federal Reserve Board. Bank subsidiaries are subject to regulation by
the Federal Reserve Board and the Office of the Comptroller of the Currency
(OCC) as well as state regulators. Each subsidiary bank's deposits are insured
by the FDIC.
In addition to Fleet's own monitoring of activities, the credit quality of
the assets held by certain Fleet subsidiaries is subject to periodic review by
the state and federal bank regulatory agencies noted above. While Fleet
believes its current reserves for credit losses are adequate in light of
prevailing economic conditions and the current regulatory environment, there
can be no assurance that Fleet's subsidiaries will not be required to make
certain adjustments to the reserve for credit losses and charge-off policies in
response to changing economic conditions or regulatory examinations. Neither
Fleet nor any of its subsidiaries has entered into formal written agreements
with state and federal regulators.
TRANSACTION AND DIVIDEND RESTRICTIONS. Fleet's banking subsidiaries are subject
to restrictions under federal law that limit the transfer of funds by the
subsidiary banks to Fleet and its nonbanking subsidiaries. Such transfers by
any subsidiary bank to Fleet or any nonbank subsidiary are limited in amount to
10% of the bank's capital and surplus.
Various federal and state banking statutes limit the amount of dividends
the subsidiary banks can pay to Fleet without regulatory approval. The payment
of dividends by any subsidiary bank may also be affected by other factors such
as the maintenance of adequate capital for such subsidiary bank. Various
regulators and the boards of directors of the affected institutions continue to
review dividend declarations and capital requirements of Fleet and its
subsidiaries consistent with current earnings, future earnings prospects, and
other factors.
RESTRICTIONS ON CASH AND DUE FROM BANKS. The corporation's banking subsidiaries
are subject to requirements of the Federal Reserve Board to maintain certain
reserve balances. At December 31, 1993 and 1992, these reserve balances were
$936 million and $928 million, respectively.
48
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 17.
PARENT COMPANY ONLY FINANCIAL STATEMENTS
<TABLE>
STATEMENTS OF INCOME
<CAPTION>
Year ended December 31
Dollars in millions 1993 1992 1991
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries:
Banking subsidiaries $205 $132 $ 201
Other subsidiaries 24 88 103
Interest 118 123 154
Gain on partial sale of FMG - 121 -
Other 89 57 55
- ---------------------------------------------------------------------------------------------
Total income 436 521 513
- ---------------------------------------------------------------------------------------------
Interest 163 183 220
Noninterest expense 185 118 56
- ---------------------------------------------------------------------------------------------
Total expenses 348 301 276
- ---------------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
income of subsidiaries 88 220 237
Applicable income taxes (benefit) (45) 27 (4)
- ---------------------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries 133 193 241
Equity in undistributed income
(loss) of subsidiaries 355 87 (143)
- ----------------------------------------------------------------------------------------------
Net income $488 $280 $ 98
==============================================================================================
</TABLE>
<TABLE>
BALANCE SHEETS
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31
Dollars in millions 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Money market instruments $ 265 $ 422
Securities (market value:
$206 and $179) 189 147
Loans receivable from:
Banking subsidiaries 167 168
Other subsidiaries 1,603 1,469
- ----------------------------------------------------------------------------------------------
1,770 1,637
Investment in subsidiaries:
Banking subsidiaries 3,068 2,676
Other subsidiaries 759 687
- ----------------------------------------------------------------------------------------------
3,827 3,363
Other 329 337
- ----------------------------------------------------------------------------------------------
Total assets $6,380 $5,906
==============================================================================================
Short-term borrowings $ 591 $ 546
Accrued liabilities 368 265
Long-term debt 1,782 2,085
- ----------------------------------------------------------------------------------------------
Total liabilities 2,741 2,896
- ----------------------------------------------------------------------------------------------
Stockholders' equity 3,639 3,010
- ----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $6,380 $5,906
==============================================================================================
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
December 31
Dollars in millions 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 488 $ 280 $ 98
Adjustments for noncash items:
Equity in undistributed (income) loss of subsidiaries (355) (87) 143
Depreciation and amortization 17 13 23
Net securities gains (47) (4) (9)
Gain on partial sale of FMG - (121) -
Increase in accrued liabilities, net 102 130 51
Other--net 38 20 (66)
- ------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 243 231 240
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities (132) (27) (1)
Proceeds from sales and maturities of securities 137 18 85
Net (increase) decrease in loans made to affiliates (133) (49) 662
Capital contributions to subsidiaries (171) (310) (759)
- ------------------------------------------------------------------------------------------------------------------------
Net cash flow used by investing activities (299) (368) (13)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings 45 (383) (1,253)
Proceeds from issuance of long-term debt 300 868 533
Repayments of long-term debt (603) (63) (15)
Proceeds from issuance of common and preferred stock 432 27 711
Repurchase of preferred stock Series III and IV (126) - -
Cash dividends paid (149) (125) (105)
- ------------------------------------------------------------------------------------------------------------------------
Net cash flow provided (used) by financing activities (101) 324 (129)
- ------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (157) 187 98
Cash and cash equivalents at beginning of the year 422 235 137
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 265 $ 422 $ 235
========================================================================================================================
</TABLE>
49
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP
NOTE 18.
SUPPLEMENTAL DISCLOSURE FOR
STATEMENTS OF CASH FLOWS
CASH-FLOW DISCLOSURE
<TABLE>
<CAPTION>
December 31
Dollars in millions 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of
cash-flow information:
Cash paid during the period for:
Interest expense $1,339 $1,559 $1,979
Income taxes, net
of refunds 428 260 130
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Supplemental disclosure
of noncash investing
and financing activities:
Transfer of loans to
foreclosed property and
repossessed equipment 149 378 528
Conversion of subordinated
notes to common stock -- 33 --
Issuance of Class I redeemable
preferred stock to the FDIC
for no consideration -- -- 100
Transfer of investment securities
to securities available for sale -- -- 8,421
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Acquisitions:
Assets acquired, net
of cash and cash
equivalents received -- 1,966 12,046
Cash and cash
equivalents received -- 401 5,808
Liabilities assumed -- 2,367 17,854
=============================================================================
</TABLE>
NOTE 19.
ACQUISITIONS AND SALES
On October 11, 1993, the corporation agreed to acquire Sterling
Bancshares Corp. (Sterling) of Waltham, Massachusetts, for approximately $125
million in stock, or $39.50 for each share of Sterling common stock. Sterling
operates 13 banking offices in Middlesex County, Massachusetts, and had assets
of approximately $1 billion at December 31, 1993. Under the terms of the
acquisition agreement, Sterling stockholders will receive 1.1575 shares of
Fleet Financial Group common stock for each Sterling share subject to a
floating exchange rate that may fluctuate 15% in either direction. The merger
is subject to approval by Sterling stockholders and various federal and state
regulatory agencies. Closing of the transaction is anticipated to take place in
the middle of 1994. It is anticipated that the transaction will be accounted
for as a pooling of interests.
The corporation has also received regulatory approval to acquire
approximately $700 million in consumer deposits of 29 upstate New York branches
of Chemical Bank. The transaction is expected to close by the end of the first
quarter of 1994.
During the first quarter of 1994 the corporation sold its factoring
and commercial finance subsidiary, Fleet Factors Corp. to GFC Financial Corp.
in an all-cash transaction. Fleet Factors had total assets of approximately
$350 million at December 31, 1993, and approximately $800 million in factoring
volume for 1993.
During December 1992, the corporation assumed deposits of
approximately $1.5 billion and purchased certain assets of Heritage and
Eastland banks from the FDIC. The transactions resulted in the corporation
purchasing approximately $1.2 billion in loans, of which approximately $630
million, substantially all commercial real estate and commercial and industrial
loans, were subject to loss sharing arrangements with the FDIC. In accordance
with the loss arrangements, the FDIC will reimburse the corporation 80% of net
charge-offs (subject to an increase to 95% for losses exceeding certain
amounts) taken in accordance with regulatory guidelines for periods ranging
from three to five years from the date of acquisition.
During 1992, Fleet also assumed $739 million in deposits from four
separate financial institutions located in New England.
50
<PAGE> 52
SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP
<TABLE>
TEN-YEAR STATISTICAL SUMMARY (UNAUDITED)
<CAPTION>
Dollars in millions,
except per share data 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 488 $ 280 $ 98 $ (74) $ 371
Earnings (loss)
per share 3.01 1.77 0.67 (0.75) 3.30
Return on average assets 1.06% 0.62% 0.25% (0.21)% 1.25%
Return on average common
stockholders' equity 16.07 11.01 4.02 (3.93) 17.70
Book value per share $22.84 $19.50 $18.15 $ 17.65 $19.87
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
Dollars in millions,
except per share data 1988 1987 1986 1985 1984
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 336 $ 200 $ 253 $ 209 $ 173
Earnings (loss)
per share 3.01 1.82 2.37 1.97 1.74
Return on average assets 1.24% 0.81% 1.19% 1.19% 1.18%
Return on average common
stockholders' equity 18.15 11.88 17.50 16.34 16.12
Book value per share $17.84 $15.83 $14.84 $13.21 $12.03
=======================================================================================
</TABLE>
<TABLE>
QUARTERLY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
<CAPTION>
By quarter 1993
- ----------------------------------------------------------------------------------
Dollars in millions,
except per share data 1 2 3 4 Year
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 814 $ 802 $ 801 $ 795 $3,212
Interest expense 309 292 279 281 1,161
- ----------------------------------------------------------------------------------
Net interest income 505 510 522 514 2,051
- ----------------------------------------------------------------------------------
Provision for credit losses 85 70 60 56 271
- ----------------------------------------------------------------------------------
Net interest income after
provision for credit losses 420 440 462 458 1,780
Securities available for sale gains 19 114 126 23 282
Other noninterest income 290 277 319 297 1,183
- ----------------------------------------------------------------------------------
729 831 907 778 3,245
Noninterest expense 543 641 687 553 2,424
- -----------------------------------------------------------------------------------
Income before income taxes 186 190 220 225 821
Applicable income taxes 75 78 88 86 327
- ----------------------------------------------------------------------------------
Net income before
minority interest 111 112 132 139 494
Minority interest (5) 7 (5) (3) (6)
- ----------------------------------------------------------------------------------
Net income $ 106 $ 119 $ 127 $ 136 $ 488
==================================================================================
Earnings per share $0.66 $0.72 $0.78 $0.85 $ 3.01
==================================================================================
Taxable equivalent basis:
Interest income--as above $ 814 $ 802 $ 801 $ 795 $3,212
Taxable equivalent
adjustment 8 8 9 8 33
- ----------------------------------------------------------------------------------
Interest income--taxable
equivalent basis 822 810 810 803 3,245
Interest expense 309 292 279 281 1,161
- ----------------------------------------------------------------------------------
Net interest income--taxable
equivalent basis $ 513 $ 518 $ 531 $ 522 $2,084
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
By quarter 1992
- -------------------------------------------------------------------------------------------
Dollars in millions,
except per share data 1 2 3 4 Year
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 871 $ 864 $ 851 $ 830 $3,416
Interest expense 405 383 351 324 1,463
- -------------------------------------------------------------------------------------------
Net interest income 466 481 500 506 1,953
- -------------------------------------------------------------------------------------------
Provision for credit losses 111 129 108 138 486
- -------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 355 352 392 368 1,467
Securities available for sale gains 10 55 12 130 207
Other noninterest income 252 258 384 267 1,161
- -------------------------------------------------------------------------------------------
617 665 788 765 2,835
Noninterest expense 528 544 634 612 2,318
- -------------------------------------------------------------------------------------------
Income before income taxes 89 121 154 153 517
Applicable income taxes 39 50 74 65 228
- -------------------------------------------------------------------------------------------
Net income before
minority interest 50 71 80 88 289
Minority interest - - (4) (5) (9)
- --------------------------------------------------------------------------------------------
Net income $ 50 $ 71 $ 76 $ 83 $ 280
===========================================================================================
Earnings per share $0.31 $0.45 $0.49 $0.52 $ 1.77
===========================================================================================
Taxable equivalent basis:
Interest income--as above $ 871 $ 864 $ 851 $ 830 $3,416
Taxable equivalent
adjustment 6 8 8 8 30
- -------------------------------------------------------------------------------------------
Interest income--taxable
equivalent basis 877 872 859 838 3,446
Interest expense 405 383 351 324 1,463
- -------------------------------------------------------------------------------------------
Net interest income--taxable
equivalent basis $ 472 $ 489 $ 508 $ 514 $1,983
===========================================================================================
</TABLE>
<TABLE>
COMMON STOCK PRICE AND DIVIDEND INFORMATION(a) (UNAUDITED)
<CAPTION>
By quarter 1993
- ----------------------------------------------------------------------------------
1 2 3 4 Year
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock Price
High 37 7/8 37 1/2 35 35 1/4 37 7/8
Low 30 7/8 28 1/4 30 5/8 30 28 1/4
- ----------------------------------------------------------------------------------
Dividends declared 0.225 0.250 0.25 0.30 1.025
Dividends paid 0.225 0.225 0.25 0.25 0.95
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
By quarter 1992
- -----------------------------------------------------------------------------------------
1 2 3 4 Year
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock Price
High 30 3/4 31 30 7/8 33 7/8 33 7/8
Low 24 1/4 26 3/4 25 3/4 27 1/2 24 1/4
- -----------------------------------------------------------------------------------------
Dividends declared 0.20 0.20 0.20 0.225 0.825
Dividends paid 0.20 0.20 0.20 0.20 0.800
=========================================================================================
<FN>
(a) Fleet's common stock is listed on the New York Stock Exchange. The table
above sets forth, for the period indicated, the range of high and low sale
prices per share of Fleet's common stock on the composite tape and
dividends declared and paid per share. At December 31, 1993, the
corporation had 38,888 common stockholders of record.
</TABLE>
51
<PAGE> 53
SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED-PAID/RATES 1989-1993 (UNAUDITED)
<TABLE>
<CAPTION>
December 31 1993
- ----------------------------------------------------------------------------------------------
Interest
Average Earned/
Dollars in millions(a) Balance Paid(b) Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Interest-bearing deposits $ 21 $ 1 2.87%
Federal funds sold and securities purchased
under agreements to resell 163 5 3.02
Trading account securities 79 3 4.05
Securities available for sale 10,442 722 6.91
Investment securities 1,817 120 6.60
Nontaxable securities 679 44 6.49
Loans and leases(c) 26,144 2,210 8.46
Mortgages held for resale 1,979 140 7.05
Foreclosed property and repossessed equipment 211 -- --
- ----------------------------------------------------------------------------------------------
Total interest-earning assets 41,535 3,245 7.81%
- ----------------------------------------------------------------------------------------------
Accrued interest receivable 348 -- --
Reserve for credit losses (1,033) -- --
Other assets 5,116 -- --
- ----------------------------------------------------------------------------------------------
Total assets $45,966 $3,245 --
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Savings $15,990 $ 342 2.14%
Time 9,183 402 4.37
- ----------------------------------------------------------------------------------------------
Total interest-bearing deposits 25,173 744 2.96
- ----------------------------------------------------------------------------------------------
Short-term borrowings 5,971 180 3.02
Long-term debt 3,718 237 6.37
- ----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 34,862 1,161 3.33
- ----------------------------------------------------------------------------------------------
Net interest spread -- 2,084 4.48%
- ----------------------------------------------------------------------------------------------
Demand deposits and other
noninterest-bearing time deposits 6,429 -- --
Other liabilities 1,222 -- --
- ----------------------------------------------------------------------------------------------
Total liabilities 42,513 1,161 --
- ----------------------------------------------------------------------------------------------
Dual convertible preferred stock -- -- --
Stockholders' equity and dual
convertible preferred stock 3,453 -- --
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $45,966 $1,161 --
==============================================================================================
Net interest margin 5.02%
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31 1992
- ----------------------------------------------------------------------------------------------
Interest
Average Earned/
Dollars in millions(a) Balance Paid(b) Rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Interest-bearing deposits $ 22 $ 1 3.21%
Federal funds sold and securities purchased
under agreements to resell 657 14 2.25
Trading account securities 81 4 4.86
Securities available for sale 11,059 863 7.80
Investment securities 196 14 7.06
Nontaxable securities 454 24 5.25
Loans and leases(c) 26,615 2,378 8.94
Mortgages held for resale 1,630 148 9.08
Foreclosed property and repossessed equipment 514 -- --
- ----------------------------------------------------------------------------------------------
Total interest-earning assets 41,228 3,446 8.36%
- ----------------------------------------------------------------------------------------------
Accrued interest receivable 335 -- --
Reserve for credit losses (1,058) -- --
Other assets 4,661 -- --
- ----------------------------------------------------------------------------------------------
Total assets $45,166 $3,446 --
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Savings $14,816 $ 446 3.01%
Time 11,735 630 5.37
- ----------------------------------------------------------------------------------------------
Total interest-bearing deposits 26,551 1,076 4.05
- ----------------------------------------------------------------------------------------------
Short-term borrowings 4,753 164 3.45
Long-term debt 3,127 223 7.10
- ----------------------------------------------------------------------------------------------
Total interest-bearing liabilities 34,431 1,463 4.25
- ----------------------------------------------------------------------------------------------
Net interest spread -- 1,983 4.11%
- ----------------------------------------------------------------------------------------------
Demand deposits and other
noninterest-bearing time deposits 6,850 -- --
Other liabilities 991 -- --
- ----------------------------------------------------------------------------------------------
Total liabilities 42,272 1,463 --
- ----------------------------------------------------------------------------------------------
Dual convertible preferred stock 283 -- --
Stockholders' equity and dual
convertible preferred stock 2,611 -- --
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $45,166 $1,463 --
==============================================================================================
Net interest margin 4.80%
==============================================================================================
</TABLE>
(a) The data in this table is presented on a taxable equivalent basis. The
tax-equivalent adjustment is based upon the applicable federal and state
income tax rates.
(b) Includes fee income of $58 million, $69 million, $67 million, $59 million,
and $89 million for the years ended December 31, 1993, 1992, 1991, 1990,
and 1989, respectively.
(c) Nonperforming loans are included in average balances used to determine
rates.
52
<PAGE> 54
SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------
Interest Interest Interest
Average Earned/ Average Earned/ Average Earned/
Balance Paid(b) Rate Balance Paid(b) Rate Balance Paid(b) Rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 68 $ 4 5.46% $ 193 $ 17 8.98% $ 176 $ 16 9.05%
1,455 86 5.93 1,681 135 8.05 220 21 9.53
73 5 6.89 31 2 6.48 25 2 7.15
1,376 91 6.63 - - - - - -
5,838 530 9.07 5,473 535 9.78 3,383 277 8.19
949 66 6.91 1,654 117 7.04 1,511 165 10.96
23,995 2,475 10.31 21,027 2,434 11.57 20,371 2,569 12.61
1,225 118 9.67 1,227 133 10.86 1,028 108 10.48
468 - - 503 - - 324 - -
- ---------------------------------------------------------------------------------------------------------------------
35,447 3,375 9.52% 31,789 3,373 10.61% 27,038 3,158 11.68%
- ---------------------------------------------------------------------------------------------------------------------
307 - - - - - - - -
(828) - - (563) - - (325) - -
3,913 - - 3,137 - - 3,085 - -
- ---------------------------------------------------------------------------------------------------------------------
$38,839 $3,375 - $34,363 $3,373 - $29,798 $3,158 -
=====================================================================================================================
$10,849 $ 523 4.82% $ 7,439 $ 420 5.65% $ 7,080 $ 403 5.69%
13,399 957 7.15 11,168 923 8.27 9,834 853 8.68
- ---------------------------------------------------------------------------------------------------------------------
24,248 1,480 6.11 18,607 1,343 7.22 16,914 1,256 7.43
- ---------------------------------------------------------------------------------------------------------------------
3,284 217 6.60 6,366 551 8.65 4,260 385 9.04
3,020 233 7.71 2,544 232 9.12 1,809 175 9.68
- ---------------------------------------------------------------------------------------------------------------------
30,552 1,930 6.32 27,517 2,126 7.73 22,983 1,816 7.90
- ---------------------------------------------------------------------------------------------------------------------
1,445 3.20% 1,247 2.88% 1,342 3.78%
- ---------------------------------------------------------------------------------------------------------------------
5,267 - - 4,118 - - 3,958 - -
617 - - 531 - - 675 - -
- ---------------------------------------------------------------------------------------------------------------------
36,436 1,930 - 32,166 2,126 - 27,616 1,816 -
- ---------------------------------------------------------------------------------------------------------------------
134 - - - - - - - -
2,269 - - 2,197 - - 2,182 - -
- ---------------------------------------------------------------------------------------------------------------------
$38,839 $1,930 - $34,363 $2,126 - $29,798 $1,816 -
=====================================================================================================================
4.09% 3.92% 4.96%
=====================================================================================================================
</TABLE>
53
<PAGE> 55
SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rate.
<TABLE>
RATE/VOLUME ANALYSIS (UNAUDITED)
<CAPTION>
1993 Compared to 1992 1992 Compared to 1991
- -------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Due to(a) Increase (Decrease) Due to(a)
- --------------------------------------------------------------------------------------------------------------------------
Dollars in millions Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:(b)
Interest-bearing deposits $ - $ - $ - $ (1) $ (2) $ (3)
Federal funds sold and securities purchased
under agreements to resell (17) 8 (9) (18) (54) (72)
Trading account securities - (1) (1) - (1) (1)
Securities available for sale (46) (95) (141) 756 16 772
Investment securities 107 (1) 106 (399) (117) (516)
Nontaxable securities 14 6 20 (26) (16) (42)
Loans and leases (42) (126) (168) 234 (331) (97)
Mortgages held for resale 181 (189) (8) 37 (7) 30
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 197 (398) (201) 583 (512) 71
- ---------------------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits:
Savings 39 (143) (104) 119 (196) (77)
Time (123) (105) (228) (89) (238) (327)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (84) (248) (332) 30 (434) (404)
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 32 (16) 16 50 (103) (53)
Long-term debt 32 (18) 14 8 (18) (10)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (20) (282) (302) 88 (555) (467)
- ---------------------------------------------------------------------------------------------------------------------------
Net interest differential(b)(c) $ 217 $(116) $ 101 $ 495 $ 43 $ 538
===========================================================================================================================
<FN>
(a) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the
relationship of the absolute dollar amounts of the changes in each.
(b) A tax-equivalent adjustment has been included in the calculations to reflect this income as if it had been fully taxable.
The tax-equivalent adjustment is based upon the applicable federal and state income tax rates.
(c) Includes fee income of $58 million, $69 million, and $67 million for the years ended December 31, 1993, 1992, and 1991,
respectively.
</TABLE>
<TABLE>
LOAN AND LEASE MATURITY (UNAUDITED)
<CAPTION>
December 31, 1993 Within 1 1 to 5 After 5
Dollars in millions Year Years Years Total
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $4,811 $ 4,934 $1,359 $11,104
Consumer 1,536 4,434 1,561 7,531
Commercial real estate:
Construction 194 247 36 477
Interim/permanent 1,042 2,348 527 3,917
Residential real estate 92 525 1,435 2,052
Lease financing 373 587 74 1,034
Other - 195 - 195
- ----------------------------------------------------------------------
Total $8,048 $13,270 $4,992 $26,310
======================================================================
</TABLE>
<TABLE>
INTEREST SENSITIVITY OF LOANS OVER ONE YEAR (UNAUDITED)
<CAPTION>
December 31, 1993 Predetermined Floating
Dollars in millions Interest Rates Interest Rates Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 to 5 years $4,848 $ 8,422 $13,270
After 5 years 3,288 1,704 4,992
- ---------------------------------------------------------------------------------------
Total $8,136 $10,126 $18,262
=======================================================================================
</TABLE>
54
<PAGE> 56
AFFILIATES FLEET FINACIAL GROUP
<TABLE>
<S> <C>
BANKING COMPANIES FINANCIAL SERVICES COMPANIES
FLEET BANK AFSA DATA CORP.
Thomas A. Doherty Douglas A. Leafstedt
Chairman, President, and Chairman and Chief Executive Officer
Chief Executive Officer Steven Snyder
300 Broad Hollow Road President
Melville, NY 11747 2277 East 220th Street
Telephone: (516) 547-8000 Long Beach, CA 90810-1690
Telephone: (310) 513-2700
FLEET BANK, N.A.
Frederick C. Copeland, Jr. FLEET BROKERAGE SECURITIES
Chairman, President, and Frieda Z. Lewis
Chief Executive Officer President and Chief Executive Officer
One Constitution Plaza 67 Wall Street
Hartford, CT 06115 New York, NY 10005
Telephone: (203) 244-5000 Telephone: (212) 806-2888
FLEET BANK OF MAINE FLEET CREDIT CORP.
M. Anne Szostak Ronald H. Chamides
Chairman, President, and President
Chief Executive Officer 50 Kennedy Plaza
One City Center Providence, RI 02903
P.O. Box 9791 Telephone: (401) 278-6000
Portland, ME 04104-5091
Telephone: (207) 874-5000 FLEET FINANCE, INC.
John S. Poelker
FLEET BANK OF MASSACHUSETTS, N.A. Chairman and Chief Executive Officer
Leo R. Breitman R. Harold Owens
Chairman and Chief Executive Officer President and Chief Operating Officer
John P. Hamill Suite 800
President 211 Perimeter Center Parkway
75 State Street Atlanta, GA 30346
Boston, MA 02109 Telephone: (404) 392-2400
Telephone: (617) 346-4000
FLEET MORTGAGE GROUP, INC.
FLEET BANK-NH Andrew D. Woodward, Jr.
Dean T. Holt Chairman and Chief Executive Officer
Chairman Robert T. Golitz
Michael C. Whitney President and Chief Operating Officer
President and Chief Executive Officer 1333 Main Street
One Indian Head Plaza P.O. Box 11988
Albany, NY 12207 Columbia, SC 29211
Telephone: (603) 594-5000 Telephone: (803) 929-7900
FLEET BANK OF NEW YORK FLEET INVESTMENT ADVISORS
Erland E. Kailbourne Harold A. Mackinney, Jr.
Chairman and Chief Credit Officer Chairman and Chief Executive Officer
Dean T. Holt 50 Kennedy Plaza
President and Chief Credit Officer Providence, RI 02903
Peter D. Kiernan Plaza Telephone: (401) 278-6600
Albany, NY 12207
Telephone: (518) 447-4100 FLEET INVESTMENT SERVICES
Richard H. Jones
FLEET BANK-RI President and Chief Executive Officer
Thomas J. Skala 50 Kennedy Plaza
Chairman and Chief Executive Officer Providence, RI 02903
Richard A. Higginbotham Telephone: (401) 278-6600
President
111 Westminster Street FLEET SECURITIES, INC.
Providence, RI 02903 John P. O'Brien
Telephone: (401) 278-6000 President
14 Wall Street--27th Floor
New York, NY 10005
Telephone: (212) 285-0800
FLEET SERVICES CORP.
David M. Sheppard
Chairman and Chief Executive Officer
P.O. Box 366
Providence, RI 02901
Telephone: (401) 275-7050
Robert P. Drum
President
Peter D. Kiernan Plaza
Albany, NY 12207
(518) 447-4100
RECOLL MANAGEMENT CORP.
Thomas W. Lucey
President and Chief Executive Officer
245 Summer Street
Boston, MA 02209-9173
Telephone: (617) 742-0020
</TABLE>
55
<PAGE> 57
OFFICERS AND DIRECTORS FLEET FINANCIAL GROUP
<TABLE>
<CAPTION>
OFFICERS BOARD OF DIRECTORS
<S> <C> <C>
Terrence Murray Terrence Murray Ruth R. McMullin
Chairman, President, and Chairman, President, and President and Chief Executive
Chief Executive Officer Chief Executive Officer Officer
Fleet Financial Group Harvard Business School
Robert J. Higgins Providence, R.I. Publishing Corp.
Vice Chairman Boston, Mass., a professional
William Barnet, III publishing organization of the
H. Jay Sarles President Harvard Business School
Vice Chairman William Barnet & Son, Inc.
Spartanburg, S.C., processing and Arthur C. Milot
Michael R. Zucchini trading natural and synthetic Private Investor
Vice Chairman yarns, fibers, and resins Jamestown, R.I.
Eugene M. McQuade Bradford R. Boss Thomas D. O'Connor
Executive Vice President and Chairman President
Chief Financial Officer A.T. Cross Company Mohawk Paper Mills, Inc.
Lincoln, R.I., a manufacturer and Cohoes, N.Y., a manufacturer and
James P. Murphy distributor of fine writing distributor of fine printing
Executive Vice President instruments and leather goods papers
John B. Robinson, Jr. James E. Chandler Michael B. Picotte
Executive Vice President Retired Chairman and Director Managing General Partner and
Fleet Bank-NH Chief Executive Officer
Edward J. Devin Nashua, N.H. The Picotte Companies
Senior Vice President Albany, N.Y., investment builders
Paul J. Choquette, Jr. of commercial office buildings
Peter C. Fitts President
Senior Vice President Gilbane Building Company James J. Preble
Providence, R.I., a national Retired Vice Chairman
William C. Mutterperl construction firm Fleet Financial Group
Senior Vice President, Secretary Providence, R.I.;
and General Counsel James F. Hardymon Retired Chairman
Chairman and Chief Executive Fleet Bank, N.A.
Anne M. Slattery Officer Hartford, Conn.
Senior Vice President Textron Inc.
Providence, R.I., a John D. Reardon
P. Emery Covington multi-industry company Retired Chairman
Vice President Daniel Green Company
Robert M. Kavner Dolgeville, N.Y., a manufacture
Thomas E. Freeman Executive Vice President of leisure footwear
Vice President American Telephone and Telegraph
Co.; John A. Reeves
Richard A. Higginbotham Chief Executive Officer President
Vice President Multimedia Products and Services Pitkin Iron Corp.
Group Carbondale, Colo.
Peter L. Hood New York, N.Y., a corporation
Vice President engaged in the electronic movement John R. Riedman
and management of information Chairman
Richard H. Jones worldwide Riedman Corp.
Vice President Rochester, N.Y., a national
Lafayette Keeney insurance brokerage
Robert W. Lougee, Jr. Retired Chairman
Vice President Sage-Allen & Co., Inc. John S. Scott
Hartford, Conn., a retail Retired Chairman
Harold A. Mackinney, Jr. department store Richardson-Vicks Inc.
Vice President Wilton, Conn., a worldwide
E. Douglas Kenna marketer of consumer products
Robert L. Nellson Chairman
Vice President Roper Industries, Inc.
Athens, Ga., a diversified
Robert C. Lamb, Jr. manufacturing company
Controller
Raymond C. Kennedy
Richard R. Pannone Chairman
Treasurer Kendell Holdings, Inc.
Hudson, N.Y., a private venture
capital company investing in
small, new companies
</TABLE>
56
<PAGE> 58
STOCKHOLDERS' INFORMATION FLEET FINANCIAL GROUP
DIVIDEND POLICY
The Board of Directors of Fleet Financial Group considers dividends at least
annually. The current annualized dividend rate is $1.20 per common share.
DIVIDEND REINVESTMENT SERVICE
Fleet's automatic dividend reinvestment service, available on request, enables
stockholders to have their quarterly dividends reinvested in shares of the
corporation and/or to make voluntary cash investments. All brokerage fees and
commissions for these transactions are absorbed by the corporation.
Occasionally, the corporation may establish discounts on these transactions.
STOCK TRANSFER AGENTS
Fleet Bank-RI, Providence, Rhode Island
Mellon Financial Securities, Inc., New York, New York
DIVIDEND DISBURSING AGENT
Fleet Bank-RI, Providence, Rhode Island
REGISTRARS OF STOCK
Citizens Trust Company, Providence, Rhode Island
Chemical Bank, New York, New York
INDEPENDENT AUDITORS
KPMG Peat Marwick, Providence, Rhode Island
MARKET DATA OF FLEET FINANCIAL GROUP'S COMMON STOCK
Traded: New York Stock Exchange
Symbol: FLT
Stockholders of record (12/31/93): 38,888
Shares outstanding (12/31/93): 137,381,588
DATE AND PLACE OF NEXT ANNUAL MEETING OF STOCKHOLDERS
April 20, 1994, Albany, New York
INFORMATION SERVICE
Fleet welcomes stockholder and public interest in our services and activities.
Questions pertaining to material presented in this report and requests for
other reports filed with the Securities and Exchange Commission should be
directed to:
Corporate Communications
Fleet Financial Group
50 Kennedy Plaza
Providence, Rhode Island 02903
(401) 278-5800
57
<PAGE> 1
EXHIBIT 21
FLEET FINANCIAL GROUP, INC.
<TABLE>
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
SUBSIDIARY JURISDICTION OF INCORPORATION
- ---------- -----------------------------
<S> <C>
Banking Subsidiaries:
- --------------------
Fleet Banking Group, Inc. Rhode Island
Fleet Bank, National Association United States
Fleet Bank of Massachusetts, National Association United States
Fleet National Bank United States
Fleet New York, Inc. New York
Fleet Bank of New York New York
Fleet Bank New York
Merrill/Norstar Bankshare Association Maine
Fleet Bank of Maine Maine
Indian Head Banks, Inc. New Hampshire
Fleet Bank-NH New Hampshire
Nonbanking Subsidiaries:
- ------------------------
Fleet Mortgage Group, Inc. Rhode Island
Fleet Mortgage Corp. Rhode Island
Fleet Real Estate Funding Corp. South Carolina
Fleet Mortgage Securities, Inc. Rhode Island
Fleet Financial Corporation Rhode Island
Fleet Finance, Inc. Rhode Island
Fleet Finance, Inc. Delaware
Fleet Credit Corporation Rhode Island
Fleet Securities, Inc. New York
Fleet Brokerage Securities, Inc. Delaware
AFSA Data Corporation California
Fleet Private Equity Co., Inc. Rhode Island
Fleet Investment Services, Inc. Rhode Island
Fleet Services Corporation New York
Fleet Investment Advisors, Inc. New York
Fleet Trust Company New York
Fleet Trust Company of Florida, N.A. United States
Recoll Management Corporation Rhode Island
</TABLE>
<PAGE> 1
EXHIBIT 23
FLEET FINANCIAL GROUP, INC.
ACCOUNTANTS' CONSENT
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Fleet Financial Group, Inc.:
We consent to incorporation by reference in the Registration Statements (Nos.
33-19425, 33-22045, 33-32460 and 33-48818) on Form S-8, the Registration
Statements (Nos. 33-22808, 33-36707, 33-40965, 33-50214 and 33-50216) on Form
S-3 and the Registration Statement (No. 33-51745) on Form S-4 of Fleet
Financial Group, Inc. of our report dated January 19, 1994, relating to the
consolidated balance sheets of Fleet Financial Group, Inc. as of December 31,
1993 and 1992 and the related consolidated statements of income, changes in
stockholders' equity and cash flows, for each of the years in the three-year
period ended December 31, 1993, which report appears in the Fleet Financial
Group, Inc. 1993 Annual Report to Shareholders which has been incorporated by
reference in the 1993 annual report on Form 10-K of Fleet Financial Group, Inc.
/s/ KPMG Peat Marwick
Providence, Rhode Island
March 30, 1994
