<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1994 - Commission file number 1-6366
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FLEET FINANCIAL GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Rhode Island 05-0341324
- ---------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Kennedy Plaza
Providence, Rhode Island 02903
- ---------------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
401/278-5800
- ----------------------------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
Title of Each Class Name of each exchange on which registered
<S> <C>
Common Stock, $1 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
Warrants to purchase Common Stock 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 (or for such shorter period that the registrant was
required to file such reports), 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 February 28, 1995 of the voting stock held by
nonaffiliates of the Registrant was $4.2 billion, which excludes $150 million
held by directors, executive officers, and banking subsidiaries of the
Registrant under trust agreements and other instruments.
The number of shares of common stock of the Registrant outstanding as of
February 28, 1995 was 141,198,173.
DOCUMENTS INCORPORATED BY REFERENCE
1. Pertinent extracts from Registrant's 1994 Annual Report to Shareholders
(Parts I and II).
2. Pertinent extracts from Registrant's Joint Proxy Statement-Prospectus
("Proxy Statement"), to be filed with the Commission. Such incorporation
by reference shall not be deemed to specifically incorporate by reference
the information referred to in Item 402(a)(8) of Regulation S-K.
<PAGE> 2
FORM 10-K
FLEET FINANCIAL GROUP, INC.
For the Year Ended December 31, 1994
Table of Contents
<TABLE>
<CAPTION>
Description Page Number
----------- -----------
<S> <C> <C>
Part I. Item 1 - Business 3
Item 2 - Properties 8
Item 3 - Legal Proceedings 8
Item 4 - Submission of Matters to a Vote of Security-Holders 8
Part II. Item 5 - Market for the Registrant's Common Stock and Related 8
Stockholder Matters
Item 6 - Selected Financial Data 8
Item 7 - Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 8 - Financial Statements and Supplementary Data 8
Item 9 - Changes in and Disagreements with Accountants on Accounting 8
and Financial Disclosure
Part III. Item 10 - Directors and Executive Officers of the Registrant 9
Item 11 - Executive Compensation 10
Item 12 - Security Ownership of Certain Beneficial Owners and 10
Management
Item 13 - Certain Relationships and Related Transactions 10
Part IV. Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 10
8-K
Signatures 13
</TABLE>
2
<PAGE> 3
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 20 largest bank holding
companies in the United States, with total assets of $48.8 billion at December
31, 1994. Fleet has approximately 21,500 employees.
Fleet reported net income for 1994 of $613 million, or $3.75 per share.
This compared to net income of $488 million, or $3.01 per share in 1993. For a
more detailed discussion of the Corporation's financial results, see
"Management's Discussion and Analysis" (pages 9-25) of the 1994 Annual Report to
Shareholders, which is incorporated by reference herein.
On February 20, 1995, Fleet and Shawmut National Corporation
("Shawmut") entered into a definitive merger agreement providing for the merger
of Shawmut with and into Fleet. The combined institution will have in excess of
$80 billion in assets, $50 billion in deposits, and will be headquartered in
Boston, Massachusetts. The merger agreement provides that each share of Shawmut
common stock would be exchanged for 0.8922 newly issued shares of Fleet common
stock on a tax-free basis. As a result of the merger, cost savings are
expected to be realized primarily through: reductions in staff; elimination,
consolidation or divestiture of certain branches; and the consolidation of
certain offices, data processing and other redundant back office operations and
staff functions. Fleet and Shawmut expect to take restructuring charges
aggregating approximately $400 million to cover expenses related to the merger.
The merger is expected to be completed in the fourth quarter of 1995 and is
subject to certain conditions, including the approval of federal and state bank
regulators and the shareholders of both companies.
The Corporation is organized along four functional lines of business,
which include Commercial Banking, Consumer Banking, Investment Services and
Asset Collection, and Financial.
Commercial Banking includes a broad range of commercial and corporate
lending as well as government banking, commercial real estate, asset-based
lending, and leasing. In addition to incorporating the commercial function in
each of the Corporation's six banking subsidiaries, this business unit also
includes Fleet Credit Corporation and Fleet Securities, Inc. Fleet Credit
Corporation, which has 18 offices nationwide, has two divisions: the Leasing
Division, which engages in middle market equipment leasing and the Business
Credit Division, which engages in commercial finance activities. Fleet
Securities, Inc. is a full-service municipal securities underwriter and dealer
located in New York City. This line of business also has an operating services
unit that encompasses cash management, corporate trust, and trade services
functions.
The Consumer Banking business unit includes retail and community
banking, consumer finance, and the Corporation's major processing businesses,
including mortgage banking at Fleet Mortgage Group, Inc. ("FMG") and student
loan processing at AFSA Data Corporation. This business unit has almost 1,100
offices in 38 states, and has the largest branch-based banking franchise in the
Northeast with a total of 864. 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. FMG currently ranks as the second largest mortgage company in
the nation and has 86 loan origination offices in 36 states and 1.2 million
customers. In February 1995, the Corporation completed its tender offer to
purchase the approximate 19% of FMG common stock that it does not already own
for $20.00 in cash per share. AFSA Data Corporation is the nation's largest
third-party servicer of student loans as it services more than $7 billion of
asset value in more than 2.5 million accounts. AFSA's three basic product lines
include a campus-based product, a federal direct loan program, and the Federal
Family Education Loan Program. The Corporation's consumer finance company, Fleet
Finance, Inc., engages primarily in consumer lending and home equity lending,
and underwrites credit life, accident and health insurance.
The Investment Services and Asset Collection line of business includes
investment management, private banking, discount brokerage, equity capital, and
asset collection businesses. The Corporation's investment management business
consists of personal asset management, endowment and custody services, employee
benefit management and mutual funds. These services are provided by the
Corporation's trust and investment management subsidiaries, Fleet Investment
Services Group and Fleet Investment Advisors, Inc. The Corporation's discount
brokerage subsidiary, Fleet Brokerage Securities, Inc., is engaged in providing
securities brokerage services, including clearing services, related securities
credit extension, and other incidental activities through 12 offices in 11
states. The Corporation's asset collection business was originally started
through its subsidiary, RECOLL Management Corp., which manages, collects, and
liquidates assets owned by the FDIC. Fleet has started an affiliated business,
Fleet Capital, which specializes in providing asset servicing primarily for
commercial real estate.
3
<PAGE> 4
ITEM 1. BUSINESS - (CONTINUED)
The Financial line of business includes the results of the treasury
group and the securities portfolio and trading group, as well as the
Corporation's financial staff areas. The treasury group manages the overall
funding needs of the Corporation and includes the asset/liability management of
interest-rate risk and liquidity within parameters established by various boards
of directors of the Corporation's subsidiaries. The securities portfolio and
trading group includes the overall management of the Corporation's $11.2 billion
securities portfolio as well as the management of Fleet's trading activities.
Fleet is engaged in general commercial banking and trust business
throughout the states of Rhode Island, New York, Connecticut, Massachusetts,
Maine and New Hampshire through its banking subsidiaries: Fleet Bank ("Fleet-New
York"); Fleet National Bank ("Fleet-RI"); Fleet Bank, National Association
("Fleet-CT"); Fleet Bank of Massachusetts, National Association ("Fleet-MA");
Fleet Bank of Maine ("Fleet-Maine") and Fleet Bank-NH ("Fleet-NH"). All of the
subsidiary banks are members of the Federal Reserve System, and the deposits of
each are insured by the Federal Deposit Insurance Corporation ("FDIC") to the
extent provided by law.
The following table shows the total offices, assets, deposits and
equity capital of Fleet's banking subsidiaries at December 31, 1994:
<TABLE>
<CAPTION>
Equity
($ in millions) Offices Assets Deposits Capital
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fleet-New York 347 $12,668 $11,629 $ 892
Fleet-MA 172 9,435 7,857 724
Fleet-RI 50 7,630 6,119 658
Fleet-CT 150 6,251 5,712 512
Fleet-Maine 110 2,963 2,202 182
Fleet-NH 42 1,758 1,287 112
- --------------------------------------------------------------------------
871 $40,705 $34,806 $3,080
==========================================================================
</TABLE>
COMPETITION
The Corporation's subsidiaries are subject to intense 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 designed 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, and Fleet-New York 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 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 banking 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.
4
<PAGE> 5
ITEM 1. BUSINESS - (CONTINUED)
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") subjects banks to significantly increased regulation and
supervision. Among other things, it requires federal bank regulatory
authorities to take "prompt corrective action" in respect of banks that do not
meet minimum capital requirements. FDICIA establishes five tiers of capital
measurement ranging from "well-capitalized" to "critically undercapitalized".
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, 1994, 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.
FDICIA directs that each federal banking agency prescribe 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 ratio 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. Proposed regulations to implement the safety and soundness
standards were issued in November 1993. The ultimate cumulative effect of these
standards cannot currently be forecast.
The 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.
As a result of the enactment of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA"), any or all of Fleet's
subsidiary banks can be held liable for any loss incurred by, or reasonably
expected to be incurred by the FDIC after August 9, 1989, in connection with
(a) the default of any other of Fleet's subsidiary banks or (b) any assistance
provided by the FDIC to any other of Fleet's subsidiary banks in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur without
regulatory assistance.
Under the Federal Reserve Board risk-based capital guidelines, the
minimum ratio of total capital to risk-adjusted assets (including certain
off-balance sheet items, such as standby letters of credit) is 8%. At least
half of the total capital is to be comprised of common equity, retained
earnings, minority interests in the equity accounts of consolidated
subsidiaries and a limited amount of perpetual preferred stock, less goodwill
("Tier 1 capital"). The remainder may consist of perpetual debt, mandatory
convertible debt securities, a limited amount of subordinated debt, other
preferred stock and a limited amount of loan loss reserves ("Tier 2 capital").
Fleet is also subject to a minimum leverage ratio (Tier 1 capital to average
quarterly assets, net of goodwill) requirement of 3% for bank holding companies
that meet certain specified criteria, including that they have the highest
regulatory rating. The rule indicates that the minimum leverage ratio should be
1% to 2% higher for holding companies undertaking major expansion programs or
that do not have the highest regulatory rating. Fleet and its banking
subsidiaries are subject to these minimum capital requirements.
5
<PAGE> 6
ITEM 1. BUSINESS - (CONTINUED)
Under FIRREA and the FDICIA, failure to meet the minimum regulatory
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including the termination
of deposit insurance by the FDIC and seizure of the institution.
Fleet is a legal entity separate and distinct from its subsidiaries.
There are various 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. 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.
On September 29, 1994, President Clinton signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act"). The Interstate Act facilitates the interstate expansion and
consolidation of banking organizations by permitting (i) beginning one year
after enactment of the legislation, bank holding companies that are adequately
capitalized and managed to acquire banks located in states outside their home
states regardless of whether such acquisitions are authorized under the law of
the host state, (ii) the interstate merger of banks after June 1, 1997, subject
to the right of individual states to "opt in" or "opt out" of this authority
prior to such date, (iii) banks to establish new branches on an interstate basis
provided that such action is specifically authorized by the law of the host
state, (iv) foreign banks to establish, with approval of the regulators in the
United States, branches outside their home states to the same extent that
national or state banks located in such state would be authorized to do so and
(v) beginning September 29, 1995, banks to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and other
obligations as agent for any bank or thrift affiliate, whether the affiliate is
located in the same or different state. Fleet does not currently have any plans
to consolidate its banking subsidiaries or to take any other actions as a result
of this new statute. However, Fleet is considering the potential benefits in
cost savings and convenience to its customers that might be achieved through
combinations of two or more of its banking subsidiaries.
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. 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.
See "Note 17. Commitments, Contingencies, and Other Disclosures" (pages
47-48) of the Notes to Consolidated Financial Statements and the "Capital"
(pages 24-25) and "Liquidity" (pages 23-24) sections of Management's Discussion
and Analysis in the 1994 Annual Report to Shareholders (each of which are
incorporated by reference herein) for information concerning restrictions on the
banking subsidiaries' ability to pay dividends and other regulatory matters and
legal proceedings.
6
<PAGE> 7
ITEM 1. BUSINESS - (CONTINUED)
STATISTICAL INFORMATION BY BANK HOLDING COMPANIES
The following information set forth in the 1994 Annual Report to
Shareholders is incorporated by reference herein:
"Rate/Volume Analysis" table (page 51) for changes in the taxable
equivalent interest income and expense for each major category of
interest-earning assets and interest-bearing liabilities.
"Consolidated Average Balances/Interest Earned-Paid/Rates
1990-1994" table (pages 52-53) for average balance sheet amounts,
related taxable equivalent interest earned or paid, and related
average yields and rates paid.
"Note 3. Securities" of the Notes to Consolidated Financial
Statements (pages 35-36) for information regarding book values,
market values, maturities and weighted average yields of
securities (by category).
"Note 4. Loans and Leases" of the Notes to the Consolidated
Financial Statements (pages 36-37) for distribution of loans of
the Registrant.
"Loan and Lease Maturity" table and "Interest Sensitivity of Loans
Over One Year" table (page 51) for maturities and sensitivities of
loans to changes in interest rates.
"Note 6. Nonperforming Assets" (page 37) and "Note 1. Summary of
Significant Accounting Policies - Loans and Leases" (page 32) 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 17-18) for information regarding loan concentrations of the
Registrant.
"Reserve for Credit Losses" section of Management's Discussion and
Analysis (pages 19-20) 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
1990-1994" table (pages 52-53) and the "Funding Sources" section
of Management's Discussion and Analysis (pages 20-21) for deposit
information.
"Selected Financial Highlights" (page 1) for return on assets,
return on equity, dividend payout ratio and equity to asset ratio.
"Note 9. Short-term Borrowings" of the Notes to Consolidated
Financial Statements (page 39) for information on short-term
borrowings of the Registrant.
7
<PAGE> 8
ITEM 2. PROPERTIES
The Registrant maintains its corporate headquarters in Providence,
Rhode Island. A subsidiary of the registrant 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-New York. Portions of the Fleet-RI and Fleet-New
York buildings are leased to nonaffiliates.
As of December 31, 1994, the Registrant's subsidiaries also operated
approximately 1,100 domestic offices, of which approximately 500 are owned and
600 are leased from others. In general, all leases run from one to thirteen
years and most contain options to renew.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Registrant is
incorporated by reference herein from "Note 17. Commitments, Contingencies and
Other Disclosures" (pages 47-48) of the Registrant's 1994 Annual Report to
Shareholders and information set forth in the "Involvement in Certain Legal
Proceedings" of the Corporation's Proxy Statement.
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 of 1994.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
For information regarding the U.S. market, high and low quarterly sales
prices, approximate number of holders, and quarterly dividends declared and
paid, in each case on the Registrant's common stock, see the "Common Stock Price
and Dividend Information" table (page 54) of the Registrant's 1994 Annual Report
to Shareholders, which is incorporated by reference herein.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in "Selected Financial Highlights" (page 1)
of the Registrant's 1994 Annual Report to Shareholders is incorporated by
reference herein.
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 9-25) of the Registrant's 1994 Annual Report to Shareholders is
incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information set forth in the Registrant's 1994 Annual
Report to Shareholders is incorporated by reference herein:
The Consolidated Financial Statements, together with the report thereon
by KPMG Peat Marwick LLP (pages 27-31); the Notes to the Consolidated Financial
Statements (pages 32-50); and the unaudited information presented in the
"Quarterly Summarized Financial Information" table (page 54).
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.
8
<PAGE> 9
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" 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 incorporated by reference
herein.
The names, positions, ages and business experience during the past five
years of the executive officers of the Corporation as of February 28, 1995 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 55
Robert J. Higgins Vice Chairman 49
H. Jay Sarles Vice Chairman 49
Michael R. Zucchini Vice Chairman 48
Eugene M. McQuade Executive Vice President & Chief Financial Officer 46
John B. Robinson, Jr. Executive Vice President 48
Peter C. Fitts Senior Vice President 54
William C. Mutterperl Senior Vice President, Secretary & General Counsel 48
Anne M. Slattery Senior Vice President 47
M. Anne Szostak Senior Vice President 44
Brian T. Moynihan Vice President 35
</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,
Fleet-MA, Fleet-CT and FMG. He became Chairman of the Board of Directors of the
Corporation and Fleet-RI in May 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 Bancorp, Inc. 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.
Robert J. Higgins joined Fleet-RI in 1971 and was elected President in February
1986. In March 1984, he was named a Vice President of the Corporation. 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.
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.
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. Mr.
Zucchini is a Director of FMG and from June 1994 until November 1994, served as
interim Chairman and Chief Executive Officer.
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 its 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. Mr. McQuade
is a Director of FMG.
9
<PAGE> 10
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (CONTINUED)
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. He served in various capacities with Norstar and
in 1987, he became President of Norstar.
Peter C. Fitts joined the Corporation in May 1991 as Senior Vice
President-Credit Administration and is responsible for corporate-wide credit
administration. 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.
M. Anne Szostak joined Fleet-RI in 1973, where she was an executive vice
president from 1985 to 1988. In 1988 she was named Vice President of Human
Resources for the Corporation. In 1991 she was named Chairman, President and
Chief Executive Officer of Fleet-Maine. In May 1994, Ms. Szostak was
named a Senior Vice President, Human Resources and Corporate Communications, of
the Corporation.
Brian T. Moynihan joined the Corporation in 1993 as Deputy General Counsel. In
March 1994, he was named Vice President of Strategic Planning for the
Corporation. From 1991 to 1993, Mr. Moynihan was a partner in the law firm of
Edwards & Angell, where he had been an associate since 1984.
Pursuant to Instructions to Form 10-K and Item 405 of Regulation S-K,
information set forth in the "Section 16 Compliance" of the Corporation's Proxy
Statement is incorporated by reference herein.
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 is incorporated by reference herein: "Committees of the Board of
Directors", "Compensation Committee Interlocks and Insider Participation",
"Directors' Compensation", "Executive Compensation", "Option/SAR Grants in Last
Fiscal Year", "Aggregated Option/SAR Exercises in Last Year and FY-End
Option/SAR Values", "Pension Plans", and "Change in Control Contracts". 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 following sections of the Corporation's Proxy
Statement is incorporated by reference herein: "Principal Stockholders" and
"Securities of the Corporation Owned by Management".
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 of
the Corporation's Proxy Statement is incorporated by reference herein.
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 herein.
(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.
(a)(3). See the exhibits listed below.
(b) Four Current Reports on Form 8-K were filed during the fourth quarter
of 1994: October 9, 1994 (announcing Fleet's third quarter earnings);
October 21, 1994 (reporting the issuance of $200 million of 7.25%
Notes due 1997); November 28, 1994 (announcing the closing of Fleet's
$1.127 billion Senior and Subordinated Medium Term Notes program);
December 28, 1994 (announcing Fleet's merger proposal to acquire all
outstanding shares of Fleet Mortgage Group, Inc. owned by the minority
shareholders).
10
<PAGE> 11
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
(CONTINUED)
(c) Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Page of this Report
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Agreement of Merger dated February 20, 1995 between the Registrant and
Shawmut National Corporation ("Shawmut") (1)
3 Restated Articles of Incorporation and By-Laws (2)
4(a) Rights Agreement dated November 21, 1990 as amended by First Amendment to
Rights Agreement dated March 28, 1991, a Second Amendment to Rights
Agreement dated July 12, 1991, and a Third Amendment to Rights Agreement
dated February 20, 1995 (3)
4(b) Instruments defining the rights of security holders, including indentures (4)
4(c) Form of Rights Certificate for stock purchase rights issued to Whitehall
Associates, L.P., and KKR Partners II, L.P. (5)
10(a)* Form of Change in Control Agreement together with Schedule of Persons who
have entered into such contracts (6)
10(b) Stock Purchase Agreement dated July 12, 1991 between Registrant and
Whitehall Associates, L.P., and KKR Partners II, L.P. (7)
10(c)* Supplemental Compensation Plan for former Norstar directors (8)
10(d)* Fleet Financial Group Directors Retirement Plan (9)
10(e)* Supplemental Executive Retirement Plan (10)
10(f) Stock Option Agreement between Fleet and Shawmut (11)
10(g) Stock Option Agreement between Shawmut and Fleet (12)
10(h)* 1994 Performance-Based Bonus Plan for the Named Executive Officers
10(i)* Amended and Restated 1992 Stock Option and Restricted Stock Plan
11 Statement re: computation of per share earnings
12 Statement re: computation of ratios
13 1994 Annual Report to Shareholders
22 Subsidiaries of the Registrant
23 Accountants' consent
27 Financial Data Schedule
</TABLE>
*Management contract, or compensatory plan or arrangement.
11
<PAGE> 12
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -
(CONTINUED)
(1) Incorporated by reference to Exhibit 2 of Registrant's Form 8-K
Current Report dated February 20, 1995.
(2) Incorporated by reference to Exhibit 1 of Registrant's Form 10-Q
Quarterly Report dated June 30, 1992.
(3) Incorporated by reference to Registrant's Registration Statement
on Form 8-A dated November 29, 1990, as amended by Form 8
Amendment to Application dated September 6, 1991, and as further
amended by a Form 8-A/A dated March 17, 1995.
(4) 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.
(5) Incorporated by reference to Exhibit 4(c) of the Registrant's
Form 8-K Current Report dated July 12, 1991.
(6) Incorporated by reference to Exhibit 10 of Registrant's 1989 Form
10-K filed March 31, 1990. (In 1994, Ms. Slattery, Ms. Szostak
and Mr. Fitts entered into contracts in the same form as set
forth in such Exhibit 10(a).)
(7) Incorporated by reference to Exhibit 4 of Registrant's Form 8-K
Current Report dated July 12, 1991.
(8) Incorporated by reference to Exhibit 10(i) of the Registrant's
1993 Form 10-K Annual Report filed March 30, 1994.
(9) Incorporated by reference to Exhibit 10(j) of the Registrant's
1993 Form 10-K Annual Report filed March 30, 1994.
(10) Incorporated by reference to Exhibit 10(k) of the Registrant's
1993 Form 10-K Annual Report filed March 30, 1994.
(11) Incorporated by reference to Exhibit 10.1 of the Registrant's
Form 8-K Current Report dated February 20, 1995.
(12) Incorporated by reference to Exhibit 10.2 of the Registrant's
Form 8-K Current Report dated February 20, 1995.
(d) Financial Statement Schedules - None.
12
<PAGE> 13
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 17 1995
/s/ Robert C. Lamb, Jr.
-----------------------
Robert C. Lamb, Jr.
Chief Accounting Officer and Controller
Dated March 17 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is been signed below by the following persons on behalf of the registrant in the
capacities indicated.
/s/ Terrence Murray /s/ Ruth R. McMullin
- ------------------------------------------- ----------------------------
Terrence Murray, Chairman, President, Chief Ruth R. McMullin, Director
Executive Officer and Director
/s/ William Barnet /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/ Paul J. Choquette, Jr. /s/ Michael B. Picotte
- ------------------------------------------- ----------------------------
/s/ Paul J. Choquette, Jr., Director Michael B. Picotte, Director
/s/ James F. Hardymon /s/ John A. Reeves
- ------------------------------------------- ----------------------------
James F. Hardymon, Director John A. Reeves, Director
/s/ John R. Riedman
- ------------------------------------------- ----------------------------
Robert M. Kavner, Director John R. Riedman, Director
/s/ Lafayette Keeney /s/ John S. Scott
- ------------------------------------------- ----------------------------
Lafayette Keeney, Director John S. Scott, Director
/s/ Raymond C. Kennedy
----------------------------
Raymond C. Kennedy, Director
13
<PAGE> 1
EXHIBIT 10(h)
FLEET FINANCIAL GROUP, INC.
1994 PERFORMANCE-BASED BONUS PLAN
FOR THE NAMED EXECUTIVE OFFICERS
Overview
The 1994 performance-based bonus plan (the "Bonus Plan") for the Named
Executive Officers of Fleet Financial Group, Inc. (the "Corporation") supports
the Corporation's objective of paying for performance which increases
shareholder value by providing for a maximum bonus award, which award may be
reduced at the discretion of the Compensation Committee of the Board of
Directors of the Corporation, or any successor committee (the "Committee"),
based solely on the Corporation's yearly financial performance as measured by
Return on Equity ("ROE") and Net Income, as adjusted for extraordinary charges
and changes in Generally Accepted Accounting Principles ("GAAP").
Committee
The Committee shall consist of three or more members of the Board of
Directors, each of whom shall be an "outside" director as such term is defined
in Rule 1.162-27 (now in effect or as amended) of the Internal Revenue Code of
1986, as amended. The Committee shall certify to the attainment of the
performance goals set forth herein prior to any payments made pursuant to the
Bonus Plan. The Committee shall have the right, in its sole discretion, to
reduce any bonus awards payable under the Bonus Plan.
Eligibility
The Chief Executive Officer and any other employee of the Corporation who
is named as a Named Executive Officer in the Corporation's most recent proxy
statement ("Other Named Executives") are eligible to participate in the Bonus
Plan.
Formula for Bonus Pool
a. Chief Executive Officer
If the Corporation's ROE in any year equals 15%, then the maximum amount
payable under the Bonus Plan to the Chief Executive Officer shall be .24% of Net
Income. For each .5% increase in ROE over 15%, the percentage of Net Income
payable to the Chief Executive Officer as a bonus shall increase by .005%.
Conversely, for each .5% percentage decrease in ROE from 15%, the percentage of
Net Income payable to the Chief Executive Officer shall decrease by .005%. No
bonus shall be payable under the Bonus Plan to the Chief Executive Officer if
the Corporation's ROE is less than 10%.
b. Other Named Executives
If the Corporation's ROE in any year equals 15%, then the maximum amount
payable under the Bonus Plan to any one of the Other Named Executives shall be
.12% of Net Income. For each .5% increase in ROE over 15%, the percentage of Net
Income payable under the Bonus Plan to any one of the Other Named Executives as
a bonus shall increase by .0025%. Conversely, for each .5% percentage decrease
in ROE from 15%, the percentage of Net Income payable to any one of the Other
Named Executives shall decrease by .0025%. No bonus shall be payable under the
Bonus Plan to any of the Other Named Executives if the Corporation's ROE is less
than 10%.
Effect of Acquisitions/Unusual Earnings Impact
If the Corporation makes a major strategic acquisition during the year
which reduces ROE or Net Income, the calculation of ROE and Net Income for
purposes of calculating the bonus amounts payable under the Bonus Plan shall
exclude the effect of such acquisition. In addition, ROE and Net Income may be
adjusted for extraordinary charges and changes in GAAP.
Miscellaneous
In no event shall the cost of the Bonus Plan exceed more than 10% of the
Corporation's annual average income before taxes for the preceding five years.
<PAGE> 1
EXHIBIT 10(i)
FLEET FINANCIAL GROUP, INC.
AMENDED AND RESTATED 1992 STOCK OPTION AND RESTRICTED STOCK PLAN
1. Purpose:
This Amended and Restated 1992 Stock Option and Restricted Stock Plan (the
"Plan") constitutes an amendment and restatement of the 1992 Stock Option and
Restricted Stock Plan which was adopted by the Board of Directors of Fleet
Financial Group, Inc. (the "Corporation") on January 15, 1992, and by the
stockholders of the Corporation on April 15, 1992. This Plan is intended as an
employment incentive and to encourage stock ownership by certain key officers
and employees of the Corporation and its subsidiaries in order to increase their
proprietary interests in the Corporation's success.
The Plan provides for the grant of options to acquire the Corporation's
common stock and restricted stock awards as provided herein.
2. Administration:
The Plan shall be administered, construed and interpreted by a committee
appointed by the Board of Directors of the Corporation (hereinafter called the
"Committee"). The Committee shall consist of three or more members of the Board
of Directors who are not officers of the Corporation. No member of the Committee
shall be entitled to participate in the Plan. Each member of the Committee shall
be a "disinterested" director as such term is defined in Rule 16b-3 (now in
effect or as amended) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and each member shall be an "outside" director, as such term is
defined in Rule 1.162-27 (now in effect or as amended) of the Internal Revenue
Code of 1986, as amended (the "Code"). Rule 1.162-27 relates to the disallowance
by publicly-held companies of tax deductions for employee remuneration in excess
of $1 million for certain senior officers, and is hereafter referred to as the
"IRS Regulations". Subject to provisions of the Plan, the Committee shall
determine:
a. The employees to whom options or restricted stock awards shall be
granted;
b. The number of shares to be optioned or the number of restricted
stock awards to be granted to each employee;
c. The price to be paid for the shares upon the exercise of an
option; and
d. The terms and conditions of each stock option agreement or
restricted stock agreement between the Corporation and employee to
whom the Committee has granted an option or a restricted stock
award.
No member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith, and the members shall be
entitled to indemnification and reimbursement in the manner provided in the
Corporation's Bylaws.
3. Eligibility:
No person shall be eligible to participate in the Plan, to exercise an
option previously granted to him or to take full possession of restricted stock
previously issued to him who beneficially owns five percent or more of the
outstanding common stock of the Corporation. The individuals who shall be
eligible to receive options or restricted stock awards shall be such salaried
officers and employees of the Corporation and its subsidiaries as the Committee
shall from time to time determine. A "subsidiary" of the Corporation shall mean
a corporation, whether domestic or foreign, in which the Corporation shall own,
directly or indirectly, a majority of the capital shares entitled to vote at the
annual meeting thereof.
4. Stock:
The stock subject to the options or restricted stock awards and other
provisions of the Plan shall be either (a) authorized but unissued shares of the
Corporation's common stock or (b) treasury shares. Subject to adjustment in
accordance with the provisions of Paragraph 5(f) and 8(d) hereof, the total
amount of the common stock of the Corporation as to which options may be granted
or restricted stock awards issued to
<PAGE> 2
persons participating under the Plan shall not exceed in the aggregate
10,500,000 shares. Subject to like adjustment, the total amount of the common
stock of the Corporation as to which options may be granted or restricted stock
awards may be issued to any one person participating under the Plan shall not
exceed in the aggregate that number of shares equal to ten percent of the total
amount of outstanding common stock of the Corporation. The aggregate fair market
value (determined as of the date of grant of the option) of the stock for which
any person participating under the Plan may be granted options under the Plan
(or any other stock option plan of the Corporation) which are designated as
incentive stock options under Section 422 of the Code, shall not exceed the
maximum amount that would be permissible under said Section 422 and the Treasury
Regulations thereunder without disqualifying such option as an incentive stock
option under Section 422.
In the event that any outstanding option or restricted stock award under
the Plan for any reason expires, is forfeited or is terminated prior to the end
of the period during which options may be granted or restricted stock awards may
be issued under the Plan, the shares of common stock allocable to the
unexercised portion of such option or the portion of such restricted stock
awards which have terminated or been forfeited may again be subject to an option
or restricted stock award under the Plan, provided that such action is
consistent with the provisions hereof.
5. Terms and Conditions Applicable to all Stock Options Granted Under the Plan:
Stock options granted pursuant to the Plan shall be evidenced by agreements
in such form as the Committee shall, from time to time, approve, which
agreements shall in substance include and comply with and be subject to the
following terms and conditions:
a. Medium and Time of Payment:
The option price shall be payable either (i) in United States dollars
in cash or by check, bank draft or money order payable to the order of the
Corporation, (ii) through the delivery of shares of common stock of the
Corporation already owned by the optionee with a fair market value equal to
the option price or (iii) by a combination of (i) and (ii). The fair market
value of stock so delivered shall be deemed to be the mean of the high and
low prices of publicly-traded shares of common stock of the Corporation on
the date of exercise or as otherwise may be determined by the Corporation
except as may be otherwise required by the Code. Unless otherwise
determined by the Committee, an optionee may engage in a successive
exchange (or series of exchanges) in which common stock such optionee is
entitled to receive upon the exercise of an option may be simultaneously
utilized as payment for the exercise of an additional option or options.
At the request of an optionee, and to the extent permitted by
applicable law, the Committee may approve arrangements with a brokerage
firm under which such firm, on behalf of the optionee, will pay the option
price to the Corporation and the Corporation will promptly deliver to such
firm the shares exercised, so that the firm may sell such shares, or a
portion thereof, for the account of the optionee.
b. Number of Shares:
The option shall state the total number of shares to which it
pertains. No option may be exercised for less than ten shares unless the
issue of a lesser number is enough to exhaust the option. The total number
of shares issuable pursuant to any combination of options which are
concurrently granted to an employee shall not exceed the total number of
shares issuable pursuant to the exercise of any one such option.
c. Option Price:
The option price shall be not less than the fair market value of the
shares of common stock of the Corporation on the date of grant of the
option. The fair market value on the date of grant of the option shall be
determined by the Committee.
2
<PAGE> 3
d. Expiration of Options:
Each option granted under the Plan shall expire not more than ten
years from the date the option is granted.
e. Date of Exercise:
The Committee may, in its discretion, provide that an option may not
be exercised in whole or in part for any period or periods of time
specified by the Committee. Except as may be so provided, any option may be
exercised in whole at any time, or in part from time to time, during its
term.
f. Adjustments on Changes in Stock:
The aggregate number of shares of common stock as to which options may
be granted to persons participating under the Plan, the aggregate number of
shares of common stock as to which options may be granted to any one such
person, the number of shares thereof covered by each outstanding option,
and the price per share thereof in each such option, shall be
proportionately adjusted by the Committee for any increase or decrease in
the number of issued shares of common stock of the Corporation resulting
from subdivisions or consolidation of shares or other capital adjustment,
the payment of a stock dividend or any other increase or decrease in such
shares, effected without receipt of consideration by the Corporation;
provided, however, that no such adjustment shall be made unless and until
the aggregate effect of all such increases and decreases accruing after the
effective date of the Plan shall have increased or decreased the number of
issued shares of common stock of the Corporation by five percent or more;
and provided further, that any fractional shares resulting from any such
adjustment shall be eliminated. Any such determination by the Committee
shall be conclusive.
g. Assignability:
No option shall be assignable or transferable except by will, by the
laws of descent and distribution or pursuant to a qualified domestic
relations order.
h. Rights as a Stockholder:
An optionee shall have no rights as a stockholder with respect to
shares covered by his option until the date of issuance of the shares to
him and only after such shares are fully paid. No adjustment will be made
for dividends or other rights for which the record date is prior to the
date of such issuance.
i. Other Conditions:
The option agreements authorized under the Plan may contain such other
provisions as the Committee shall deem advisable, including, without
limitation, provision for the withholding of cash and/or shares of the
Corporation's common stock (or the delivery to the Corporation thereof by
an optionee) relating to income taxes arising under the Code (or other tax
laws) upon the exercise of an option, provided that any such provision
shall comply with applicable provisions of Rule 16b-3 (now in effect or as
amended) under the Exchange Act.
j. Change in Control:
Notwithstanding the provisions of any option for common stock which
provides for its exercise in installments, such option shall become
immediately exercisable in the event of a change in control or offer to
effect a change in control. For purposes of this Paragraph 5(j), a "change
in control" shall mean either of the following events: (a) the acquisition
of the beneficial ownership (as that term is defined in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act) of 20 percent or more
of the voting securities of the Corporation by purchase, merger,
consolidation or otherwise by any person or by persons acting as a group
within the meaning of Section 13(d) of the Exchange Act; provided, however,
a change of control shall not be deemed to have occurred if the acquisition
of such securities is by one or more employee benefit plans of the
Corporation or (b) in any two year period, individuals who at the beginning
of such period constitute the Board of Directors of the Corporation cease
for any reason, to constitute at least a majority of the Board of Directors
of the Corporation at, or at any time prior to the conclusion of, such two
year period. The term "person" refers to an individual or a corporation,
3
<PAGE> 4
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision as to whether a change in control
or offer to effect a change in control has occurred shall be made by a
majority of the Continuing Directors (as defined in the Restated Articles
of Incorporation as in effect on January 15, 1992) and shall be conclusive
and binding.
Notwithstanding Paragraph 11 of the Plan, this provision shall not be
amended or revoked in any manner without the affirmative vote of 80% of the
Board of Directors and a majority of the Continuing Directors (as defined
above).
6. Additional Terms and Conditions Applicable to Options Granted Prior to April
20, 1994:
a. Purchase of Options:
At the discretion of the Committee, an employee who has been granted
an option may also be granted the right to require the Corporation to
purchase all or a portion of such option for cancellation (a "stock
appreciation right"). To the extent that he exercises this right, the
Corporation shall pay him in cash and/or common stock the excess of the
fair market value of each share of common stock covered by the option (or a
portion thereof purchased) determined on the date the election is made,
over the option price. The election shall be made by delivering written
notice thereof to the Committee. Shares subject to the option so purchased
shall not again be available for purposes of the Plan.
b. Termination of Employment:
In the event that an optionee's employment by the Corporation or a
subsidiary thereof shall terminate, his option shall terminate immediately,
provided, however, that if any termination of employment is due to
retirement with the consent of the Corporation, the optionee shall have the
right, subject to the provisions of Paragraph 5(d) hereof, to exercise his
option, at any time within the next three months (or up to five years, with
the approval of the Committee, in any individual case) after such
retirement, to the extent that he was entitled to exercise the same
immediately prior to his retirement, and provided further that if the
employee shall die while in the employment of the Corporation or within
three months after retirement with the consent of the Corporation, his
estate, personal representative or beneficiary shall have the right,
subject to the provisions of Paragraph 5(d) hereof, to exercise his option,
at any time within 12 months of the date of death, to the extent that he
was entitled to exercise the same immediately prior to his death. Whether
any termination of employment is considered to be a retirement with the
consent of the Corporation, and whether any authorized leave of absence or
absence on military or governmental service or for other reasons shall
constitute a termination of employment for purposes of the Plan, shall be
determined by the Committee in accordance with applicable law, which
determination shall be final and conclusive.
7. Additional Terms and Conditions Applicable to Options Granted On or After
April 20, 1994:
a. Number of Shares:
In any fiscal year of the Corporation, the aggregate number of shares
of common stock of the Corporation as to which options may be granted to
any one person participating under the Plan shall not exceed five percent
of the additional shares of the Corporation's common stock authorized for
issuance under the Plan at the 1994 Annual Meeting of Stockholders.
b. Purchase of Options:
At the discretion of the Committee, an employee who has been granted
an option may also be granted stock appreciation rights. In any fiscal year
of the Corporation, the aggregate number of shares of common stock as to
which stock appreciation rights may be granted to any one person
participating under the Plan shall not exceed five percent of the
additional shares of the Corporation's common stock authorized for issuance
under the Plan at the 1994 Annual Meeting of Stockholders.
4
<PAGE> 5
To the extent that an optionee exercises this right, the Corporation
shall pay him in cash and/or common stock the excess of the fair market
value of each share of common stock covered by the option (or a portion
thereof purchased) determined on the date the election is made, over the
option price. The election shall be made by delivering written notice
thereof to the Committee. Shares subject to the option so purchased shall
not again be available for purposes of the Plan.
c. Termination of Employment:
In the event that an optionee's employment by the Corporation or a
subsidiary thereof shall terminate, his option shall terminate immediately,
provided, however, that if any termination of employment is due to
retirement with the consent of the Corporation, death or disability (as
determined pursuant to the applicable provisions of the plans of the
Corporation regarding disability), the optionee or his personal
representative shall have the right, subject to the provisions of Paragraph
5(d) hereof, to exercise his option at any time within the twelve
consecutive months immediately following the date of the ceasing of active
employment (or up to five years, with the approval of the Committee, in any
individual case), to the extent that he was entitled to exercise the same
immediately prior to the date such active employment ceased due to
retirement, death or disability. Whether any termination of employment is
considered to be a retirement with the consent of the Corporation, whether
any authorized leave of absence or absence on military or governmental
service or for other reasons shall constitute a termination of employment
for purposes of the Plan, and whether (and as of which date) active
employment has ceased shall be determined by the Committee in accordance
with applicable law, which determination shall be final and conclusive.
8. Terms and Conditions Applicable to all Restricted Stock Awards Granted Under
the Plan:
a. Number of Shares:
The total amount of the common stock of the Corporation as to which
restricted stock awards may be issued to persons participating under the
Plan shall not exceed an amount equal to one percent of the outstanding
common stock of the Corporation.
Each award of restricted stock under the Plan shall be evidenced by a
stock certificate of the Corporation, registered in the name of the
employee, accompanied by an agreement in such form as the Committee shall
prescribe from time to time in accordance with the Plan. The restricted
stock awards shall comply with the following terms and conditions and with
such other terms and conditions not inconsistent with the terms of this
Plan as the Committee, in its discretion, shall establish.
b. Assignability and Restrictions:
Shares of stock issued to an employee in accordance with a restricted
stock award may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, for such period as the Committee shall determine, beginning
on the date on which the award is granted (the "Restricted Period"). The
Committee may also impose such other restrictions and conditions on the
shares or the release of the restrictions thereon as it deems appropriate.
In the case of restricted stock awarded on or after April 20, 1994,
however, the Restricted Period shall lapse only if one or more
preestablished objective performance goals are attained. Certificates for
shares of stock issued pursuant to restricted stock awards shall bear an
appropriate legend referring to such restrictions, and any attempt to
dispose of any such shares of stock in contravention of such restrictions
shall be null and void and without effect. The restricted stock shall be
held by the Corporation until the restrictions are satisfied (if at all, in
the case of awards granted on or after April 20, 1994). In determining the
Restricted Period of an award, the Committee may provide that the foregoing
restrictions shall lapse with respect to specified percentages of the
awarded shares on successive anniversaries of the date of such award,
provided that, in the case of awards granted on or after April 20, 1994,
certain preestablished objective performance goals shall be satisfied prior
to the lapsing of any restrictions.
5
<PAGE> 6
c. Change in Control:
Upon the occurrence of a change in control or an offer to effect a
change in control of the Corporation, as determined in Paragraph 5(j) of
this Plan, all restrictions then outstanding with respect to shares of
restricted stock shall automatically expire and be of no further force and
effect and all shares shall be delivered to the employee.
d. Adjustment for Changes in Stock:
The aggregate number of shares of common stock as to which restricted
stock awards may be granted to persons participating under the Plan, the
aggregate number of shares of common stock as to which restricted stock
awards may be granted to any one such person, and the number of shares
thereof covered by each outstanding restricted stock award shall be
proportionately adjusted by the Committee for any increase or decrease in
the number of issued shares of common stock of the Corporation resulting
from the subdivisions or consolidation of shares or other capital
adjustments, the payment of a stock dividend, or any other increase or
decrease in such shares; provided, however, that no such adjustment shall
be made unless and until the aggregate effect of all such increases and
decreases accruing after the effective date of the Plan shall have
increased or decreased the number of issued shares of common stock of the
Corporation by five percent or more; and provided, further, that any
fractional shares resulting from any such adjustment shall be eliminated.
Any such determination by the Committee shall be conclusive.
e. Effect of Attempted Transfer:
No benefit payable or interest in any restricted stock award shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge and any such attempted action
shall be void and no such interest in any restricted stock award shall be
in any manner liable for or subject to debts, contracts, liabilities,
engagements or torts of any employee or his beneficiary. If any employee or
beneficiary shall become bankrupt or shall attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber or charge any benefit payable
under or interest in any award, then the Committee, in its discretion, may
hold or apply such benefit or interest or any part thereof to or for the
benefit of such employee or his beneficiary, his spouse, children, blood
relatives or other dependents, or any of them, in any such manner and such
proportions as the Committee may consider proper.
f. Employment:
Each person to whom a restricted stock award is granted must agree
that he or she will, at the request of the Corporation, remain in the
continuous employment of the Corporation for a period of not less than one
year following the date of award. No restricted stock award shall be paid
or vest (if at all, in the case of awards granted on or after April 20,
1994) unless the employee has remained in the continuous employment of the
Corporation for at least one year from the date of such award.
g. Legality of Grant:
The granting of a restricted stock award under this Plan and the
issuance or transfer of shares of common stock pursuant hereto are subject
to all applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or government agency (including, without
limitation, no-action positions of the Securities and Exchange Commission)
which may, in the opinion of counsel for the Corporation, be necessary or
advisable in connection therewith. Without limiting the generality of the
foregoing, no awards may be granted under this Plan and no shares shall be
issued by the Corporation, nor cash payments made by the Corporation
pursuant to or in connection with any such award unless and until in any
such case all legal requirements applicable to the issuance or payment
have, in the opinion of counsel for the Corporation, been complied with. In
connection with any stock issuance or transfer, the person acquiring the
shares shall, if requested by the Corporation, give assurance satisfactory
to counsel to the Corporation with respect to such matters as the
Corporation may deem desirable to assure compliance with all applicable
legal requirements.
6
<PAGE> 7
h. Payment of Taxes:
The Corporation will have the right to deduct from any payment
hereunder any amounts that federal, state, local or foreign tax law
requires to be withheld with respect to such payment but, in the
alternative, the employee may prior to the payment of any restricted stock
award, pay such amounts to the Corporation in cash or shares of common
stock (which shall be valued at the fair market value on the date of
payment). There is no obligation under the Plan that any participant be
advised of the existence of the tax or the amount required to be withheld.
Without limiting the generality of the foregoing, in any case where it is
determined that tax is required to be withheld in connection with the
issuance or transfer of shares of common stock under this Plan, the
Corporation may, pursuant to such rules as the Committee may establish,
reduce the number of shares so issued or transferred by such number of
shares as the Corporation may deem appropriate in its sole discretion to
comply with such withholding. Notwithstanding any other provision of this
Plan, the Committee may impose such conditions on the payment of any
withholding obligations as may be required to satisfy applicable regulatory
requirements, including, without limitation, those under the Exchange Act.
i. Rights as a Stockholder:
The employee shall have the right to receive dividends on shares of
common stock subject to the award during the applicable Restricted Period,
to vote common stock subject to the award and to enjoy all other
stockholder rights, except that the employee shall not be entitled to
delivery of the stock certificate until the applicable Restricted Period
shall have lapsed (if at all, in the case of grants of restricted stock
awarded on or after April 20, 1994) .
9. Additional Terms and Conditions Applicable to Restricted Stock Granted Prior
to April 20, 1994:
a. Termination of Employment:
In the event that an employee's employment by the Corporation or any
of its subsidiaries terminates by reason of retirement with the consent of
the Corporation or death, or the employee becomes disabled as determined
pursuant to the applicable provisions of the plans of the Corporation
regarding disability, the Restricted Period shall be deemed to lapse as of
the date of retirement, death or disability on that portion of the
restricted stock award which equals the portion of the Restricted Period
measured in full or partial months completed before the date of retirement,
death or disability. In the event of restrictions lapsing on specified
percentages of the awards over a period of time, that portion of the
restricted stock award which has not had the Restricted Period heretofore
lapse shall be forfeited.
If the employee's continuous employment with the Corporation or any of
its subsidiaries shall terminate for any reason other than retirement,
death or disability prior to the expiration of the Restricted Period of an
award or the lapsing of any other restrictions, any shares remaining
subject to restrictions shall thereupon be forfeited by the employee and
transferred to, and reacquired by, the Corporation at no cost to the
Corporation. In such event, the employee, or in the event of his death, his
personal representative, shall forthwith deliver to the Secretary of the
Corporation such instruments of transfer, if any, as may reasonably be
required by the Secretary of the Corporation. Whether an authorized leave
of absence or absence on military or government service or for other
reasons shall constitute termination of employment for purposes of a
restricted stock award shall be determined by the Committee in accordance
with applicable law, which determination shall be final and conclusive.
b. Termination of Restrictions by Committee:
The Committee shall have the authority (and the instrument evidencing
an award of restricted stock may so provide) to cancel all or any portion
of any outstanding restrictions with respect to any or all of the shares of
restricted stock awarded to an employee hereunder on such terms and
conditions as the Committee may deem appropriate.
7
<PAGE> 8
c. Other Conditions:
The restricted stock agreements authorized under the Plan may contain
other provisions as the Committee shall deem advisable including, without
limitation, a provision for the withholding of taxes by delivery to the
Corporation of common stock owned by the awardee or withholding of shares
subject to an award, provided that any such provision shall comply with any
applicable rules and regulations of the Securities and Exchange Commission.
10. Additional Terms and Conditions Applicable to Restricted Stock Granted On
or After April 20, 1994:
a. Number of Shares:
In any fiscal year of the Corporation, the aggregate number of shares
of common stock of the Corporation as to which restricted stock awards may
be granted to any one person participating under the Plan shall not exceed
100,000.
b. Preestablished Objective Performance Goal(s):
The Restricted Period applicable to restricted stock awarded on or
after April 20, 1994 shall lapse (if at all) only if certain preestablished
objective performance goals are attained. The Committee shall establish one
or more objective performance goals for each award of restricted stock on
the date of grant and the attainment of such goal(s) shall be substantially
uncertain on the date of grant. The Committee shall determine, in its sole
discretion, whether such objective performance goal(s) are attained and
such determination shall be final and conclusive. The objective performance
goal(s) shall be set forth in a written instrument evidencing the award of
restricted stock, in such form as the Committee shall deem advisable. In
the event that the objective performance goal(s) are not met, the
restricted stock shall be forfeited and transferred to, and reacquired by,
the Corporation at no cost to the Corporation. In determining the
Restricted Period of an award, the Committee may provide that specified
percentages of the awarded shares may vest in installments, provided that
the applicable performance goals are satisfied.
c. Termination of Employment:
In the event that an employee's employment by the Corporation or any
of its subsidiaries terminates by reason of death, or the employee becomes
disabled as determined pursuant to the applicable provisions of the plans
of the Corporation regarding disability, the Restricted Period shall be
deemed to lapse as of the date of death or disability on that portion of
the restricted stock award which equals the portion of the Restricted
Period measured in full or partial months completed before the date of
death or disability. In the event of restrictions lapsing on specified
percentages of the awards over a period of time, that portion of the
restricted stock award which has not had the Restricted Period heretofore
lapse shall be forfeited.
If the employee's continuous employment with the Corporation or any of
its subsidiaries shall terminate for any reason other than death or
disability prior to the expiration of the Restricted Period of an award or
the lapsing of any other restrictions, any shares remaining subject to
restrictions shall thereupon be forfeited by the employee and transferred
to, and reacquired by, the Corporation at no cost to the Corporation. In
such event, the employee, or in the event of his death, his personal
representative, shall forthwith deliver to the Secretary of the Corporation
such instruments of transfer, if any, as may reasonably be required by the
Secretary of the Corporation. Whether an authorized leave of absence or
absence on military or government service or for other reasons shall
constitute termination of employment for purposes of a restricted stock
award shall be determined by the Committee in accordance with applicable
law, which determination shall be final and conclusive.
d. Other Conditions:
The restricted stock agreements authorized under the Plan may contain
such other provisions as the Committee shall deem advisable and which are
not inconsistent with the terms of the Plan, provided that
8
<PAGE> 9
any such provision shall comply with any applicable rules and regulations
of the Securities and Exchange Commission.
11. Amendment:
The Committee may alter, amend or suspend the Plan at any time or alter and
amend all agreements granted hereunder, except that without the approval of the
holders of a majority of the outstanding shares of common stock of the
Corporation:
a. The number of shares of common stock which may be reserved for issue
or grant under the Plan may not be increased except as provided
herein;
b. The option price may not be fixed at less than the fair market value
of the common stock of the Corporation on the date the option is
granted, except as provided in Paragraph 5(f) hereof;
c. The period during which options may be exercised or restricted stock
awards may vest may not be extended;
d. The provisions relating to the administration of the Plan by a
Committee consisting of Directors of the Corporation not eligible to
receive options or restricted stock awards may not be changed; and
e. An amendment that is "material" under Rule 16b-3 of the Exchange Act
shall not become effective.
No amendment of the Plan may, without the consent of any employee to whom
an option shall theretofore have been granted or to whom a restricted stock
award shall theretofore have been issued, adversely affect the right of such
employee under such option or award.
12. Termination:
Options and restricted stock awards may be granted pursuant to the Plan
from time to time within a period of ten years from January 15, 1992. The Board
of Directors may terminate the Plan at any time, and no options shall be granted
nor restricted stock awarded thereafter. Such termination shall not affect the
validity of any stock option agreement or restricted stock award agreement then
outstanding.
13. Effective Date:
The Plan shall become effective upon the adoption thereof by the holders of
the majority of the outstanding shares of the Corporation's Common Stock
entitled to vote thereon at the annual meeting when a quorum is present.
9
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
Dollars in thousands, except per share data
For the Twelve Months Ended December 31
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
------------ -------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 139,362,897 139,362,897 134,905,446 134,905,446 122,257,504 122,257,504
Additional shares due to:
Stock options 782,436 782,436 730,776 766,256 673,853 938,613
Warrants 3,303,694 3,303,694 2,996,091 3,062,547 2,504,307 2,996,947
8.5% convertible debt 0 0 0 0 0 373,840
Series I preferred stock 0 0 0 31,977 0 43,878
Series II preferred stock 0 0 0 99,775 0 133,889
Dual convertible preferred stock 16,033,994 16,033,994 16,033,994 16,033,994 16,033,994 16,033,994
------------ -------------- ------------ -------------- ------------ --------------
Total equivalent shares 159,483,021 159,483,021 154,666,307 154,899,995 141,469,658 142,778,665
============ ============== ============ ============== ============ ==============
Earnings per share:
Net income $ 612,931 $ 612,931 $ 488,049 $ 488,049 $ 279,843 $ 279,843
Less: Preferred stock dividends (15,122) (15,122) (22,209) (22,089) (27,736) (27,508)
Plus: Int. on 8.5% conv. debt 0 0 0 0 0 466
------------ -------------- ------------ -------------- ------------ --------------
Adjusted net income $ 597,809 $ 597,809 $ 465,840 $ 465,960 $ 252,107 $ 252,801
============ ============== ============ ============== ============ ==============
Total equivalent shares 159,483,021 159,483,021 154,666,307 154,899,995 141,469,658 142,778,665
============ ============== ============ ============== ============ ==============
Earnings per share on net income $ 3.75 $ 3.75 $ 3.01 $ 3.01 1.78 $ 1.77
============ ============== ============ ============== ============ ==============
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
EXCLUDING INTEREST ON DEPOSITS
(thousands)
Year Ended December 31
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 612,931 $ 488,049 $279,843 $ 97,672 $(73,687)
Adjustments:
(a) Applicable income taxes (benefits) 397,708 327,407 228,526 55,176 (89,636)
(b) Fixed charges:
(1) Interest on borrowed funds 526,397 417,301 386,275 449,544 782,814
(2) 1/3 of rent 33,706 34,217 29,672 23,033 19,121
(c) Preferred dividends 24,742 36,927 49,706 21,958 12,990
---------- ---------- -------- -------- --------
(d) Adjusted earnings $1,595,484 $1,303,901 $974,022 $647,383 $651,602
========== ========== ======== ======== ========
Fixed charges [b(1) + b(2) + c] $ 584,845 $ 488,445 $465,653 $494,535 $814,925
========== ========== ======== ======== ========
Adjusted earnings/fixed charges 2.73 x 2.67 x 2.09 x 1.31 x 0.80 x*
========== ========== ======== ======== ========
<CAPTION>
INCLUDING INTEREST ON DEPOSITS
Year Ended December 31
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 612,931 $ 488,049 $279,843 $ 97,672 $(73,687)
Adjustments:
(a) Applicable income taxes (benefits) 397,708 327,407 228,526 55,176 (89,636)
(b) Fixed charges:
(1) Interest on borrowed funds 526,397 417,301 386,275 449,544 782,814
(2) 1/3 of rent 33,706 34,217 29,672 23,033 19,121
(3) Interest on deposits 764,186 744,080 1,076,368 1,480,395 1,343,417
(c) Preferred dividends 24,742 36,927 49,706 21,958 12,990
---------- ---------- ---------- ---------- ----------
(d) Adjusted earnings $2,359,670 $2,047,981 $2,050,390 $2,127,778 $1,995,019
========== ========== ========== ========== ==========
Fixed charges [b(1) + b(2) + b(3) +c] $1,349,031 $1,232,525 $1,542,021 $1,974,930 $2,158,342
========== ========== ========== ========== ==========
Adjusted earnings/fixed charges 1.75 x 1.66 x 1.33 x 1.08 x 0.92 x*
========== ========== ========== ========== ==========
</TABLE>
* Note that earnings are inadequate to cover fixed charges, the
deficiency being $163,323 for both the ratio excluding and including
interest on deposits
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT 12 - (continued)
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
(thousands)
Year Ended December 31
--------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 612,931 $ 488,049 $279,843 $ 97,672 $(73,687)
Adjustments:
(a) Applicable income taxes (benefits) 397,708 327,407 228,526 55,176 (89,636)
(b) Fixed charges:
(1) Interest on borrowed funds 526,397 417,301 386,275 449,544 782,814
(2) 1/3 of rent 33,706 34,217 29,672 23,033 19,121
---------- ---------- -------- -------- --------
(c) Adjusted earnings $1,570,742 $1,266,974 $924,316 $625,425 $638,612
========== ========== ======== ======== ========
Fixed charges [b(1) + b(2)] $ 560,103 $ 451,518 $415,947 $472,577 $801,935
========== ========== ======== ======== ========
Adjusted earnings/fixed charges 2.80 x 2.81 x 2.22 x 1.32 x 0.80 x*
========== ========== ======== ======== ========
<CAPTION>
INCLUDING INTEREST ON DEPOSITS
Year Ended December 31
--------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 612,931 $ 488,049 $ 279,843 $ 97,672 $ (73,687)
Adjustments:
(a) Applicable income taxes (benefits) 397,708 327,407 228,526 55,176 (89,636)
(b) Fixed charges:
(1) Interest on borrowed funds 526,397 417,301 386,275 449,544 782,814
(2) 1/3 of rent 33,706 34,217 29,672 23,033 19,121
(3) Interest on deposits 764,186 744,080 1,076,368 1,480,395 1,343,417
---------- ---------- ---------- ---------- ----------
(c) Adjusted earnings $2,334,928 $2,011,054 $2,000,684 $2,105,820 $1,982,029
========== ========== ========== ========== ==========
Fixed charges [b(1) + b(2) + b(3)] $1,324,289 $1,195,598 $1,492,315 $1,952,972 $2,145,352
========== ========== ========== ========== ==========
Adjusted earnings/fixed charges 1.76 x 1.68 x 1.34 x 1.08 x 0.92 x*
========== ========== ========== ========== ==========
</TABLE>
* Note that earnings are inadequate to cover fixed charges, the deficiency
being $163,323 for both the ratio excluding and including interest on
deposits
<PAGE> 1
<TABLE>
SELECTED FINANCIAL HIGHLIGHTS(a)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31
Dollars in millions, except per share data 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR
Interest income $ 3,312 $ 3,245 $ 3,446 $ 3,375 $ 3,373 $ 3,158
Interest expense 1,290 1,161 1,463 1,930 2,126 1,816
Net interest income 2,022 2,084 1,983 1,445 1,247 1,342
Provision for credit losses 62 271 486 509 762 160
Securities gains (losses) (1) 282 207 173 (37) 26
Noninterest income 1,173 1,465 1,368 1,082 735 576
Noninterest expense 2,070 2,424 2,318 1,819 1,289 1,128
Net income (loss) 613 488 280 98 (74) 371
PER COMMON SHARE
Earnings (loss) $ 3.75 $ 3.01 $ 1.77 $ 0.67 $ (0.75) $ 3.30
Market value (year-end) 32.38 33.38 32.75 24.88 11.00 26.13
Cash dividends declared 1.40 1.025 0.825 0.80 1.25 1.31
Book value (year-end) 22.23 22.84 19.50 18.15 17.65 19.87
AT YEAR-END
Assets $48,757 $47,923 $46,939 $45,445 $32,507 $33,441
Securities 11,244 14,123 12,660 10,625 5,270 5,524
Loans and leases 27,541 26,310 26,647 26,761 20,465 21,633
Reserve for credit losses 953 1,000 1,029 1,021 700 341
Deposits 34,806 31,085 32,735 35,245 23,191 21,677
Short-term borrowings 5,951 8,107 6,399 3,474 3,600 6,455
Long-term debt 3,457 3,444 3,812 3,004 3,064 2,204
Total stockholders' equity 3,380 3,639 3,010 2,510 2,069 2,289
RATIOS
Return on average common equity 18.77%(b) 16.07% 11.01% 4.02% (3.93)% 17.70%
Return on average assets 1.27 1.06 0.62 0.25 (0.21) 1.25
Common dividend payout ratio 31.34 28.71 36.12 96.66 N/A 38.30
Net interest margin 4.64 5.02 4.80 4.09 3.92 4.96
Efficiency ratio 63.7 66.3 68.1 72.0 65.0 58.8
Common stockholders' equity-to-assets (year-end) 6.16 6.55 5.13 4.82 5.98 6.47
Average total stockholders' equity-to-assets 7.40 7.51 5.78 5.84 6.39 7.32
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) This schedule is prepared on a fully taxable equivalent (FTE) basis.
(b) Includes average unrealized securities losses as a result of the adoption of FASB Statement No. 115 on January 1, 1994.
Excluding average unrealized securities losses, return on average common equity would have been 18.11% for the year ended
December 31, 1994.
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
OVERVIEW
Fleet Financial Group (Fleet or the corporation) reported record net income
for 1994 of $613 million, or $3.75 per share, an increase of $125 million, or
26%.
-Return on assets (ROA) and return on equity (ROE) improved to 1.27% and
18.77% in 1994, from 1.06% and 16.07% in 1993, respectively, reflecting
favorable loan-growth trends, expense reductions resulting from the
corporation's efficiency improvement programs, continued improvement in credit
quality, and continued expansion of its banking and financial services
franchises.
-Net interest income on a fully taxable equivalent (FTE) basis totaled $2.0
billion for 1994, compared to $2.1 billion in 1993. The net interest margin for
1994 was 4.64% compared to 5.02% for 1993. The decrease of 38 basis points was
due principally to the rise in interest rates during 1994 as the increased cost
of funding sources outpaced the increase in yield on earning assets. The impact
of the narrower margin in 1994 was substantially offset by growth in the
corporation's average earning assets from $41.5 billion in 1993 to $43.5 billion
in 1994.
-The provision for credit losses was $62 million in 1994 compared to $271
million in 1993, with the decline due to continued improvements in asset quality
and significant reductions in net charge-offs. Net charge-offs decreased $186
million and nonperforming assets (NPAs) decreased $83 million to $518 million.
-Noninterest income, excluding securities gains (losses), totaled $1.17
billion during 1994 compared to $1.18 billion in 1993. Noninterest income was
adversely affected by a decrease in mortgage banking revenues resulting from the
negative impact of increasing interest rates on mortgage originations.
-Noninterest expense, excluding $44 million of restructuring charges,
totaled $2.0 billion for the year ended December 31, 1994. Excluding the
$125-million restructuring charge and the $90-million charge related to the
accelerated amortization of mortgage servicing assets in 1993, noninterest
expense was reduced by approximately $183 million, or 8%. Significant reductions
were noted in employee compensation and several other expense categories. These
reductions are attributable to the successful implementation of strategies
developed as part of the corporation's efficiency improvement programs.
-Total loans of $27.5 billion at December 31, 1994, represented an increase
of approximately $1.2 billion, or 5%, compared to $26.3 billion at December 31,
1993.
[CHART NO. 1]
The line graph compares return on assets for each of the five years in the
five-year period ended December 31, 1994. Return on assets was 1.27% for
1994; 1.06%, 1993; 0.62%, 1992; 0.25%, 1991; and (0.21%), 1990.
[CHART NO. 2]
The line graph compares return on equity for each of the five years in the
five-year period ended December 31, 1994. Return on equity was 18.77% for 1994;
16.07%, 1993; 11.01%, 1992; 4.02%, 1991; and (3.93%), 1990.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Year ended December 31
Dollars in millions
FTE basis 1994 1993 1992
=================================================================
<S> <C> <C> <C>
Interest income $3,272 $3,212 $3,416
Tax-equivalent adjustment 40 33 30
Interest expense 1,290 1,161 1,463
- -----------------------------------------------------------------
Net interest income $2,022 $2,084 $1,983
=================================================================
</TABLE>
Net interest income on an FTE basis for the year ended December 31, 1994,
decreased $62 million compared to 1993, due primarily to a reduction in net
interest margin. However, the negative impact of the reduction in net interest
margin was substantially offset by growth in the corporation's average earning
assets from $41.5 billion in 1993 to $43.5 billion in 1994.
Net Interest Margin and Interest-Rate Spread
<TABLE>
<CAPTION>
=======================================================================
December 31 1994 1993
- -----------------------------------------------------------------------
Taxable-equivalent rates Average Average
Dollars in millions Balance Rate Balance Rate
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money market instruments $ 137 5.20% $ 184 3.00%
Securities 15,511 5.99 13,017 6.83
Loans and leases 26,637 8.62 26,144 8.46
Mortgages held for resale 1,120 7.14 1,979 7.05
Other 120 - 211 -
- -----------------------------------------------------------------------
Total interest-earning assets 43,525 7.61 41,535 7.81
- -----------------------------------------------------------------------
Deposits 25,645 2.98 25,173 2.96
Short-term borrowings 7,645 3.85 5,971 3.02
Long-term debt 3,392 6.85 3,718 6.37
- -----------------------------------------------------------------------
Interest-bearing liabilities 36,682 3.52 34,862 3.33
- -----------------------------------------------------------------------
Interest-rate spread 4.09 4.48
Interest-free sources of funds 6,843 6,673
- -----------------------------------------------------------------------
Total sources of funds $43,525 2.97% $41,535 2.79%
=======================================================================
Net interest margin 4.64% 5.02%
=======================================================================
</TABLE>
9
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
The net interest margin for 1994 decreased 38 basis points to 4.64%
compared to 5.02% for 1993, primarily due to the the impact of 1994's rising
interest-rate environment on borrowed funds and the repositioning of the
corporation's investment portfolio in anticipation of continued rising rates.
Securities Portfolio
<TABLE>
<CAPTION>
=======================================================================
December 31
Dollars in millions 1994 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Carrying value $11,244 $14,123 $12,660
Average maturity(a) 3.0 years 3.0 years 5.0 years
Yield at year-end(b) 6.29% 6.11% 7.41%
=======================================================================
</TABLE>
(a) Average maturity relates to debt securities only and is calculated using
repricing dates rather than contractual maturities.
(b) Relates to debt securities only.
Average securities increased $2.5 billion in 1994, however on a period-end
basis, total securities decreased almost $3 billion. This decrease, primarily
U.S. Treasury securities, resulted from the corporation's repositioning program
aimed at reducing the corporation's exposure to rising interest rates.
Average loans increased from $26.1 billion at December 31, 1993, to $26.6
billion at December 31, 1994. This $500-million increase reflects growth in
commercial and consumer loan originations, partially offset by the sale of the
corporation's factoring business and the loan discount recorded as part of the
release of the Federal Deposit Insurance Corp. (FDIC) from its federal financial
assistance agreements on certain loans purchased by Fleet.
The average balance of mortgages held for resale decreased approximately
$850 million as a result of a less favorable interest-rate environment and the
resultant negative impact on mortgage loan production.
Average deposits increased to $25.6 billion at December 31, 1994, from
$25.2 billion a year ago due to increased wholesale funding. The net interest
rate paid on average deposits of 2.98% in 1994 remained relatively unchanged
from the 2.96% in 1993. However, deposit costs rose in the latter part of 1994
and that trend is expected to continue in 1995.
Average short-term borrowings increased $1.7 billion from $6.0 billion at
December 31, 1993. This increase corresponds to the increase in average
securities over the same period, partially offset by the decrease in short-term
borrowings at Fleet Mortgage Group (FMG) due to the decrease in mortgages held
for resale. Rising interest rates caused an 83 basis-point increase in the rate
paid on short-term borrowings in 1994.
While average long-term debt decreased slightly over the year, the rate
paid on long-term debt increased as maturing lower-rate long-term debt was
replaced by new issuances of higher-rate debt.
The contribution to the net interest margin from interest-free sources
during 1994 of 55 basis points increased slightly from 54 basis points in 1993.
NONINTEREST INCOME
<TABLE>
<CAPTION>
===================================================================
Year ended December 31
Dollars in millions 1994 1993 1992
- -------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage banking revenue $ 363 $ 414 $ 364
Investment services revenue 175 174 160
Service charges on deposits 169 173 162
Other service charges, fees,
and commissions 87 67 61
Student loan servicing fees 54 51 61
FDIC loan administration fees 52 31 12
Merchant discount fees 34 31 24
Trading income 20 28 21
Brokerage fees and commissions 16 20 18
Insurance 15 19 21
Other noninterest income 189 175 136
- -------------------------------------------------------------------
Total operating noninterest
income 1,174 1,183 1,040
- -------------------------------------------------------------------
Securities available for
sale gains (losses) (1) 282 207
Gain on partial sale of FMG - - 121
- -------------------------------------------------------------------
Total noninterest income $1,173 $1,465 $1,368
===================================================================
</TABLE>
Total operating noninterest income totaled $1,174 million in 1994 compared
to $1,183 million in 1993. This decrease is due primarily to reductions in
mortgage banking revenue offset in part by an increase in fee-based revenues.
Mortgage Banking Revenue
<TABLE>
<CAPTION>
==================================================================
Year ended December 31
Dollars in millions 1994 1993 1992
- ------------------------------------------------------------------
<S> <C> <C> <C>
Net loan servicing revenue $273 $231 $234
Mortgage production revenue 29 158 114
Gains on sales of
mortgage servicing 61 25 16
- ------------------------------------------------------------------
Total mortgage banking revenue $363 $414 $364
==================================================================
</TABLE>
The 12% decline in mortgage banking revenue is largely due to lower
mortgage production revenue, which
10
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
dropped 82% from $158 million in 1993 to $29 million in 1994. Such revenue
includes income derived from the loan origination process and net gains on sales
of mortgage loans, both of which have been adversely affected by a less
favorable interest-rate environment. Offsetting the mortgage production revenue
decline is increased net loan servicing revenue, which has increased 18% from
$231 million in 1993 to $273 million in 1994. This increase is due mainly to
reduced amortization charges on capitalized excess servicing taken during 1993.
The $12.3-billion, or 18%, increase in the corporation's loan servicing
portfolio from $69.9 billion at December 31, 1993, to $82.2 billion at December
31, 1994, also contributed to the increase in net loan servicing revenue.
Investment Services Revenue
<TABLE>
<CAPTION>
======================================================================
Year ended December 31
Dollars in millions 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Personal asset management $114 $117 $113
Institutional assets 61 57 47
- ----------------------------------------------------------------------
Total investment services revenue $175 $174 $160
======================================================================
</TABLE>
Investment services revenue was relatively unchanged from 1993 levels as
the poor overall performance of the stock and bond markets during 1994 made for
a difficult growth environment. Investment services revenue comprises primarily
personal asset management fees, which include services provided to meet the
unique financial needs of affluent individuals with custom portfolio management
and trust services. Personal asset management fees also include mutual funds
revenue, which is derived from managing the $5-billion Galaxy family of no-load
mutual funds consisting of 27 funds created to meet the needs of specific market
segments. Other components of investment services revenue include fees generated
from providing investment management, record keeping, plan administration, and
fiduciary services to employee benefit plans and revenue earned from Fleet's
endowment and foundation management division. The investment services business
had approximately $45 billion in assets under administration and management at
December 31, 1994.
Service charges on deposits, which consist primarily of fees from cash
management services, electronic transfers, and other transaction-related fees,
totaled $169 million in 1994 compared to $173 million in 1993. Other service
charges, fees, and commissions totaled $87 million in 1994, an increase of $20
million over the $67 million recorded in 1993. This increase was primarily
attributable to increases in electronic banking fees.
The $3-million increase in student loan servicing fees from 1993 to 1994 is
attributable to additional accounts added under the federal government's direct
student lending program. FDIC loan administration fees increased $21 million
during 1994. Such administration fees are expected to decline significantly in
1995 as the loans are resolved. Merchant discount fees amounted to $34 million,
a $3-million increase over 1993. The increase is attributable to a higher volume
of transactions being processed.
The corporation recognized $1 million of net losses on sales of securities
in 1994, compared to $282 million of net securities gains in 1993. The $282
million of securities gains recognized in 1993 were the result of the sale of
approximately $6.5 billion of mortgage-backed securities (MBS), fixed-rate U.S.
Treasury notes, and equity securities in 1993. Although the corporation had net
sales of approximately $3 billion in the current year, primarily U.S. Treasury
securities, the interest-rate environment of 1994 did not allow for similar
securities gains.
Trading Income
<TABLE>
<CAPTION>
======================================================================
Year ended December 31
Dollars in millions 1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities $11 $20 $20
Foreign exchange contracts 10 3 2
Interest-rate contracts (1) 5 (1)
- ----------------------------------------------------------------------
Total trading income $20 $28 $21
======================================================================
</TABLE>
The $8-million decrease in total trading income is primarily attributable
to a $9-million decrease in debt securities trading income and a $6-million
decrease in interest-rate contracts offset by a $7-million increase in foreign
exchange gains. The decrease in securities trading gains was due to unfavorable
market conditions in 1994 as increases in interest rates caused a drop in the
bond market. Trading income on interest-rate contracts consists of gains and
losses recorded on interest-rate contracts used in managing prepayment risk for
the mortgage servicing portfolio as well as net gains recorded on
customer-oriented interest-rate contracts. The decrease in trading income on
interest-rate contracts
11
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
is primarily due to $5.7 million of net losses on those contracts used in
managing the prepayment risk for the mortgage servicing portfolio in 1994
compared to $3.3 million of net gains on these contracts in 1993.
Fleet's brokerage fees and commissions decreased $4 million due primarily
to unfavorable market conditions in the stock markets during 1994. Insurance
revenue, which represents commissions on insurance premiums paid by Fleet's
consumer customers, decreased $4 million primarily due to a decline in loan
production at FMG and Fleet Finance.
Other noninterest income increased from $175 million in 1993 to $189
million in 1994. This increase is due primarily to the receipt of $60 million of
interest relating to a tax settlement with the Internal Revenue Service (IRS)
and the gain on the sale of Fleet Factors, the corporation's factoring business,
of $13 million, partially offset by a $23-million reduction in consumer finance
income at Fleet Finance as a result of a reduction in average loans serviced. In
addition, 1993 results included $24 million of gains on equity capital
investments, compared to $7 million in 1994. Prior year's results also included
a $13.8-million gain on the sale of loans compared to $0.4 million in 1994.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
==================================================================
Year ended December 31
Dollars in millions 1994 1993 1992
- -----------------------------------------------------------------
<S> <C> <C> <C>
Employee compensation
and benefits $ 949 $1,018 $ 958
Occupancy 168 174 165
Equipment 133 130 118
Purchased mortgage servicing
rights amortization 85 240 107
Legal and other professional 75 74 74
FDIC assessment 70 76 75
Marketing 65 53 51
Core deposit and goodwill
amortization 57 54 45
Credit card 44 38 22
Printing and mailing 43 42 39
OREO expense 39 57 154
Telephone 37 40 38
Office supplies 29 33 34
Travel and entertainment 27 28 26
Other 205 242 297
- ------------------------------------------------------------------
Total operating
noninterest expense 2,026 2,299 2,203
- ------------------------------------------------------------------
Restructuring charges 44 125 -
Loss on sale of problem assets - - 115
- ------------------------------------------------------------------
Total noninterest expense $2,070 $2,424 $2,318
==================================================================
</TABLE>
Total operating noninterest expense, excluding $44 million of restructuring
charges, totaled $2.0 billion for the year ended December 31, 1994. Excluding
the $125-million restructuring charge and the $90-million charge related to the
accelerated amortization of mortgage servicing assets, both recorded in 1993,
noninterest expense was reduced by approximately $183 million, or 8%.
Significant reductions were noted in employee compensation and several other
noninterest expense categories. These reductions are attributable to the
successful implementation of numerous cost-cutting strategies developed as part
of the corporation's efficiency improvement programs.
The 65% decrease in purchased mortgage servicing rights amortization is due
primarily to the $90-million charge related to mortgage servicing assets
recognized by FMG in 1993, as high prepayment activity combined with projections
of future prepayment activity significantly affected the value of such assets.
The decrease also reflects the decline in mortgage refinancings resulting from
the rising interest-rate environment experienced in 1994.
FDIC assessment fees decreased 8% due to upgrades in the corporation's
banking subsidiaries' regulatory ratings based upon the strength of their
capital positions and other factors. Marketing expense increased 23% from 1993
to 1994 caused by promotions relating to several new business initiatives
undertaken during 1994, including two credit card programs.
Other real estate owned (OREO) expense decreased 32%, reflecting the
continued improvement in credit quality as foreclosed property and repossessed
equipment decreased from $136 million to $76 million.
Charges of $125 million and $25 million in connection with a program to
restructure banking operations were recorded by the corporation during the third
quarter of 1993 and the first quarter of 1994, respectively. The $25-million
charge recorded in 1994 represents additional direct costs expected to be
incurred over and above those initially anticipated. In addition, during 1994,
FMG and Fleet Finance each initiated separate reengineering programs aimed at
reducing costs, streamlining procedures, enhancing fee income, and improving
customer service. In connection with these programs, $7 million and $12 million
of restructuring charges were recorded at FMG and Fleet Finance, respectively.
These programs identified $390 million of
12
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
pretax profit improvement opportunities, a substantial portion of which had been
implemented as of December 31, 1994. Refer to Note 8 of the Notes to
Consolidated Financial Statements on page 38 for further information regarding
the corporation's restructuring accruals.
INCOME TAXES
In 1994, the corporation recognized income tax expense of $398 million, an
effective tax rate of 38.9%. Tax expense for 1993 was $327 million, an effective
tax rate of 39.9%. The effective tax rate decreased during 1994 primarily due to
a reduction in state tax expense as a result of the establishment of securities
holding companies. Deferred tax assets net of the valuation reserves are
expected to be realized through carryback of taxable income in prior years, the
reversal of existing liabilities and from the recognition of future taxable
income.
For further information concerning the corporation's provisions for income
taxes, refer to Note 14 of the Notes to Consolidated Financial Statements on
pages 43-44.
EARNINGS BY SUBSIDIARY
<TABLE>
<CAPTION>
================================================================
Year ended December 31
Dollars in millions 1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Banking Group
New York $187 $150 $ 46
Massachusetts 130 112 76
Rhode Island 124 74 (29)
Connecticut 77 146 78
Maine 33 31 20
New Hampshire 19 22 9
Fleet Investment Group 20 23 23
- ----------------------------------------------------------------
Total Banking Group 590 558 223
- ----------------------------------------------------------------
Financial Services Group
Fleet Mortgage Group(a) 51 25 100
Fleet Credit Corp. 20 11 1
Fleet Finance (39) (29) (8)
Other Financial Services 15 35 19
- ----------------------------------------------------------------
Total Financial Services Group 47 42 112
- ----------------------------------------------------------------
Parent (24) (112) (55)
- ----------------------------------------------------------------
Total $613 $488 $280
================================================================
</TABLE>
(a) Net of minority interest of $12 million, $6 million, and $9 million for the
years ended December 31, 1994, 1993, and 1992, respectively.
The Banking Group earned $590 million in 1994 compared to $558 million in
1993. Excluding securities gains (losses), the Banking Group produced earnings
of $598 million, a 42% increase when compared to $422 million for 1993. These
positive results reflect a substantial decrease in credit costs of $115 million
(after-tax) coupled with significant reductions in noninterest expenses,
specifically, a $59-million (after-tax) decrease in employee compensation and
benefits. The successful implementation of numerous cost-cutting strategies
resulted in significant savings in this group's noninterest expense categories.
Credit costs continued to decline in 1994 resulting from continued improvement
in asset quality as evidenced by the $122-million reduction in charge-offs
during 1994.
The Financial Services Group's earnings increased $5 million in 1994. FMG
contributed income of $51 million in 1994, compared to $25 million in 1993. The
improvement in earnings was primarily due to the 1993 accelerated amortization
charge related to mortgage servicing assets caused by the high level of mortgage
loan prepayments during 1993. Increased loan servicing revenue and increased
gains on sales of mortgage servicing also contributed to the improved earnings.
Refer to the Noninterest Income section for more information on mortgage
banking revenue. Management has taken numerous steps to improve the return on
the mortgage banking business over the next year. These steps include the
completion, late in the summer, of a four-month reengineering program at FMG
that identified $40 million annually (pretax) in sustainable profit
improvements; the purchases of more than $17.7 billion in mortgage servicing
during 1994; and the pending acquisition of Plaza Home Mortgage Corp.
Fleet Finance lost $39 million in 1994 compared to a $29-million loss
recognized in 1993. These losses reflect the decrease in net interest income due
to reduced volume and the increase in the provision for credit losses. During
the fourth quarter of 1994 the corporation took several actions at Fleet Finance
to address asset-quality concerns and to improve efficiency. Those actions
resulted in recording a $15 million strengthening of its reserve for credit
losses, recording $12 million of additional OREO reserves, and completion of an
efficiency improvement study that resulted in a $12-million restructuring
charge.
Fleet Credit Corp. reported net income of $20 million, representing a
$9-million increase compared to 1993. Increased earnings were primarily due to a
9% increase in leases and improved asset-quality costs as NPAs decreased from
$33 million at December 31, 1993, to $10 million at December 31, 1994.
13
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
Earnings at Fleet's other financial services companies, which include the
corporation's equity capital, student loan servicing, brokerage, and government
securities businesses, decreased $20 million from $35 million in 1993 to $15
million in 1994.
Fleet Equity Partners had net income of $3 million for 1994, compared to
$13 million for 1993. Results for 1993 included $24 million of gains on equity
capital investments compared to $7 million in 1994. During 1994, Fleet Equity
Partners added approximately $40 million of new investments resulting in total
investments of $141 million at December 31, 1994.
AFSA Data Corp., the corporation's student loan servicing subsidiary, is
the nation's second largest servicer of student loans servicing 2.5 million
accounts with more than $7 billion in total loans. AFSA's earnings increased to
$5 million for the year ended December 31, 1994. This increase reflects AFSA
being recently named the primary servicer of the federal government's direct
student lending program.
Fleet Brokerage Securities, the corporation's brokerage subsidiary, and
Fleet Securities, the corporation's government securities subsidiary, each
earned $3 million during 1994, compared to $4 million and $6 million,
respectively, in 1993. Both companies were negatively impacted by the poor
overall performance of the stock and bond markets.
The parent company's net loss position improved significantly in 1994
compared to the $112-million loss in 1993, which includes the $125-million
restructuring charge. The $24-million loss recognized in 1994 reflects the
additional aforementioned $25-million restructuring charge recorded in 1994,
offset by $60 million of interest received in a tax settlement with the IRS.
LINES OF BUSINESS
The financial performance of the corporation is monitored by an internal
profitability measurement system, which produces line-of-business results and
key performance measures. The corporation's major business units include
commercial banking, consumer banking, investment services and asset collection,
and financial, which also reflects the principal organizational structure of the
corporation. A comprehensive set of management accounting policies has been
developed and implemented to ensure that reported results reflect the underlying
economics of the businesses, and provide management with consistent reporting
that facilitates evaluating business line performance on a risk-adjusted basis.
Guidelines are in place for assigning expenses that are not directly
incurred by businesses, such as overhead, operations, and technology expense.
Additionally, equity, loan loss provision, and loan loss reserves are assigned
on an economic basis. The corporation has developed a risk-adjusted methodology
that quantifies risk types--credit, operating, market, fiduciary, etc.--within
business units and assigns capital accordingly. Credit risk is quantified using
a risk grading system, which is applied consistently across the company. Within
each unit assets and liabilities are "match funded" utilizing similar maturity,
liquidity, and repricing information. All businesses are evaluated on a fully
taxed basis.
Management reporting concepts are periodically refined and results may be
restated from time to time to reflect methodological enhancements and/or
management organization changes. Although valuable in managing the enterprise,
no authoritative guidance exists for management accounting, therefore, reported
results are not necessarily comparable with other companies' reported results.
<TABLE>
<CAPTION>
Selected Financial Highlights by Line of Business
===============================================================================
Year ended Investment
December 31, 1994 Services
Commercial Consumer and Asset
Banking Banking Collection Financial Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating results:
Dollars in millions
Total revenues(a) $1,229 $1,872 $ 353 $1,031 $4,485
Net income 169 212 76 156 613
ROE 15.30% 15.61% 40.06% 23.93% 18.77%
ROA 1.11 1.33 4.87 1.01 1.27
Average balances:
Dollars in billions
Total assets $ 15.2 $ 16.0 $ 1.6 $ 15.6 $ 48.4
Gross loans
and leases 13.6 11.5 1.2 0.3 26.6
Deposits 5.1 21.2 1.5 4.6 32.4
===============================================================================
</TABLE>
(a) Calculated on an FTE basis.
14
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
Commercial Banking
Commercial banking, which includes a broad range of commercial and
corporate lending as well as government banking, commercial real estate (CRE),
asset-based lending, and leasing, contributed $169 million, or 28%, of
consolidated net income. A full range of deposit, cash management, and
trade-related services are offered to all markets and segments.
For 1994, the commercial banking line of business had ROA of 1.11% and ROE
of 15.30%. Included in this line of business is a segregated pool of troubled
assets that continues to run off. Excluding these assets, the ROE of the
commercial banking line would have been 17.04%.
In addition to the generally improving economic climate in the Northeast
during 1994, the business line benefited from better marketing and management
focus arising from the functional reorganization of the corporation, the
centralization of key support functions, and a lower cost structure. These
factors have positioned this line of business to better meet customer
expectations and to respond more effectively to a market that continues to
evolve.
Consumer Banking
Consumer banking, which includes retail and community banking, consumer
finance, and the corporation's major processing businesses (mortgage banking and
student loan servicing), contributed $212 million, or 35%, of consolidated net
income. This line of business had ROA of 1.33% and ROE of 15.61% for 1994.
Included in this line of business is the loss incurred by Fleet Finance.
Excluding this loss, this line of business would have earned $245 million and
would have had ROA of 1.73% and ROE of 21.79%.
The retail and community banking line of business represents the largest
portion of Fleet's consumer banking business. Retail and community banking
represent the activities of Fleet's retail branch franchise with both
individuals and small businesses. Fleet's consumer banking franchise includes
more than 800 branches across Connecticut, Maine, Massachusetts, New Hampshire,
New York, and Rhode Island. Fleet has begun to utilize information-based
strategies using rigorous customer research to develop new products that meet
identified customer needs and expectations as well as to accurately and
consistently measure its performance. At December 31, 1994, the retail and
community banking line of business had total average assets of $11.2 billion and
total average loans of $9.8 billion.
Investment Services and Asset Collection
This line of business, which includes Fleet's investment management,
private banking, discount brokerage, equity capital, and asset collection
businesses, produced $76 million, or 12%, of consolidated net income, and had
ROA and ROE of 4.87% and 40.06%, respectively, for 1994.
Fleet's investment management business consists of personal asset
management, endowment and custody services, employee benefit management, and
mutual funds. Management has taken steps to grow this line of business. One such
step was the acquisition of the IBM Mutual Funds, which include money market,
indexed equity, and municipal bond funds. These funds added approximately $600
million in aggregate assets. At December 31, 1994, the investment services
business had approximately $45 billion in assets under administration and
management. The investment services and asset collection line of business had
total average assets of $1.6 billion and total loans of $1.2 billion at December
31, 1994, mostly in the private banking line of business.
Fleet's asset collection business was originally started through its
subsidiary, RECOLL Management Corp. RECOLL manages, collects, and liquidates
assets owned by the FDIC. Fleet has started an affiliated business, Fleet
Capital, which specializes in providing asset servicing primarily for commercial
real estate markets and will expand upon the activities of RECOLL by adding such
functions as portfolio valuation and consulting, originations and servicing of
performing commercial mortgages, and structuring and servicing securitizations.
Financial
The financial line of business generated net income of $156 million, or
25%, of consolidated net income. The financial line of business includes the
results of the treasury group and the securities portfolio and trading group.
The treasury group manages the overall funding needs of the corporation and
includes the asset/liability management function, which is the management of
interest-rate risk and liquidity within parameters established by various boards
of directors. The securities
15
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
portfolio and trading group includes the overall management of the corporation's
$11.2-billion securities portfolio as well as the management of Fleet's trading
activities. The financial function also includes differences between legal and
economic allocations of loan losses and equity to the individual lines of
business.
BALANCE SHEET ANALYSIS
SECURITIES
<TABLE>
<CAPTION>
===================================================================================================================================
December 31 1994 1993 1992
Dollars in millions Amortized Cost Market Value Amortized Cost Market Value Amortized Cost Market Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and government agencies $ 2,577 $ 2,444 $ 5,775 $ 5,950 $ 3,884 $ 4,059
Mortgage-backed securities 7,897 7,465 5,739 5,878 5,943 6,132
State and municipal - - 733 747 709 720
Other debt securities 180 179 250 257 181 187
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 10,654 10,088 12,497 12,832 10,717 11,098
Marketable equity securities 187 165 64 83 81 113
Other securities 100 100 16 16 59 59
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $10,941 $10,353 $12,577 $12,931 $10,857 $11,270
===================================================================================================================================
Securities held to maturity:
U.S. Treasury and government agencies $ - $ - $ 74 $ 76 $ 77 $ 76
Mortgage-backed securities - - 1,382 1,414 1,634 1,625
State and municipal 843 842 - - - -
Other debt securities 48 48 13 13 12 12
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 891 890 1,469 1,503 1,723 1,713
Other securities - - 77 77 80 80
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 891 $ 890 $ 1,546 $ 1,580 $ 1,803 $ 1,793
===================================================================================================================================
Total securities $11,832 $11,243 $14,123 $14,511 $12,660 $13,063
===================================================================================================================================
</TABLE>
Effective January 1, 1994, the corporation adopted Financial Accounting
Standards Board (FASB) Statement No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Previously, debt securities were recorded at the
lower of amortized cost or fair value with any net unrealized loss included in
earnings. In connection with the adoption of Statement No. 115, the corporation
transferred securities netting to $767 million from the held to maturity
portfolio to the available for sale portfolio.
The total amortized cost of the securities portfolio decreased $2.3 billion
from $14.1 billion at December 31, 1993, to $11.8 billion at December 31, 1994.
This decrease, primarily U.S. Treasury securities, resulted from the
corporation's repositioning program aimed at reducing the corporation's
interest-rate exposure by generating cash to decrease the level of short-term
borrowings.
At December 31, 1994, the securities available for sale portfolio had net
unrealized losses of $588 million compared to net unrealized gains of $354
million at December 31, 1993. This decrease in market value was principally due
to the rising interest-rate environment as a result of repeated increases in the
short-term federal funds rate by the Federal Reserve Board (the Federal Reserve)
in 1994 totaling 250 basis points.
Fleet's MBS include $3.3 billion of adjustable-rate mortgage (ARM)
securities and $4.6 billion of fixed-rate mortgage (FRM) securities. The ARM
securities are almost entirely Ginnie Mae (GNMA) one-year adjustable-rate
pass-throughs with a 1% annual cap; the FRM securities are mainly Fannie Mae
(FNMA) and Federal Housing Lender Mortgage Corp. (FHLMC) 15-year fixed-rate
pass-throughs. Fleet does not hold collateralized mortgage obligations or
high-risk securities. Fleet's MBS are subject to prepayment and interest-rate
risk. As interest rates rise and prepayments slow, the FRM securities will tend
to extend in duration and decline in market value. Similarly, as interest rates
rise and coupon caps are reached, the ARM securities will tend to extend in
duration and decline in market value.
16
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
LOANS AND LEASES
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 examinations 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 increased $1.2 billion to $27.5 billion at December
31, 1994, from $26.3 billion at December 31, 1993. However, excluding the effect
of the sale of the corporation's factoring business and the loan discount
recorded as part of the release of the FDIC from its federal financial
assistance agreements on certain loans purchased by Fleet as part of the
acquisition of Bank of New England (BNE) in 1991, total loans and leases
increased more than $1.7 billion, or 6%. This growth, principally in commercial
loans and consumer loans, was achieved through new loan originations across all
banking franchises.
Commercial and Industrial
<TABLE>
<CAPTION>
===========================================================
December 31
Dollars in millions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Communications $ 969 $ 825
Real estate/construction/contractors 929 1,076
Precious metals/jewelry 878 916
Business services 826 980
Healthcare 816 827
Food distribution and production 814 779
Transportation 638 520
Bank and insurance 628 529
Private households 597 692
Apparel and textiles 596 656
Energy production and distribution 451 447
Tourism and entertainment 447 429
Forest products 354 433
Other 2,159 1,995
- -----------------------------------------------------------
Total $11,102 $11,104
===========================================================
</TABLE>
[CHART NO. 3]
The pie charts depict the composition of the loan portfolio, broken out
between consumer loans, C&I loans, CRE loans, and lease financing at December
31, 1994 and December 31, 1993. The 1994 loan portfolio consisted of $11.3
billion of C&I loans, $10.8 billion of CRE loans, $4.3 billion of consumer
loans and $1.1 billion of lease financing. The 1993 loan portfolio consisted of
$11.3 billion of C&I loans, $9.6 billion of CRE loans, $4.4 billion of consumer
loans and $1.0 billion of lease financing.
Commercial and industrial (C&I) borrowers consist primarily of
middle-market corporate customers and are well-diversified as to industry and
companies within each industry, thereby mitigating risk. Less than 1% of the
loan portfolio, or $85 million, is subject to federal financial assistance,
compared to 14% in 1993. The decrease was due to the expiration of the federal
financial assistance agreement for certain loans acquired as part of the BNE
acquisition in 1991.
Commercial Real Estate--Product Diversification
<TABLE>
<CAPTION>
===========================================================
December 31
Dollars in millions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Retail $1,027 $ 865
Office 989 1,019
Apartments 885 877
Industrial 328 380
Hotel 249 240
Portfolio finance 106 160
Land 105 169
Residential 46 151
Condominiums 46 70
Other 558 463
- -----------------------------------------------------------
Total $4,339 $4,394
===========================================================
</TABLE>
Fleet's CRE portfolio decreased by $55 million in 1994. The corporation
entered into several new lines of business, including national lending, public
project finance, and real estate investment trusts. Fleet continues to look into
new opportunities to help balance the portfolio and provide growth and diversity
in order to improve the overall credit quality of the CRE portfolio.
17
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
Consumer and Residential Real Estate
<TABLE>
<CAPTION>
===========================================================
December 31
Dollars in millions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Home equity $ 4,381 $4,100
Residential real estate 2,937 2,052
Credit card 1,473 1,060
Student loans 1,089 938
Installment 750 1,310
Other 189 123
- -----------------------------------------------------------
Total $10,819 $9,583
===========================================================
</TABLE>
Approximately 68% 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.
Outstanding residential real estate loans secured by one- to four-family
residences were $2.9 billion at December 31, 1994, compared to $2.1 billion at
December 31, 1993. Except for selected programs, loans obtained through business
acquisitions and loans held for asset/ liability management purposes,
residential mortgage loans in the corporation's banking franchise area are
generally originated by FMG and are sold in the secondary market.
Installment loans decreased 43% from $1.3 billion at December 31, 1993, to
$750 million at December 31, 1994, resulting from the corporation's strategic
decision to exit the indirect installment loan market.
Credit card outstandings increased $413 million to $1.5 billion at December
31, 1994. The increase was due to new originations, special promotions including
a cobranding arrangement with a major retailer, and a change in rate structure
to a rate that floats based on the prime rate.
The corporation manages the risk associated with most types of consumer
loans by utilizing 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
Lease financing totaled $1.1 billion at December 31, 1994, compared to $1.0
billion at December 31, 1993. The 8% increase in lease financing is primarily
attributable to increased volume obtained through geographic expansion and
specialization in targeted industries. The corporation provides lease financing
for mid- to large-sized equipment acquisitions through a nationwide network of
sales offices.
FEDERAL FINANCIAL ASSISTANCE
The federal financial assistance agreement with the FDIC relating to loans
acquired in 1991 as part of the BNE acquisition expired on July 14, 1994.
Earlier in the year, the corporation completed an agreement to release the
FDIC from its federal financial assistance agreement on certain putable loans,
resulting in an increase in NPAs of $28 million. Pursuant to this agreement, the
FDIC paid an amount that approximated the difference between the corporation's
current carrying value and the estimated fair value of such loans.
As part of the acquisition of Maine Savings Bank (MSB) in 1991, specified
MSB loans that became classified prior to February 1, 1993, were put into a
special asset pool (MSB special asset pool). The MSB special asset pool ($161
million at December 31, 1994) 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 ($5.8 million and $8.9 million for the years ended December
31, 1994 and 1993, respectively). Also, an additional $2.1 million and $4.3
million of incentive income was earned on the MSB special asset pool during 1994
and 1993, respectively.
As part of the 1992 acquisitions of two failed financial institutions,
certain loans totaling $393 million at December 31, 1994, comprised principally
of commercial and CRE 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.
18
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
NONPERFORMING ASSETS
Activity in Nonperforming Assets
<TABLE>
<CAPTION>
===========================================================
Year ended December 31
Dollars in millions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 601 $ 990
Additions 465 633
Reductions:
Payments/interest applied (235) (397)
Returned to accrual (35) (140)
Charge-offs/writedowns (152) (312)
Sales/other (126) (173)
- -----------------------------------------------------------
Total reductions (548) (1,022)
- -----------------------------------------------------------
Balance at end of year $ 518 $ 601
- -----------------------------------------------------------
</TABLE>
NPAs decreased $83 million, or 14%, from December 31, 1993, due to
continued improvement in the portfolio. The largest decreases were noted at
Fleet Bank (New York), Fleet Bank-RI, and Fleet Credit Corp. During 1994,
nonperforming asset additions were $465 million, a significant improvement over
1993. 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 Industrial Estate Consumer Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonperforming loans and leases:
Current or less than
90 days past due $ 49 $ 56 $ 9 $114
Noncurrent 82 73 173 328
OREO 3 44 29 76
- --------------------------------------------------------------------------
Total NPAs at
December 31, 1994 $134 $173 $211 $518
==========================================================================
Total NPAs at
December 31, 1993 $231 $159 $211 $601
==========================================================================
</TABLE>
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($96 million and
$77 million at December 31, 1994 and 1993, respectively), or assets subject
to federal financial assistance ($59 million and $118 million at December
31, 1994 and 1993, respectively).
Consumer NPAs remained unchanged at $211 million at December 31, 1994,
compared to December 31, 1993, while commercial and industrial NPAs decreased
$97 million from December 31, 1993, due to reduced inflow, workout measures, and
improving economic conditions. Fleet's nonperforming loans and leases decreased
$23 million and OREO was reduced $60 million from December 31, 1993.
NPAs at December 31, 1994, as a percentage of total loans, leases, and
OREO, and as a percentage of total assets, were 1.88% and 1.06%, respectively,
compared to 2.27% and 1.25%, respectively, at December 31, 1993.
At December 31, 1994 and 1993, loans in the 90 days past due and still
accruing interest category amounted to $96 million and $77 million,
respectively, which included approximately $76 million and $62 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.
[CHART NO. 4]
The bar graph depicts the balance of NPAs at year-end for each of five
years in the five-year period ended December 31, 1994. The balances of NPAs at
year-end 1994, 1993, 1992, 1991, and 1990 were $518 million, $601 million, $990
million, $1,609 million, and $1,386 million, respectively.
RESERVE FOR CREDIT LOSSES
Reserve for Credit Loss Activity
<TABLE>
<CAPTION>
===============================================================================
Year ended December 31
Dollars in millions 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $1,000 $1,029 $1,021 $ 700 $341
Gross charge-offs:
Commercial and industrial 47 148 226 139 131
Consumer 101 103 92 83 75
Commercial real estate 21 103 231 181 208
Residential real estate 8 4 35 11 3
Lease financing 9 21 34 26 31
- ------------------------------------------------------------------------------
Total charge-offs, gross 186 379 618 440 448
- ------------------------------------------------------------------------------
Recoveries:
Commercial and industrial 33 29 27 11 12
Consumer 26 29 22 20 21
Commercial real estate 17 22 19 8 8
Residential real estate 1 - 2 1 -
Lease financing 5 9 3 3 3
- ------------------------------------------------------------------------------
Total recoveries 82 89 73 43 44
- ------------------------------------------------------------------------------
Net charge-offs 104 290 545 397 404
Provision 62 271 486 509 762
Acquired/other (5) (10) 67 209 1
- ------------------------------------------------------------------------------
Balance at end of year $ 953 $1,000 $1,029 $1,021 $700
==============================================================================
Ratio of net charge-offs to
average loans and leases 0.39% 1.11% 2.05% 1.65% 1.92%
- ------------------------------------------------------------------------------
Ratio of reserve for credit losses
to year-end loans and leases 3.46% 3.80% 3.86% 3.81% 3.42%
- ------------------------------------------------------------------------------
Ratio of reserve for credit
losses to year-end NPAs 184% 166% 104% 63% 51%
- ------------------------------------------------------------------------------
Ratio of reserve for credit
losses to year-end nonper-
forming loans and leases 216% 215% 137% 97% 71%
==============================================================================
</TABLE>
19
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
Reserve for Credit Loss Allocation
<TABLE>
<CAPTION>
==================================================================================================
December 31 1994 1993 1992
- --------------------------------------------------------------------------------------------------
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 $293 40.3% $ 299 42.2% $ 387 41.1%
Consumer 211 28.6 180 28.7 199 26.6
Commercial real estate:
Construction 17 1.8 7 1.8 39 3.9
Interim/permanent 114 13.9 135 14.9 209 14.0
Residential real estate 25 10.7 27 7.8 38 8.5
Lease financing 18 4.1 36 3.9 31 4.9
Other - 0.6 - 0.7 - 1.0
Unallocated 275 316 126
- --------------------------------------------------------------------------------------------------
Total $953 100.0% $1,000 100.0% $1,029 100.0%
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================
December 31 1991 1990
- ---------------------------------------------------------------------------
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 $ 321 38.0% $223 38.1%
Consumer 150 25.8 95 26.7
Commercial real estate:
Construction - 4.7 - 8.2
Interim/permanent 256 14.8 168 9.7
Residential real estate 61 8.8 57 7.6
Lease financing 33 6.6 26 9.7
Other - 1.3 - -
Unallocated 200 131
- ---------------------------------------------------------------------------
Total $1,021 100.0% $700 100.0%
===========================================================================
</TABLE>
Fleet's reserve for credit losses decreased $47 million from December 31,
1993, to $953 million at December 31, 1994. The corporation's ratios of reserve
for credit losses to NPAs and reserve for credit losses to nonperforming loans
and leases have steadily improved due to the decline in nonperforming loans and
leases. The decrease in the provision for credit losses from $271 million for
1993 to $62 million for 1994 reflects the continued reduction in charge-offs and
NPAs as well as a general improvement in economic conditions. Net charge-offs
decreased $186 million to $104 million in 1994, compared to $290 million in
1993. The ratio of net charge-offs to average loans and leases decreased to
0.39% at December 31, 1994, from 1.11% at December 31, 1993.
The 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 analyses 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.
FUNDING SOURCES
Components of Funding Sources
<TABLE>
<CAPTION>
===========================================================
December 31
Dollars in millions 1994 1993
- -----------------------------------------------------------
<S> <C> <C>
Deposits:
Demand $ 6,890 $ 6,473
Regular savings, NOW, money market 15,220 16,437
Time:
Domestic 8,279 7,616
Foreign 4,417 559
- -----------------------------------------------------------
Total deposits 34,806 31,085
- -----------------------------------------------------------
Borrowed funds:
Federal funds purchased 1,410 442
Securities sold under agreements
to repurchase 1,436 1,519
Commercial paper 835 1,337
Other 2,270 4,809
- -----------------------------------------------------------
Total borrowed funds 5,951 8,107
- -----------------------------------------------------------
Notes and debentures 3,457 3,444
- -----------------------------------------------------------
Total $44,214 $42,636
===========================================================
</TABLE>
Total deposits increased $3.7 billion to $34.8 billion at December 31,
1994, from $31.1 billion at December 31, 1993, primarily due to the purchase
of 29 banking branches located in New York and formerly owned by Chemical Bank,
coupled with an increase in wholesale funding. In addition, the corporation's
mix of total deposits has shifted slightly as foreign time deposits and domestic
time deposits have increased by $3.9 billion and $663 million, respectively,
while regular savings, NOW, and money market deposits have decreased by $1.2
billion.
Certificates of deposit (CDs) and other time deposits issued by domestic
offices in amounts of $100,000 or more as of December 31, 1994, will mature as
follows.
20
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maturity of Time Deposits
==================================================================
December 31, 1994 Certificates All Other
Remaining maturity of Time
Dollars in millions Deposit Deposits
- ------------------------------------------------------------------
<C> <C> <C>
3 months or less $1,482 $ 44
3 to 6 months 266 54
6 to 12 months 367 54
Over 12 months 778 121
- ------------------------------------------------------------------
Total $2,893 $273
==================================================================
</TABLE>
Total borrowed funds decreased $2.2 billion from December 31, 1993, to
December 31, 1994, as a result of the corporation's repositioning program aimed
at reducing interest-rate exposure through decreasing levels of short-term
borrowings. Other short-term borrowings include: treasury, tax, and loan; bank
notes; and the revolving credit facilities of both FMG and Fleet. The amount
outstanding under the revolving credit facility at FMG decreased $440 million to
$500 million at December 31, 1994. This decrease and the $639-million decrease
in commercial paper resulted from the corresponding $2.1-billion decline in
mortgages held for resale.
The balance of notes and debentures remained relatively stable over the
year as repayments of $700 million were replaced by new issuances totaling $684
million. New issuances included $200 million of 7.25% Notes due 1999, $200
million of 7.25% Notes due 1997, and $250 million of floating-rate bank notes
due 1995. The proceeds from these issuances were primarily used for general
corporate purposes, including the repurchase of Fleet's common stock in
connection with the NBB Bancorp merger and repayments of current maturities of
long-term debt.
ASSET/LIABILITY MANAGEMENT
The asset/liability management process at Fleet ensures that the risk to
earnings fluctuations from changes in interest rates is prudently managed.
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
net interest income under alternative balance sheet and interest-rate scenarios;
and (4) the interest-rate risk reporting schedule, a methodology proposed
jointly by the Federal Reserve, 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 the
gap analysis, the 200 basis-point rate shock, and the regulatory interest-rate
risk calculation, 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.
Interest-Rate Gap Analysis
<TABLE>
<CAPTION>
==================================================================================
Cumulatively Repriced Within
- ----------------------------------------------------------------------------------
December 31, 1994
Dollars in millions 3 Months 4 to 12 1 to 5 After 5
by repricing date or Less Months Years Years Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents $ 3,649 $ - $ - $ 2,208 $ 5,857
Securities 1,363 3,279 4,595 2,099 11,336
Loans and leases 16,663 3,844 4,873 2,161 27,541
Mortgages held for resale 489 - - - 489
Other assets 275 557 558 2,144 3,534
- ----------------------------------------------------------------------------------
Total assets 22,439 7,680 10,026 8,612 48,757
- ----------------------------------------------------------------------------------
Deposits:
Demand 1,109 - 644 5,137 6,890
Savings 10,060 - - 5,160 15,220
Time 7,053 3,155 2,378 110 12,696
- ----------------------------------------------------------------------------------
Total deposits 18,222 3,155 3,022 10,407 34,806
- ----------------------------------------------------------------------------------
Short-term borrowings 5,944 7 - - 5,951
Long-term debt 856 557 1,151 893 3,457
Other liabilities 265 - - 898 1,163
Stockholders' equity - - 96 3,284 3,380
- ----------------------------------------------------------------------------------
Total liabilities and equity 25,287 3,719 4,269 15,482 48,757
- ----------------------------------------------------------------------------------
Net off-balance-sheet (3,188) 177 3,651 (640) -
- ----------------------------------------------------------------------------------
Periodic gap (6,036) 4,138 9,408 (7,510) -
Cumulative gap (6,036) (1,898) 7,510 0 -
Cumulative gap as a
percent of total assets (12.4)% (3.9)% 15.4%
==================================================================================
December 31, 1993
Cumulative gap as a
percent of total assets (12.2)% (4.4)% 25.0%
==================================================================================
</TABLE>
Interest-rate gap analysis 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
floating-rate instruments, the entire balances are placed at the next date on
which their rates could be reset and for fixed-rate instruments the balances are
placed in time bands according to their principal repayment schedules. It is
necessary to apply further assumptions to refine this process. For instance, in
order to recognize the potential
21
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
for mortgage-related instruments 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 approximately 20%
of all balances. This portion is allocated between the 3 months or less
category and the 1 to 5 years category based upon the corporation's assumptions.
The remaining demand deposits are considered noninterest-sensitive, or core, and
are placed in the after 5 years category. Management continues to closely
monitor gap guidelines given the current interest-rate environment and current
experience.
At December 31, 1994, the corporation was 3.9% liability sensitive at the
one-year cumulative gap interval compared to 4.4% liability sensitive at
December 31, 1993. Fleet's one-year cumulative gap guideline is plus or minus
10% of total assets. The off-balance-sheet position is primarily comprised of
$8.2 billion (notional amount) of interest-rate swaps.
<TABLE>
<CAPTION>
Interest-Rate Risk-Management Analysis
===================================================================================================================================
Weighted
Assets/ Average Weighted Average
December 31, 1994 Notional Liabilities Maturity Fair Rate
Dollars in millions Value Hedged (years) Value Receive Pay
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Receive-fixed/pay-variable swaps $1,290 Variable-rate loans
607 Fixed-rate deposits
491 Long-term debt
------
2,388 1.5 $ (35) 7.02% 6.49%
- ----------------------------------------------------------------------------------------------------------------------------------
Basis swaps 35 Deposits
45 Long-term debt
2,920 Securities
------
3,000 3.3 (1) 7.02(a) 7.23(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Index-amortizing swaps
receive-fixed/pay-variable 2,770 Variable-rate loans 1.8(b) (134) 5.29 7.59
- ----------------------------------------------------------------------------------------------------------------------------------
Total $8,158 2.3 $(170) 6.09% 7.08%
==================================================================================================================================
</TABLE>
(a) Basis swaps are interest-rate swaps in which both amounts paid and received
are based on floating rates. At December 31, 1994, $970 million of basis
swaps have an average rate receive of 7.02% and an average rate pay of
7.23%. The remaining $2,030 million of basis swaps have forward starts in
March, June, and September 1995 for $240 million, $585 million, and $1,205
million, respectively.
(b) Average maturity reflects the one-year extension as six-month LIBOR at
December 31, 1994 was above the specified range.
Fleet uses interest-rate swaps to manage interest-rate risk and to
establish the proper interest-rate risk profile within clearly defined and
prudent parameters on the basis of the current interest-rate environment. Also,
because interest-rate swaps are used to hedge specific assets and liabilities,
the interest-rate sensitivity of specific portfolios is analyzed, as well as the
impact of the interest-rate swaps on the entire balance sheet. The resulting
interest-rate sensitivity must be within the clearly defined parameters. As a
result, there are situations where interest-rate swaps will be executed that
increase existing asset or liability sensitivity (as measured by the gap
position), but the resulting risk profile is desired and within Fleet's asset/
liability management guidelines. Fleet considers the duration of the swap hedge
program within its asset/liability management parameters for interest-rate risk
management.
Simple gap analysis measures the corporation's exposure at a particular
point in time. However, the exposure changes continuously as a result of the
corporation's ongoing business and its management initiatives. Moreover, gap
analysis does not adequately reveal timing differences within broad time bands,
delays in the repricing of certain assets and liabilities when market rates
change, or changes in spreads between different market rates. Accordingly,
management supplements its gap analysis with simulations of net interest income
under a variety of alternative market interest-rate scenarios. One type of
simulation is the 200 basis-point immediate rate shock. The most recent earnings
simulation model projects net interest income would
22
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
decrease by an amount equal to approximately 6.8% if rates rose by 200 basis
points immediately. This projection is within the 10% policy limit.
Derivative instruments totaling $8.2 billion (notional amount) are being
used for interest-rate risk-management purposes. These derivative instruments
consist solely of interest-rate swaps.
Index-amortizing swaps are intended to mitigate the repricing sensitivity
of floating-rate assets and consequently are designated as hedges of prime-based
loans. Under the terms of the index-amortizing swaps, Fleet receives a fixed
rate and pays a floating rate based on the six-month London Interbank Offered
Rate (LIBOR). Each index-amortizing swap had an original minimum maturity of two
years, a maximum maturity of three years, and an amortization schedule based on
six-month LIBOR. At the end of the two-year minimum period, and at six-month
intervals through the maximum maturity, six-month LIBOR is reviewed against a
specified range, which for Fleet is 4.45% to 6.45%. If six-month LIBOR is below
this range, each of the swaps would amortize (i.e., the swaps would mature); if
six-month LIBOR is above this range, none of the swaps would amortize; and if
six-month LIBOR is within this range, a portion of the notional amount would
amortize. At December 31, 1994, six-month LIBOR was 7.00%.
In October 1994, Fleet executed a hedging program using basis swaps. A
total of $2,920 million of basis swaps were executed to synthetically alter the
interest-rate characteristics of the GNMA ARMs to more closely match the
interest-rate characteristics of certain liabilities. In these swaps Fleet pays
a floating rate based on the one-year Treasury rate, mirroring coupon payments
received on the GNMA ARMs, and receives a floating rate based on one-year
LIBOR. These swaps were structured as forward starts to match the repricing
characteristics of the GNMA ARMs.
For interest-rate risk-management swaps, net interest income is recognized
as it accrues. In 1994, swaps generated $16 million of net interest income
compared to $91 million in 1993. This decrease is primarily due to the increase
in market interest rates. At year-end, the unrealized loss on these swaps was
$170 million, compared to an unrealized gain of $70 million at December 31,
1993.
The interest-rate risk-management swap activity for the year ended December
31, 1994, is summarized in the following table (all amounts are notional
amounts).
Interest-Rate Risk-Management Swap Activity
<TABLE>
<CAPTION>
==============================================================================
Year ended December 31 Receive- Pay- Index-
Dollars in millions Fixed Fixed Basis Amortizing Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning
of year $ 2,249 $ 985 $ - $2,770 $ 6,004
Additions 1,186 311 3,000 - 4,497
Maturities (1,047) - - - (1,047)
Terminations - (1,296) - - (1,296)
- ------------------------------------------------------------------------------
Balance at end
of year $ 2,388 $ - $3,000 $2,770 $ 8,158
==============================================================================
</TABLE>
During 1994, Fleet added $1.2 billion of receive-fixed swaps to hedge
short-term floating-rate loans and fixed-rate CDs. Fleet also added $3.0 billion
of basis swaps discussed previously. In September 1994, Fleet terminated its
entire portfolio of pay-fixed swaps resulting in a net deferred gain of $61
million, which is being amortized over the remaining contract life of the
interest-rate swaps of approximately four years.
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 and Liability Committee (Senior ALCO) is responsible for
implementing the Board of Directors' policies and guidelines for the maintenance
of prudent levels of liquidity. The Senior ALCO is responsible for monitoring
the performance of each of the banking subsidiaries and the parent company
relative to these policies and guidelines.
The primary sources of liquidity for the parent company are interest and
dividends from subsidiaries and access to the capital and money markets. During
1994, the parent company received $441 million in interest and dividends from
its subsidiaries and paid $356 million in interest and dividends to third
parties. Dividends from banking subsidiaries are limited by various regulatory
requirements related to capital adequacy and earning trends. The dividend
payment capacity of Fleet Bank of Massachusetts and Fleet Bank, N.A. (Conn.) is
subject to agreements with the investment partnerships that provided capital for
the acquisition of BNE. Refer to Note 11 to the Notes to Consolidated Financial
Statements on pages 40-41 for further information.
23
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
The corporation's subsidiaries rely on cash flows from operations, core
deposits, borrowings, short-term high-quality liquid assets, and in the case of
the nonbanking subsidiaries, funds from the parent company for liquidity. FMG
has a separate funding program that includes two revolving-warehouse credit
agreements totaling $2.20 billion at December 31, 1994, an increase from the
$1.75 billion available at December 31, 1993. FMG also has a shelf registration
that provides for the issuance of debt securities. At December 31, 1994, $47
million of debt securities were available for future issuance under this shelf
registration. FMG also sells commercial paper to fund short-term needs. At
December 31, 1994, FMG had commercial paper outstanding of $108 million compared
to $747 million at December 31, 1993.
At December 31, 1994, Fleet, excluding FMG, had commercial paper
outstanding of $727 million, including $472 million placed directly by Fleet in
its local markets, compared to $591 million and $401 million, respectively, at
December 31, 1993. The corporation has backup lines of credit to ensure that
funding is not interrupted if commercial paper is not available. In December
1994, Fleet renegotiated its revolving line of credit agreement increasing the
total amount of funds available to $1.0 billion from $800 million previously. At
December 31, 1994 and 1993, Fleet had no outstanding balances under the line of
credit. The corporation's banking subsidiaries, excluding Fleet Bank-NH,
established a $2-billion bank note program of which $1.3 million is outstanding
at December 31, 1994.
Through the issuance of senior debt, the corporation raised $400 million in
1994, thereby strengthening its liquidity position. During 1994, Fleet also
filed a universal shelf registration with the Securities and Exchange Commission
(SEC), which combined existing debt and preferred stock shelf registrations with
a registration of an additional $500 million of securities. This universal shelf
registration provides for the issuance of common and preferred stock, senior or
subordinated debt securities, and other debt securities. The total amount of
funds available as of December 31, 1994, under this universal shelf registration
was $1.1 billion. In early 1995, the corporation issued $119 million of its
senior medium-term notes (MTNs), all of which are due in 1996.
The corporation's preferred stock, senior and subordinated debt, and
commercial paper regulatory ratings were upgraded by Moody's and Duff & Phelps
rating services during 1994. These upgrades reflect Fleet's strong balance
sheet, positive earnings trend, and continued improvement in asset quality.
As shown in the Consolidated Statement of Cash Flows, cash and cash
equivalents increased by $3.6 billion during 1994. This increase was primarily
due to $2.5 billion of net cash provided by operating activities and $1.1
billion of net cash provided by investing activities. Net cash provided by
operating activities was principally generated by income from operations and
proceeds from the sale of mortgages held for resale, offset in part by
originations and purchases of such mortgages. Net cash provided by investing
activities was generated principally from net sales of securities available for
sale.
CAPITAL
<TABLE>
<CAPTION>
=====================================================================
December 31
Dollars in millions 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C>
Risk-adjusted assets $35,498 $29,713
Tier 1 risk-based capital (4% minimum) 10.08% 11.76%
Total risk-based capital (8% minimum) 14.21 16.62
Leverage ratio 7.77 7.48
Common equity-to-assets 6.16 6.55
Total equity-to-assets 6.93 7.59
Tangible total equity-to-assets 4.65 5.75
Capital in excess of minimum requirements:
Tier 1 risk-based $ 2,160 $ 2,306
Total risk-based 2,203 2,562
Leverage 1,737 1,626
=====================================================================
</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,
24
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
- -------------------------------------------------------------------------------
subordinated debt (weighted relative to years to maturity), and limited-life
preferred stock. Tier 1, total capital, and leverage ratios do not include any
adjustments for unrealized gains and losses relating to securities available for
sale except unrealized gains and losses relating to marketable equity
securities.
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 assets); and (3) risk-based total
capital (total capital/risk-weighted on-and off-balance-sheet assets). 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, 1994, all of the Fleet affiliate banks were categorized as
"well-capitalized," which provides for minimum leverage, Tier 1, and total
capital ratios of 5%, 6%, and 10%, respectively.
In managing capital, the corporation develops a two-year capital plan
annually that is updated and reviewed by the Board of Directors throughout the
year.
The decrease in the corporation's risk-based regulatory ratios during 1994
was primarily due to the expiration of the federal financial assistance
agreement with the FDIC relating to loans acquired as part of the BNE
acquisition in 1991, which resulted in the additional risk weighting of $1.8
billion of putable loans retained by Fleet after expiration of the federal
financial assistance agreement with the FDIC.
During 1994, the corporation called for redemption all of its $1 par and
$20 par adjustable-rate preferred stock. The redemption price was $50 for each
share of $1 par and $20 par adjustable-rate preferred stock plus accrued
dividends.
COMPARISON OF 1993 WITH 1992
Fleet reported net income for 1993 of $488 million, or $3.01 per share, an
increase of 74% over 1992 net income of $280 million, or $1.77 per share. 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 NPAs and a lower level of net credit losses. The
provision decreased by $215 million, and OREO expense declined by $97 million.
Net Interest Margin and Interest-Rate Spread
<TABLE>
<CAPTION>
=======================================================================
December 31 1993 1992
- -----------------------------------------------------------------------
Taxable equivalent rates Average Average
Dollars in millions Balance Rate Balance Rate
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $13,017 6.83% $11,790 7.67%
Loans and leases 26,144 8.46 26,615 8.94
Other 2,374 6.11 2,823 5.79
- -----------------------------------------------------------------------
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>
Net interest income on an FTE basis for the year ended December 31, 1993,
increased 5% to $2,084 million reflecting a higher net interest margin, caused
by the decreased cost of liabilities outpacing the decreased yield on assets
during 1993 while earning asset levels remained relatively stable.
Noninterest income increased 7% to $1,465 million in 1993, due primarily to
increases in mortgage banking revenue and securities available for sale gains.
Noninterest expense totaled $2,424 million in 1993, a 5% increase over
1992, reflecting charges relating to the impairment of the carrying value of
mortgage servicing assets as well as a $125-million restructuring charge in
1993.
RECENT ACCOUNTING DEVELOPMENTS
The FASB has issued Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," which the corporation adopted on January 1, 1995,
requiring, among other things, 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 FASB also issued Statement No. 118, which amended
Statement No. 114, by allowing creditors to use their existing methods of
recognizing interest income. The adoption of these standards does not have a
material impact on the corporation or its results of operations.
25
<PAGE> 19
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 1994, the committee met five times with internal auditors, 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.
In addition, during 1994, the Board of Directors formed a
Risk Management Committee to monitor the corporation's risk management program.
This committee, which met twice during the year, also consists solely of
directors who are not employees of the corporation or its subsidiaries. Loan
review management and the independent auditors meet with the committee and
representatives of senior management to discuss the results of their
examinations and to review their activities to ensure that they are
appropriately discharging their responsibilities. Loan review management and
the independent auditors have direct and unrestricted access to the Risk
Management Committee at all times.
The corporation's consolidated financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. Its
independent auditors' 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 LLP 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 and
Chief Executive Officer Chief Financial Officer
26
<PAGE> 20
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, 1994 and 1993, 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,
1994. 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, 1994 and 1993, and the
results of its operations and cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 3 to the Notes to Consolidated Financial
Statements, the corporation changed its method of accounting for investments to
adopt the provisions of the Financial Accounting Standards Board's Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994.
/s/ KPMG PEAT MARWICK LLP
Providence, Rhode Island
January 18, 1995
27
<PAGE> 21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions, except per share amounts 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans and leases $2,367 $2,339 $2,514
Interest on securities (includes interest from tax-exempt securities of
$33 million, $27 million, and $24 million in 1994, 1993, and 1992, respectively) 905 873 902
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 3,272 3,212 3,416
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 764 744 1,076
Short-term borrowings 294 180 164
Long-term debt 232 237 223
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,290 1,161 1,463
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 1,982 2,051 1,953
- -----------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 62 271 486
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,920 1,780 1,467
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Mortgage banking 363 414 364
Service charges, fees, and commissions 321 310 286
Investment services revenue 175 174 160
Student loan servicing fees 54 51 61
FDIC loan administration fees 52 31 12
Securities available for sale gains (losses) (1) 282 207
Gain on partial sale of FMG - - 121
Other 209 203 157
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,173 1,465 1,368
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 949 1,018 958
Occupancy 168 174 165
Equipment 133 130 118
Purchased mortgage servicing rights amortization 85 240 107
Legal and other professional 75 74 74
FDIC assessment 70 76 75
Marketing 65 53 51
Core deposit and goodwill amortization 57 54 45
OREO expense 39 57 154
Restructuring charges 44 125 -
Loss on sale of problem assets - - 115
Other 385 423 456
- -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,070 2,424 2,318
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,023 821 517
Applicable income taxes 398 327 228
- -----------------------------------------------------------------------------------------------------------------------------------
Net income before minority interest 625 494 289
Minority interest (12) (6) (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 613 $ 488 $ 280
- -----------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 598 $ 466 $ 252
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Primary 159,483,021 154,666,307 141,469,658
Fully diluted 159,483,021 154,899,995 142,778,665
Earnings per share:
Primary $ 3.75 $ 3.01 $ 1.78
Fully diluted 3.75 3.01 1.77
Dividends declared 1.40 1.025 0.825
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE> 22
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------
December 31
Dollars in millions, except per share data 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash, due from banks and interest-bearing deposits $ 5,208 $ 2,213
Federal funds sold and securities purchased under agreements to resell 649 -
Securities available for sale (1994 at market; 1993 at cost, market
value $12,931 at December 31, 1993) 10,353 12,577
Securities held to maturity (market value: $890 and $1,580) 891 1,546
Loans and leases 27,541 26,310
Reserve for credit losses (953) (1,000)
- ------------------------------------------------------------------------------------------------------------------------------
Net loans and leases 26,588 25,310
- ------------------------------------------------------------------------------------------------------------------------------
Mortgages held for resale 489 2,622
Purchased mortgage servicing rights 827 560
Premises and equipment 824 733
Deferred taxes 352 360
Accrued interest receivable 342 347
Excess cost over net assets of subsidiaries acquired 180 187
Other intangibles 159 166
Other assets 1,895 1,302
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $48,757 $47,923
- ------------------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:
Demand $ 6,890 $ 6,473
Regular savings, NOW, money market 15,220 16,437
Time 12,696 8,175
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 34,806 31,085
- ------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 2,846 1,961
Other short-term borrowings 3,105 6,146
Accrued expenses and other liabilities 1,163 1,648
Long-term debt 3,457 3,444
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 45,377 44,284
- ------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Preferred stock 379 501
Common stock (shares issued: 141,574,162 in 1994 and 137,381,588 in 1993;
shares outstanding: 135,024,262 in 1994 and 137,381,588 in 1993) 142 137
Common surplus 1,547 1,492
Retained earnings 1,936 1,509
Net unrealized gain (loss) on securities available for sale (374) -
Treasury stock, at cost, 6,549,900 shares (250) -
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,380 3,639
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $48,757 $47,923
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 23
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Gain (Loss)
Common on Securities
December 31 Preferred Stock Common Retained Available Treasury
Dollars in millions, except per share amounts Stock $1 Par Surplus Earnings For Sale Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $ 321 $121 $1,006 $1,062 $ - $ - $2,510
Net income - - - 280 - -
Cash dividends declared on common
stock ($0.825 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
Net unrealized gain on securities available
for sale at January 1, 1994 - - - - 224 -
Net income - - - 613 - -
Cash dividends declared on common stock
($1.40 per share) - - - (192) - -
Cash dividends declared on preferred stock - - - (15) - -
Redemption of preferred stock (122) - - - - -
Common stock issued in connection with
employee benefit and stock option plans - 1 17 (4) - -
Adjustment to valuation reserve for
securities available for sale - - - - (598) -
Treasury stock purchased - - - - - (250)
Other items, net - 4 38 25 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 379 $142 $1,547 $1,936 $ (374) $(250) $3,380
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Shown separately at December 31, 1991.
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 24
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 613 $ 488 $ 280
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 112 95 76
Amortization of purchased mortgage servicing rights and other intangible assets 142 294 152
Writedown of OREO to fair value 27 47 126
Provision for credit losses 62 271 486
Deferred income tax expense (benefit) 62 (114) 2
Loss on sale of problem assets - - 115
Minority interest 12 6 9
Securities (gains) losses 1 (282) (207)
Gain on partial sale of FMG - - (121)
Other gains on sales of assets (86) (39) (28)
Originations and purchases of mortgages held for resale (10,607) (19,719) (17,408)
Proceeds from sales of mortgages held for resale 12,740 19,184 17,117
(Increase) decrease in accrued receivables, net (41) (176) 663
(Decrease) increase in accrued liabilities, net (408) 288 (148)
Other, net (176) 417 477
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 2,453 760 1,591
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of securities available for sale (20,787) (8,506) (7,080)
Proceeds from maturities and sales of securities available for sale 23,743 7,439 7,215
Purchases of securities held to maturity (865) (60) (1,714)
Proceeds from maturities of securities held to maturity 750 308 12
Net cash and cash equivalents received from banking institutions acquired - - 400
Loans made to customers, nonbanking subsidiaries (1,109) (3,413) (2,796)
Principal collected on loans made to customers, nonbanking subsidiaries 1,097 3,386 3,105
Loans purchased from third parties (including FDIC) (330) (179) (1,892)
Proceeds from sales of loans 73 344 871
Net (increase) decrease in loans and leases, banking subsidiaries (1,099) (571) 405
Putable loans transferred to the FDIC 76 274 632
Proceeds from sales of OREO 89 148 259
Purchases of premises and equipment (210) (205) (124)
Purchases of mortgage servicing rights (374) (255) (148)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flow provided (used) by investing activities 1,054 (1,290) (855)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase (decrease) in deposits 3,097 (1,650) (4,674)
Net (decrease) increase in short-term borrowings (2,391) 1,708 2,925
Proceeds from issuance of long-term debt 684 645 876
Repayments of long-term debt (700) (1,013) (68)
Proceeds from issuance of common stock 14 432 27
Proceeds from issuance of FMG common stock - - 207
Redemption and repurchase of common and preferred stock (372) (269) -
Cash dividends paid (195) (147) (125)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flow provided (used) by financing activities 137 (294) (832)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,644 (824) (96)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 2,213 3,037 3,133
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,857 $ 2,213 $ 3,037
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 defines
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 securities held to maturity,
securities available for sale, or trading account securities. Securities held
to maturity are those that management has the positive intent and ability to
hold to maturity and are carried at amortized cost.
Effective January 1, 1994, the corporation adopted Financial
Accounting Standards Board (FASB) Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The standard requires that
securities available for sale be reported at fair value, with any net after-tax
unrealized gains (losses) reflected as a separate component of stockholders'
equity. Previously, debt securities were recorded at the lower of amortized
cost or fair value with any net unrealized losses included in earnings. In
connection with the adoption of Statement No. 115, the corporation transferred
securities netting to $767 million from the held to maturity portfolio to the
available for sale portfolio.
Securities available for sale, which include 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, prepayment risk, liquidity needs, the desire to increase capital, or
other similar factors.
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.
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 or demonstrate a period of performance under the
contractual terms, and, in management's opinion, are fully collectable.
Foreclosed Property and Repossessed Equipment. Property and
equipment acquired through foreclosure (other real estate owned, or OREO) 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 in view of the historic net charge-off experience of the
portfolio, and evaluations 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.
32
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Purchased Mortgage Servicing Rights (PMSRs). 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 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 over the estimated period of
net servicing revenues. The corporation evaluates PMSRs for impairment by
making its best estimate of the undiscounted anticipated future net cash flows
considering market consensus prepayment predictions, portfolio prepayment
rates, the range of reported prepayment predictions, mortgage interest rates,
mortgage pipeline information, and the economic value of its purchased
servicing portfolio. If recorded balances for any of the disaggregated PMSRs
categories exceed the undiscounted anticipated future net cash flows, a current
impairment adjustment equal to the difference between the carrying value and
the undiscounted anticipated future net cash flows is recorded. The
corporation's method of disaggregation provides for the evaluation of PMSRs
that have similar economic characteristics, such as prepayment risk and credit
factors, and are within a reasonable range of purchase dates. The corporation
periodically reviews its method of disaggregation to ensure that it continues
to provide for the evaluation of PMSRs with similar underlying economic
characteristics. The corporation's methodology is to evaluate individual large
(bulk) servicing acquisitions and to evaluate correspondent acquisitions by
quarter of acquisition. Additionally, the corporation will prospectively
accelerate amortization of PMSRs if a change in expected future net servicing
income is indicated.
Excess Cost over Net Assets of Subsidiaries Acquired. The
excess cost over net assets of subsidiaries acquired (goodwill) is 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 intangibles) based on valuations, and
is 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.
Trading Instruments. Financial instruments (including
derivatives) used for trading purposes are stated at market value. Realized and
unrealized gains and losses are currently recognized in net trading revenue.
Interest revenue arising from trading instruments is included in the income
statement as part of interest income.
Income Taxes. The corporation changed its method of
accounting for income taxes from the deferred method to the liability method,
in accordance with FASB Statement No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This statement requires deferred tax assets and
liabilities to be 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.
33
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest-Rate Risk-Management Activities. The corporation
enters into interest-rate swaps to manage exposure to interest-rate risk. 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 item. In addition, interest-rate swaps
that hedge securities available for sale are reported at fair value with
unrealized gains and losses reported in the same manner as the hedged item.
The corporation applies hedge accounting to an interest-rate
swap if the asset or liability being hedged exposes the corporation to
interest-rate risk, and the swap is designated and effective as a hedge of
specific assets or liabilities or pools of assets or liabilities. To be
effective as a hedge, the interest-rate swaps must contribute to an overall
interest-rate sensitivity that is within the corporation's asset/liability
management guidelines and, for interest-rate swaps hedging a variable-rate
asset, there must be correlation between the interest-rate index on the asset
and the variable rate paid on the swap. Initial and ongoing correlation is
measured by statistical analysis of the relative movements of the interest-rate
indices over time. If correlation were to cease, hedge accounting would be
discontinued and the interest-rate swap would be accounted for as a trading
instrument.
If an interest-rate swap is terminated, the gain or loss is
deferred and amortized over the shorter of the remaining contract life or the
maturity of the hedged item. If a hedged item is sold or settled or the balance
of the hedged item falls below the notional amount of the swap, hedge
accounting is discontinued to the extent that the notional amount exceeds the
balance, and accounting for trading instruments is applied.
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, 1994 and 1993, the corporation owned approximately 81% of FMG's
common stock.
NOTE 2.
ACQUISITIONS
On August 15, 1994, the corporation completed its acquisition
of Sterling Bancshares Corp. for approximately $125 million in stock, or $39.50
for each share of Sterling common stock. The acquisition agreement provided
Sterling stockholders with 1.096 shares of Fleet common stock for each share of
Sterling common stock, or 3,595,398 shares. The acquisition added approximately
$1 billion of assets to Fleet. The transaction was accounted for as a pooling
of interests. Due to the immateriality of this transaction, the corporation has
not restated prior periods, however all 1994 information has been restated to
include the acquisition as if it occurred on January 1, 1994.
On January 27, 1995, the corporation completed its
acquisition of NBB Bancorp. The corporation issued approximately 6.2 million
treasury shares with an aggregate carrying value of approximately $200 million
as well as approximately $230 million in cash. In addition, Fleet issued 2.5
million warrants to purchase Fleet common stock to NBB stockholders with an
exercise price of $43.875 per share and a term of six years. The warrants are
exercisable beginning one year after closing the acquisition. The transaction
was accounted for under the purchase method of accounting. Goodwill and core
deposit premium amounts are being amortized on a straight-line basis over 15
years and 7 years, respectively.
During 1994, Fleet signed a definitive agreement to purchase
Plaza Home Mortgage Corp. for $89 million in cash. This acquisition will add
approximately $9.2 billion in mortgage servicing and will expand Fleet's
mortgage banking franchise by adding 40 new offices. On December 28, 1994,
Fleet announced a merger proposal under which Fleet would acquire, at $20 per
share, all of the shares of FMG currently held by the minority stockholders. On
January 30, 1995, Fleet commenced a tender offer to reacquire such shares. The
aggregate amount of the transaction would be approximately $190 million. The
merger proposal is subject to obtaining certain approvals and other customary
conditions.
34
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3.
SECURITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31 1994 1993
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and government
agencies $ 2,577 $ - $133 $ 2,444 $ 5,775 $180 $ 5 $ 5,950
Mortgage-backed securities 7,897 3 435 7,465 5,739 143 4 5,878
State and municipal - - - - 733 15 1 747
Other debt securities 180 - 1 179 250 7 - 257
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 10,654 3 569 10,088 12,497 345 10 12,832
Marketable equity securities 187 - 22 165 64 19 - 83
Other securities 100 - - 100 16 - - 16
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale $10,941 $ 3 $591 $10,353 $12,577 $364 $10 $12,931
- -----------------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
State and municipal $ 843 $ 5 $ 6 $ 842 $ - $ - $ - $ -
Mortgage-backed securities - - - - 1,382 32 - 1,414
U.S. Treasury and government
agencies - - - - 74 2 - 76
Other debt securities 48 - - 48 13 - - 13
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 891 5 6 890 1,469 34 - 1,503
Other securities - - - - 77 - - 77
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities held to
maturity $ 891 $ 5 $ 6 $ 890 $ 1,546 $ 34 $ - $ 1,580
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective January 1, 1994, the corporation adopted FASB Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities." In
connection with the adoption of Statement No. 115, the corporation transferred
securities netting to $767 million from the held to maturity portfolio to the
available for sale portfolio.
The securities available for sale portfolio had net unrealized losses
of $588 million at December 31, 1994. Accordingly, stockholders' equity has
been reduced by a valuation reserve of $374 million, which represents the
after-tax effect of the unrealized loss.
At December 31, 1994, securities available for sale and securities
held to maturity with carrying values of $1.4 billion and $733 million,
respectively, were pledged to secure public deposits, securities sold under
agreements to repurchase, and for other purposes, compared to $6.6 billion and
$820 million, respectively, at December 31, 1993.
Proceeds from sales of debt securities available for sale during 1994, 1993,
and 1992 were $21.0 billion, $6.8 billion, and $5.2 billion, respectively.
Gross gains of $19 million and gross losses of $34 million were realized on
those sales in 1994, gross gains of $233 million and gross losses of $49,000
were realized on those sales in 1993, and gross gains of $210 million and gross
losses of $6 million were realized on those sales in 1992. Net realized gains
on sales of marketable equity securities were $14 million, $49 million, and $3
million in 1994, 1993, and 1992, respectively. There were no sales of
securities held to maturity in 1994, 1993, or 1992.
Income tax expense (benefit) on securities available for sale gains
(losses) was $(1) million in 1994, $117 million in 1993, and $83 million in
1992.
The amortized cost and estimated market value of debt securities held
to maturity and 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.
35
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Maturities of Securities Held to Maturity
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1994 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:
State and municipal $552 $208 $ 63 $ 20 $843
Other securities 27 15 6 -- 48
- --------------------------------------------------------------------------------
Total debt securities $579 $223 $ 69 $ 20 $891
- --------------------------------------------------------------------------------
Percent of total
debt securities 65.0% 25.0% 7.7% 2.3% 100%
Weighted average yield(a) 5.9 7.9 8.7 9.7 6.7
- --------------------------------------------------------------------------------
Market value $579 $221 $ 70 $ 20 $890
- --------------------------------------------------------------------------------
</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.
<TABLE>
Maturities of Securities Available for Sale
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1994 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 gov-
ernment agencies $ - $2,577 $ - $ - $ 2,577
Mortgage-backed
securities - 3 67 7,827 7,897
Other debt securities - 86 80 14 180
- --------------------------------------------------------------------------------
Total debt securities $ - $2,666 $147 $7,841 $10,654
- --------------------------------------------------------------------------------
Percent of total
debt securities - 25.0% 1.4% 73.6% 100%
Weighted average yield(a) - 5.4 7.0 6.6 6.3
- --------------------------------------------------------------------------------
Market value $ - $2,534 $146 $7,408 $10,088
- --------------------------------------------------------------------------------
</TABLE>
(a) A tax-equivalent adjustment has been included in the calculations of the
yield 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.
NOTE 4.
<TABLE>
LOANS AND LEASES
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31
Dollars in millions 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans:
Commercial and industrial $11,102 $11,104 $11,149 $10,435 $ 8,093
Consumer 7,882 7,531 7,116 6,738 5,442
Commercial real estate:
Construction 509 477 1,062 1,292 1,729
Interim/permanent 3,830 3,917 3,798 4,061 2,070
Residential real estate 2,937 2,052 2,154 2,402 1,448
Other 161 195 276 353 -
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 26,421 25,276 25,555 25,281 18,782
- -----------------------------------------------------------------------------------------------------------------------------
Lease financing:
Lease receivables 1,396 1,161 1,165 1,632 1,903
Estimated residual value 177 161 161 165 161
Unearned income (453) (288) (234) (317) (381)
- -----------------------------------------------------------------------------------------------------------------------------
Lease financing, net of unearned income(a) 1,120 1,034 1,092 1,480 1,683
- -----------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income $27,541 $26,310 $26,647 $26,761 $20,465
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 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
$51 million in 1994 and $13 million in 1993. Future minimum lease payments
to be received are $379 million in 1995; $272 million, 1996; $210 million,
1997; $173 million, 1998; $107 million, 1999; $255 million, 2000 and
thereafter.
Total loans and leases include $554 million, primarily commercial and
commercial real estate (CRE) loans, subject to either repurchase by, or
loss-sharing arrangements with, the Federal Deposit Insurance Corp. (FDIC).
As part of the acquisition of Maine Savings Bank (MSB) in 1991, specified
MSB loans that became classified prior to February 1, 1993, were put to a
special asset pool (MSB special asset pool). The MSB special asset pool
consisting of $161 million of loans at December 31, 1994, will be acquired by
the FDIC on February 1, 1996, for cash. Also, loans aggregating $393 million at
December 31, 1994, 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. The federal financial
assistance agreement with the FDIC relating to loans acquired as part of the
Bank of New England (BNE) acquisition expired on July 14, 1994. On this date,
Fleet retained the majority of the remaining putable loans ($1.8 billion).
Certain directors and executive officers of the corporation and its
subsidiaries, including companies with which they are affiliated, borrowed from
the subsidiaries during 1994. Such loans were made in the ordinary course of
business under the subsidiaries' normal credit terms, including interest rate
and collateral.
36
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans to these individuals and affiliated companies were as follows.
<TABLE>
Related Party Loans
<CAPTION>
- -------------------------------------------------------------------------------
Dollars in millions
Balance Balance
December 31, 1993 Additions Repayments December 31, 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$261 $41 $94 $208
- -------------------------------------------------------------------------------
</TABLE>
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 5.
<TABLE>
RESERVES FOR LOSSES
Reserve for Credit Loss Activity
<CAPTION>
- -------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,000 $1,029 $1,021
Provision charged to income 62 271 486
Loans and leases charged off (186) (379) (618)
Recoveries of loans and
leases charged off 82 89 73
Acquisitions/other (5) (10) 67
- -------------------------------------------------------------------------------
Balance at end of year $ 953 $1,000 $1,029
- -------------------------------------------------------------------------------
</TABLE>
Acquisitions/other includes reserves acquired as a result of acquisitions,
offset in part by reserve transfers to the FDIC.
<TABLE>
Reserve for OREO Activity
<CAPTION>
- -------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 30 $ 12
Provision 27 47
Dispositions, net (20) (29)
- -------------------------------------------------------------------------------
Balance at end of year $ 37 $ 30
- -------------------------------------------------------------------------------
</TABLE>
NOTE 6.
<TABLE>
NONPERFORMING ASSETS
<CAPTION>
- -------------------------------------------------------------------------------
December 31
Dollars in millions 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans
and leases:
Current or less than
90 days past due $ 114 $ 147 $ 359 $ 313 $ 328
Noncurrent 328 318 390 739 659
OREO 76 136 241 557 399
- -------------------------------------------------------------------------------
Total NPAs $518 $ 601 $ 990 $1,609 $1,386
- -------------------------------------------------------------------------------
NPAs as a percent of
outstanding loans,
leases, and OREO 1.88% 2.27% 3.68% 5.89% 6.64%
- -------------------------------------------------------------------------------
Accruing loans and leases
contractually past due
90 days or more $ 96 $ 77 $ 118 $ 163 $ 157
===============================================================================
</TABLE>
The corporation has no material 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 $41 million, $58 million, and $87 million in 1994,
1993, and 1992, respectively. The actual amount of interest income on those
loans included in net income for the period was $15 million, $16 million, and
$30 million in 1994, 1993, and 1992, respectively.
Renegotiated loans that were returned to accrual status totaled $9 million
and $29 million at December 31, 1994 and 1993, respectively. 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 8.3% and 7.4% at December
31, 1994 and 1993, respectively. In addition, approximately $2 million and $21
million of loans renegotiated in 1994 and 1993, respectively, are reflected in
NPAs as a sufficient payment performance history has not yet been established.
37
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7.
PURCHASED MORTGAGE SERVICING RIGHTS
The corporation's PMSRs activity for the years ended December 31, 1994,
1993, and 1992 is as follows.
<TABLE>
Purchased Mortgage Servicing Rights
- -----------------------------------------------------------------------------
<CAPTION>
Year ended December 31
Dollars in millions 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $560 $548 $511
Additions 374 255 148
Servicing sales (22) (3) (4)
Amortization (85) (138) (107)
Impairment charge - (102) -
- -----------------------------------------------------------------------------
Balance at end of year $827 $560 $548
- -----------------------------------------------------------------------------
</TABLE>
NOTE 8.
RESTRUCTURING ACCRUAL
The corporation recorded restructuring charges of $125 million and $44
million in connection with efficiency improvement programs during 1993 and
1994, respectively. These programs, which commenced in the third quarter of
1993 and continued into 1994, were intended to enhance the corporation's
competitive position through a comprehensive review of all its Northeast
banking, mortgage banking, and consumer finance activities and operations. The
charges included only identified direct and incremental costs associated with
these programs. The components of the restructuring charges were as follows.
<TABLE>
Components of Restructuring Charges
- -----------------------------------------------------------------------------
<S> <C>
Dollars in millions
- -----------------------------------------------------------------------------
Severance $ 83
Occupancy 50
Other (including project costs) 36
- -----------------------------------------------------------------------------
Total restructuring charges $169
- -----------------------------------------------------------------------------
</TABLE>
Severance charges include the cost of terminations, other benefits, and
outplacement costs. The occupancy charge consists of the cost of leases
expected to be terminated, space consolidation, and losses anticipated to be
incurred on the sale of certain vacated properties. Project costs represent
expenses incurred during the restructuring program.
All funding for cash expenditures relating to the restructuring plan have
been made from the operating activities of the corporation. The corporation's
liquidity has not been significantly affected by these cash outlays. During
1994, $20 million of incremental costs has been incurred relating to the
restructuring plan and has not been charged against the restructuring accrual.
It is anticipated that approximately $38 million of additional incremental
costs will be incurred in 1995.
The following table presents a summary of activity with respect to the
restructuring charges.
<TABLE>
Restructuring Accrual
- -----------------------------------------------------------------------------
<CAPTION>
Year ended December 31
Dollars in millions 1994 1993
<S> <C> <C>
- -----------------------------------------------------------------------------
Balance at beginning of year $119 $ -
Provision charged against income 44 125
Cash outlays (69) (6)
Noncash writedowns (36) -
- -----------------------------------------------------------------------------
Balance at end of year $ 58 $119
- -----------------------------------------------------------------------------
</TABLE>
The cash outlays made during 1994 relate primarily to severance costs and
project-related costs. Noncash writedowns relate to vacated facilities and
building and leasehold improvement write-offs. The majority of the remaining
cash outlays are expected to be made during 1995 and will consist primarily of
severance-related costs. Additional noncash writedowns are not expected to be
significant.
38
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9.
<TABLE>
SHORT-TERM BORROWINGS
<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>
1994
Balance at December 31 $1,410 $1,436 $ 835 $2,270 $5,951
Highest balance at any month-end 1,993 5,106 1,199 4,456 9,469
Average balance for the year 1,572 2,859 1,005 2,209 7,645
Weighted average interest rate as of December 31 4.76% 5.03% 5.96% 5.71% 5.29%
Weighted average interest rate paid for the year 4.23 3.95 4.36 3.20 3.85
- -----------------------------------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------------------
</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 were $3.2 billion with $500 million
outstanding at December 31, 1994, compared to $2.6 billion with $940 million
outstanding at December 31, 1993. The amounts outstanding under the lines of
credit relate entirely to FMG at both December 31, 1994 and 1993. During 1994,
the corporation and its subsidiaries paid commitment fees ranging from 0.125%
to 0.25% on the lines.
NOTE 10.
LONG-TERM DEBT
During 1994, the corporation filed a universal shelf registration statement
with the Securities and Exchange Commission (SEC), which combined existing debt
and preferred stock shelf registrations with a registration of an additional
$500 million of securities. This universal shelf registration provides for the
issuance of common and preferred stock, senior or subordinated debt securities,
and other debt securities. This universal shelf registration provided for the
issuance of an aggregate $1.1 billion in securities, all of which remain
available for issuance at December 31, 1994.
39
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
The following table presents components of long-term debt for the parent
company and its affiliates.
<CAPTION>
Long-Term Debt
- -----------------------------------------------------------------------------
December 31 Maturity
Dollars in millions Date 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Senior notes and debentures
Parent company:
MTNs 5.17%-10.22% 1994-1997 $ 80 $ 280
9.375%-11.75% notes 1994 - 115
5.625% notes 1995 200 200
7.65% notes 1997 100 100
7.25% notes 1997-1999 400 -
Other 1 1
- -----------------------------------------------------------------------------
Total parent company 781 696
- -----------------------------------------------------------------------------
Affiliates:
MTNs 5.35%-7.48% 1994-2003 285 373
Floating-rate notes 1994 - 250
Floating-rate notes 1995 400 400
9.80% notes 1995 250 250
Floating-rate bank notes 1995 250 -
9.98% notes 1996 70 70
6.125% notes 1997 150 150
6.50% notes 1999 150 150
Other 37 18
Total affiliates 1,592 1,661
Total senior notes
and debentures 2,373 2,357
Subordinated notes and debentures:(a)
Floating-rate subordinated 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 150 150
8.125% subordinated notes 2004 250 250
8.625% subordinated notes 2007 107 107
Other 2 5
Total subordinated notes
and debentures 1,084 1,087
- -----------------------------------------------------------------------------
Total long-term debt $3,457 $3,444
- -----------------------------------------------------------------------------
</TABLE>
(a) At December 31, 1994 and 1993, all subordinated debt was at the parent
company with the exception of $400,000 at an affiliate in 1993, and is
included in total risk-based capital.
The $200 million of 5.625%, $100 million of 7.65%, and $400 million of 7.25%
notes provide for single principal payments and are not redeemable prior to
maturity. The fixed-rate subordinated notes all provide for single principal
payments at maturity.
Long-term senior borrowings of affiliates include $285 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 Financial Corp. The $400 million of floating-rate notes due 1995 were
issued by subsidiary banks. The rate floats with the London Interbank Offered
Rate (LIBOR), and the notes are secured by the banks' qualifying student loan
portfolios or collateralized by mortgage-backed securities (MBS). The $250
million of floating-rate bank notes due 1995 were issued by subsidiary banks.
The rate floats with the federal funds rate.
All the floating-rate subordinated notes due 1998 are redeemable at the
option of the corporation, in whole or in part, at their principal amount plus
accrued interest. These notes pay interest based on the three-month LIBOR,
reset quarterly.
The aggregate payments required to retire long-term debt are: 1995, $1,252
million; 1996, $170 million; 1997, $502 million; 1998, $139 million; 1999, $500
million; 2000 and thereafter, $894 million.
NOTE 11.
PREFERRED STOCK
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
Dollars in millions, except per share data 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C>
10.12% Series III perpetual preferred stock, $1
par, 519,758 shares issued and outstanding
at December 31, 1994 and 1993 $ 50 $ 50
9.375% Series IV perpetual preferred stock, $1
par, 478,838 shares issued and outstanding
at December 31, 1994 and 1993 46 46
Preferred stock with cumulative and
adjustable dividends, $1 par, 1,000,000
shares issued and outstanding at
December 31, 1993 - 49
Preferred stock with cumulative and
adjustable dividends, $20 par, 1,500,000
shares issued and outstanding at
December 31, 1993 - 73
Dual convertible preferred stock $200 stated
value, 1,415,000 shares issued and out-
standing at December 31, 1994 and 1993 283 283
- -----------------------------------------------------------------------------
Total $379 $501
- -----------------------------------------------------------------------------
</TABLE>
During 1994, the corporation called for redemption all of its $1 par and $20
par adjustable-rate preferred stock. The redemption price was $50 for each
share of $1 par and $20 par adjustable-rate preferred stock plus accrued
dividends.
The Series III perpetual preferred stock is redeemable at the option of
Fleet on or 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.
40
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
thereon. The Series IV perpetual preferred stock is redeemable at the option
of Fleet on or after December 1, 1996, at $100 per share ($25 per depositary
share), plus accrued and unpaid dividends thereon. 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 equal to 50% of the common dividends paid (if any, in excess
of $15 million) by Fleet Banking Group, a wholly-owned subsidiary of the
corporation, which owns all of the common stock of Fleet Bank of Massachusetts
and Fleet Bank, N.A. (Conn.). No such dividends have been declared to date nor
are any anticipated to be declared in 1995.
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 their stock into a 50% interest of Fleet
Banking Group. However, Fleet will have the option to redeem DCP stock at a
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 common stock
for this purpose.
In addition, Fleet issued to the holders of the DCP stock nontransferable
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 transferable. Fleet has the option to
pay appreciation on the rights in lieu of delivering the shares upon exercise.
NOTE 12.
COMMON STOCK
At December 31, 1994, Fleet had 300 million shares of $1 par value common
stock authorized and 135 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 45 million.
During 1994, the corporation purchased a total of 6.5 million shares of
Fleet common stock in the public market at a total cost of $250 million, of
which 6.2 million shares were issued to NBB stockholders in January 1995 when
the acquisition was completed. Refer to Note 2 for more information on the NBB
acquisition.
Fleet's Board of Directors declared a dividend of one preferred share
purchase right for each outstanding share of Fleet common stock in 1990. Under
certain conditions, a right may be exercised to purchase 1/100 of the
corporation's cumulative 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 $0.01 per share at any time prior to expiration or the acquisition
of 10% of Fleet common stock.
NOTE 13.
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 five equal installments and expire at the end of
ten years. Option plans resulted in charges to expense of $5 million in 1994,
$2 million in 1993, and $7 million in 1992. At December 31, 1994, 1993, and
1992, exercisable options totaled 2,191,502, 1,832,072, and 1,516,846,
respectively. The following table shows the activity for the plans.
41
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Stock Options
- -----------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 5,378,562 4,249,946 3,358,596
Granted 2,061,796 1,747,200 1,588,550
Exercised 562,078 474,584 637,100
Expired or canceled 287,260 144,000 60,100
- -----------------------------------------------------------------------------
Balance at December 31(a) 6,591,020 5,378,562 4,249,946
- -----------------------------------------------------------------------------
1994 1993 1992
Price range -- high -------- -------- --------
Balance at January 1 $37.31 $30.31 $29.19
Granted 36.94 37.31 30.31
Exercised 32.75 28.44 26.63
Expired or canceled 36.94 32.75 26.63
- -----------------------------------------------------------------------------
Balance at December 31 $37.31 $37.31 $30.31
- -----------------------------------------------------------------------------
1994 1993 1992
Price range -- low -------- -------- --------
Balance at January 1 $11.00 $11.00 $ 5.69
Granted 20.76 29.19 27.56
Exercised 11.13 11.69 5.69
Expired or canceled 11.69 11.69 11.69
- -----------------------------------------------------------------------------
Balance at December 31 $11.00 $11.00 $11.00
- -----------------------------------------------------------------------------
</TABLE>
(a) At December 31, 1994, 1,359,994 options were issued in tandem with SARs that
entitle the holder to tender an option for cancelation and receive the
appreciation in value in cash and common stock of the corporation.
Restricted Stock Plan. The corporation has a restricted stock plan under
which key employees are awarded shares of the corporation's common stock
subject to certain vesting requirements. With respect to stock granted in 1994,
restrictions lapse, in whole or in part, on the third anniversary of the date
of the agreement awarding such restricted stock only if certain preestablished
performance goals related to earnings per share are attained. With respect to
stock granted prior to 1994, 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). In accordance with the terms of the
award, the restrictions lapsed as of January 1, 1995, with respect to 50% of
the 105,000 shares awarded in 1991. As of December 31, 1994 and 1993, 231,250
grants and 140,000 grants were outstanding, respectively, with an average grant
price of $29.17 and $24.11, respectively.
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.
<TABLE>
Funded Status of Plans
- -------------------------------------------------------------------------------
<CAPTION>
Qualified Nonqualified
Plans Plans
December 31
Dollars in millions 1994 1993 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligations:
Vested benefits $109 $ 86 $ 13 $ 11
Nonvested benefits 17 13 1 1
- -------------------------------------------------------------------------------
Accumulated benefit obligations 126 99 14 12
Additional benefits related to
future compensation levels 67 84 11 4
- -------------------------------------------------------------------------------
Projected benefits obligation
rendered to date 193 183 25 16
Plan assets at fair value 171 178 - -
- -------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligations (22) (5) (25) (16)
Unrecognized net transition (asset)
obligation being amortized (6) (6) 2 2
Unrecognized prior service cost
being amortized 19 13 9 1
Unrecognized net loss from past
experience different from that
assumed 18 33 5 6
Additional amounts recognized
due to minimum level funding - - (5) (5)
- -------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 9 $ 35 $(14) $(12)
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
Components of Pension Expense
Year ended December 31
<CAPTION>
Dollars in millions 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the period $ 24 $ 20 $ 17
Interest cost on projected
benefit obligation 17 14 11
Actual return on plan assets 1 (14) (10)
Net amortization and deferral (13) 2 (2)
- -------------------------------------------------------------------------------
Net pension expense $ 29 $ 22 $ 16
- -------------------------------------------------------------------------------
</TABLE>
For December 31, 1994, 1993, and 1992, the assumed discount rates were
8.50%, 7.25%, and 7.85%, respectively, while the rate of increase in
compensation levels used to measure the projected benefit obligation was 5.00%
in 1994, 1993, and 1992. The expected long-term rate-of-return on plan assets
was 8.85% for 1994 and 1993 and 9.00% for 1992. During 1994, the mortality table
was revised to the 1983 Group Annuity Mortality Table. The assumed discount rate
change reflects the substantial increase in the level of
42
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
interest rates during 1994, while the revised mortality table reflects the
improvement in life expectancy.
Postretirement Healthcare Benefits. In addition to providing pension
benefits, the corporation provides healthcare cost assistance and life
insurance benefits for retired employees. The cost of providing these benefits
was $7 million, $10 million, and $8 million in 1994, 1993, and 1992,
respectively.
The following table presents the plan's funded status reconciled with
amounts recognized on the corporation's balance sheet.
<TABLE>
Funded Status of Postretirement Plan
- -------------------------------------------------------------------------------
<CAPTION>
December 31
Dollars in millions 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 53 $ 61
Fully eligible active plan participants 5 11
Other active plan participants 3 3
- -------------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 61 75
Plan assets - -
- -------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation (61) (75)
Unrecognized net gain (11) -
Unrecognized transition obligation 69 72
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (3) $ (3)
- -------------------------------------------------------------------------------
</TABLE>
The components of the net periodic postretirement benefit cost of $7 million
and $10 million for the years ended December 31, 1994 and 1993, respectively,
include interest, amortization of the transition obligation, and amortization
of gains (losses) of $4 million, $4 million, and $(1) million, respectively,
for 1994 compared to $6 million, $4 million, and $0, respectively for 1993. The
transition obligation, which represents the unfunded accumulated benefit
obligation as of January 1, 1993, is being amortized on a straight-line basis
over 20 years. Discount rates of 8.50% and 7.25% were used in determining the
accumulated postretirement benefit obligation for the years ended December 31,
1994 and 1993, respectively. During 1994, the mortality table was revised to
the 1983 Group Annuity Mortality Table. The assumed discount rate change
reflects the substantial increase in the level of interest rates during 1994,
while the revised mortality table reflects the improvement in the life
expectancy. The healthcare cost-trend rate is 10.50% for 1995, decreasing
gradually to 4.50% through the year 2001, and level thereafter. The healthcare
cost-trend rate assumption has a minimal effect on the amounts reported. For
example, increasing the assumed healthcare cost-trend rate by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994, by $1.1 million, and the aggregate of the
service cost and interest cost components of the net periodic postretirement
benefit cost for 1994 by approximately $83,000.
Postemployment benefits. In 1994, the corporation adopted the provisions of
FASB Statement No. 112 "Employers' Accounting for Postemployment Benefits." The
initial impact of adopting this statement was immaterial.
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 $21 million, $15 million, and $14 million for 1994,
1993, and 1992, respectively.
NOTE 14.
INCOME TAXES
The corporation changed its method of accounting for income taxes from the
deferred method to the liability method as required by FASB Statement No. 109,
"Accounting for Income Taxes," effective January 1, 1993. Due to immateriality,
the effect of this accounting change was not separately disclosed in the prior
year's financial statements.
The effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1994
and 1993, are as follows.
<TABLE>
Net Deferred Tax Assets
- --------------------------------------------------------------------------------
<CAPTION>
December 31
Dollars in millions 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserve for credit losses $358 $341
Reserve for unrealized gains (losses) on
securities available for sale 214 -
Core deposit intangibles 66 69
Expenses not currently deductible 50 93
Mortgage banking - 92
Other 163 118
- --------------------------------------------------------------------------------
Total gross deferred tax assets 851 713
Less: valuation reserve 6 5
- --------------------------------------------------------------------------------
Deferred tax assets 845 708
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing 154 138
Mortgage banking 84 -
Purchase accounting adjustments, net 66 78
Subsidiary stock transaction 49 50
Depreciation 29 29
Other 111 53
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities 493 348
- --------------------------------------------------------------------------------
Net deferred tax assets $352 $360
- --------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets, net of the valuation reserve, are expected to be
realized through carryback of taxable income in prior years, the reversal of
existing deferred tax liabilities and from the recognition of future taxable
income. The valuation reserve of $6 million and $5 million at December 31, 1994
and 1993, respectively, 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 accounts have been adjusted for differences in
prior year tax return filings and the IRS settlements.
The deferred tax expense (benefit) of $62 million and $(114) million in 1994
and 1993, respectively, includes an expense (benefit) of $1 million and $(3)
million, respectively, due to a change from the beginning of the year in the
deferred tax asset valuation reserve.
<TABLE>
Income Tax Expense (Benefit)
- -----------------------------------------------------------------------------
<CAPTION>
December 31
Dollars in millions 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current income taxes:
Federal $267 $ 336 $165
State and local 69 105 61
- -----------------------------------------------------------------------------
336 441 226
Deferred income tax expense (benefit):
Federal 49 (85) (1)
State and local 13 (29) 3
- -----------------------------------------------------------------------------
62 (114) 2
Total:
Federal 316 251 164
State and local 82 76 64
- -----------------------------------------------------------------------------
$398 $ 327 $228
- -----------------------------------------------------------------------------
</TABLE>
The tax effects of timing differences that give rise to a significant portion
of deferred tax expense (benefit) for the year ended December 31, 1992, are as
follows.
<TABLE>
Components of Deferred Income Tax Expense
- -----------------------------------------------------------------------------
<CAPTION>
December 31
Dollars in millions 1992
- -----------------------------------------------------------------------------
<S> <C>
Gain on partial sale of FMG $ 49
Provision for credit losses 16
Pension funding (6)
Lease financing transactions (9)
Expenses not currently deductible (14)
Purchase accounting adjustments (17)
Other, net (17)
- -----------------------------------------------------------------------------
Total deferred income tax expense $ 2
- -----------------------------------------------------------------------------
</TABLE>
The income tax expense for the years ended December 31, 1994, 1993, and 1992,
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 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 34.0%
Increases (decreases) in taxes
resulting from:
Tax-exempt income (1.6) (2.0) (3.0)
Alternative minimum tax - - (1.4)
State and local income taxes, net
of federal income tax benefit 5.2 6.0 8.2
Other, net 0.3 0.9 6.4
- -----------------------------------------------------------------------------
Effective tax rate 38.9% 39.9% 44.2%
- -----------------------------------------------------------------------------
</TABLE>
NOTE 15.
TRADING ACTIVITIES AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS, AND
OFF-BALANCE-SHEET ITEMS
Trading Activities. All of the corporation's trading positions are currently
stated at market value with realized and unrealized gains and losses reflected
in other noninterest income. The corporation recognized trading income of $20
million, $28 million, and $21 million for 1994, 1993, and 1992, respectively.
Trading income comprises gains and losses recorded on the corporation's trading
debt securities, foreign exchange contracts, and interest-rate contracts.
Trading positions in debt securities consist of U.S. federal and state
government and agency securities. The types of interest-rate contracts traded
include interest-rate swaps, caps, floors, and collars as well as futures and
option contracts. Foreign exchange contracts consist primarily of foreign
exchange forwards and foreign currency options and futures contracts.
The following table represents the notional or contractual amount of Fleet's
off-balance-sheet trading instruments and related credit exposure. 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. The
counterparties with which Fleet has the largest credit exposure are highly
rated commercial banks, investment banks, or their subsidiaries.
44
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Trading Instruments with Off-Balance-Sheet Risk
- ------------------------------------------------------------------------------
<CAPTION>
Contract or
Notional Credit
Amount Exposure
- ------------------------------------------------------------------------------
December 31 1994 1993 1994 1993
Dollars in millions
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-rate contracts $4,837 $2,971 $49 $31
Foreign exchange contracts 1,216 1,323 18 40
- ------------------------------------------------------------------------------
</TABLE>
The amounts disclosed below represent the end-of-period fair value of
derivative financial instruments held or issued for trading purposes and the
average aggregate fair values during the year for those instruments.
<TABLE>
Trading Instruments
- ------------------------------------------------------------------------------
<CAPTION>
Fair Value Average
December 31, 1994 (Carrying Fair
Dollars in millions Amount) Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Interest-rate contracts:
Assets $ 41 $ 30
Liabilities (34) (19)
Foreign exchange contracts:
Assets 18 29
Liabilities (16) (23)
- ------------------------------------------------------------------------------
</TABLE>
Interest-Rate Risk-Management Activities. The corporation's principal
objective in holding or issuing derivatives for purposes other than trading is
interest-rate risk management. The operations of Fleet are subject to a risk of
interest-rate fluctuations to the extent that there is a difference between the
amount of the corporation's interest-earning assets and the amount of
interest-bearing liabilities that mature or reprice in specified periods. The
principal objective of Fleet's asset/liability management activities is the
management of interest-rate risk and liquidity within parameters established by
various boards of directors. The corporation enters into various interest-rate
swap agreements to achieve this objective.
The following table presents the notional amount and fair value of
interest-rate risk-management swaps at December 31, 1994 and 1993.
<TABLE>
Interest-Rate Risk-Management Instruments
- ------------------------------------------------------------------------------
<CAPTION>
December 31 1994 1993
Notional Fair Notional Fair
Dollars in millions Amount Value Amount Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-rate swaps:
Receive-fixed/pay-variable $2,388 $ (35) $2,249 $ 71
Pay-fixed/receive-variable - - 985 (10)
Basis swaps 3,000 (1) - -
Index-amortizing swaps 2,770 (134) 2,770 9
- ------------------------------------------------------------------------------
Total $8,158 $(170) $6,004 $ 70
- ------------------------------------------------------------------------------
</TABLE>
The corporation's interest-rate risk-management swaps had an exposure to
credit risk of $25 million at December 31, 1994, versus $125 million at
December 31, 1993. The credit exposure represents the cost to replace, on a
present value basis and at current market rates, all profitable contracts
outstanding at year-end. The decrease in the credit exposure from year to year
reflects the receipt of payments upon termination of swaps and the decrease in
market value of the remaining swaps.
During 1994, Fleet terminated its entire portfolio of pay-fixed swaps
resulting in a net deferred gain of $61 million to be amortized over the
remaining contract life of the interest-rate swaps, approximately four years.
<TABLE>
Other Financial Instruments
- ------------------------------------------------------------------------------
<CAPTION> Contract or
Dollars in millions Notional Amount
December 31 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Other financial instruments whose
notional or contractual amounts exceed
the amount of potential credit risk:
Commitments to sell loans $ 1,884 $ 3,106
Commitments to originate or purchase loans 355 1,918
Assets sold with recourse 225 291
- ------------------------------------------------------------------------------
Financial instruments whose notional or
contractual amounts represent
potential credit risk:
Commitments to extend credit 15,242 14,136
Letters of credit, financial guarantees,
and foreign office guarantees
(net of participations) 1,272 1,303
- ------------------------------------------------------------------------------
</TABLE>
Commitments to sell loans have off-balance-sheet market risk to the extent
that 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 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.
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.
45
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Commitments to Extend Credit
- ------------------------------------------------------------------------------
December 31
<CAPTION>
Dollars in millions 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial loans $ 7,851 $ 5,966
Revolving, open-end loans secured by
residential properties (e.g., home
equity lines) 2,460 2,550
Credit card lines 2,998 1,828
Commercial real estate 873 600
Other unused commitments 1,060 3,192
- ------------------------------------------------------------------------------
Total $15,242 $14,136
- ------------------------------------------------------------------------------
</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.
NOTE 16.
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 those of
other financial institutions.
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, CRE, 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 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 reference to quoted market prices for
securities backed by similar types of loans 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 or a maturity
of less than 90 days 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 offered on the deposit
46
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
products. While the fair value indicated that time deposists could be
settled for an amount less than their carrying value, depositors have the right
to withdraw funds at carrying value less a penalty, prior to contractual
maturity. 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 1994 1993
Carrying Fair Carrying Fair
Dollars in millions Value Value Value Value
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Financial assets for which
carrying value
approximates fair value $ 6,199 $ 6,199 $ 2,560 $ 2,560
Securities 11,244 11,243 14,123 14,511
Loans(a) 25,492 25,610 24,302 25,136
Mortgages held for resale 489 489 2,622 2,630
Trading account securities 92 92 91 91
Trading instruments 59 59 64 64
Other 81 115 123 172
Financial liabilities:
Deposits with no
stated maturity 22,110 22,110 22,910 22,910
Time deposits 12,696 12,571 8,175 8,271
Short-term borrowings 5,951 5,951 8,107 8,107
Long-term debt 3,457 3,388 3,444 3,620
Trading instruments 50 50 30 30
Other 152 152 94 94
- ---------------------------------------------------------------------------
</TABLE>
(a)Excludes net book value of lease financing of $1,096 million and $1,008
million at December 31, 1994 and 1993, respectively.
At December 31, 1994, the hedge-related interest-rate swaps had an
unrealized loss of $170 million compared to a net unrealized gain of $70
million at December 31, 1993. 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
intangibles 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.
NOTE 17.
COMMITMENTS, CONTINGENCIES, AND
OTHER DISCLOSURES
The corporation's subsidiary, Fleet Finance, has been a defendant in several
class-action lawsuits filed in federal and state courts in Georgia and Alabama,
including the Alexander class-action lawsuit and the Starr class-action
lawsuit. The court gave its final approval of these two lawsuits on July 18,
1994 and November 9, 1994, respectively. Pursuant to these settlement
agreements, Fleet Finance will provide benefits that include cash payments to
certain borrowers. At December 31, 1994, Fleet Finance had accrued
approximately $15 million related to these settlements, and the corporation
believes that such accruals are sufficient to cover costs.
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
noncancelable operating lease agreements for premises and equipment. The
minimum annual rental commitments under these leases at December 31, 1994,
exclusive of taxes and other charges, were $84 million in 1995; $67 million,
1996; $51 million, 1997; $43 million, 1998; $34 million, 1999; and $174
million, 2000 and
47
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
subsequent years. Total rental expense for 1994, 1993, and 1992, including
cancelable and noncancelable leases, amounted to $101 million, $103 million,
and $89 million, respectively.
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 (the Federal Reserve). Banking
subsidiaries are subject to regulation by the Federal Reserve 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 nonbanking 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 to maintain
certain reserve balances. At December 31, 1994 and 1993, these reserve balances
were $901 million and $936 million, respectively.
48
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18.
SUPPLEMENTAL DISCLOSURE FOR STATEMENTS
OF CASH FLOWS
Cash paid for interest and income taxes, net of refunds, totaled $1,251
million and $341 million in 1994; $1,339 million and $428 million in 1993; and
$1,559 million and $260 million in 1992. Loans transferred to foreclosed
property and repossessed equipment totaled $66 million, $149 million, and $378
million in 1994, 1993, and 1992, respectively. Additional supplemental
disclosures include an unrealized loss on securities available for sale of $588
million in 1994, the conversion of $33 million of subordinated notes to common
stock in 1992, and the acquisition of $1,966 million of assets, net of $401
million of cash and cash equivalents received, and $2,367 million of
liabilities in 1992.
NOTE 19.
PARENT COMPANY ONLY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Income
- -----------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1994 1993 1992
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries:
Banking subsidiaries $300 $205 $132
Other subsidiaries 37 24 88
Interest 116 118 123
Gain on partial sale of FMG - - 121
Other 106 89 57
- -----------------------------------------------------------------------------
Total income 559 436 521
- -----------------------------------------------------------------------------
Interest 161 163 183
Noninterest expense 56 185 118
- -----------------------------------------------------------------------------
Total expenses 217 348 301
- -----------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
income of subsidiaries 342 88 220
Applicable income taxes (benefit) 43 (45) 27
- -----------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries 299 133 193
Equity in undistributed income
of subsidiaries 314 355 87
- -----------------------------------------------------------------------------
Net income $613 $488 $280
- -----------------------------------------------------------------------------
Balance Sheets
- -----------------------------------------------------------------------------
December 31
Dollars in millions 1994 1993
- -----------------------------------------------------------------------------
Money market instruments $ 148 $ 265
Securities 297 189
Loans receivable from:
Banking subsidiaries 116 167
Other subsidiaries 1,768 1,603
- -----------------------------------------------------------------------------
1,884 1,770
Investment in subsidiaries:
Banking subsidiaries 3,112 3,068
Other subsidiaries 746 759
- -----------------------------------------------------------------------------
3,858 3,827
Other 307 329
- -----------------------------------------------------------------------------
Total assets $6,494 $6,380
- -----------------------------------------------------------------------------
Short-term borrowings $ 827 $ 591
Accrued liabilities 422 368
Long-term debt 1,865 1,782
- -----------------------------------------------------------------------------
Total liabilities 3,114 2,741
- -----------------------------------------------------------------------------
Stockholders' equity 3,380 3,639
- -----------------------------------------------------------------------------
Total liabilities and
stockholders' equity $6,494 $6,380
- -----------------------------------------------------------------------------
</TABLE>
49
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 613 $ 488 $ 280
Adjustments for noncash items:
Equity in undistributed income of subsidiaries (314) (355) (87)
Depreciation and amortization 16 17 13
Net securities gains (13) (47) (4)
Gain on partial sale of FMG - - (121)
Increase in accrued liabilities, net 38 102 130
Other, net 166 38 20
- ------------------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 506 243 231
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of securities (167) (132) (27)
Proceeds from sales and maturities of securities 41 137 18
Net increase in loans made to affiliates (114) (133) (49)
Capital contributions to subsidiaries (149) (171) (310)
- ------------------------------------------------------------------------------------------------------------
Net cash flow used by investing activities (389) (299) (368)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase (decrease) in short-term borrowings 236 45 (383)
Proceeds from issuance of long-term debt 400 300 868
Repayments of long-term debt (317) (603) (63)
Proceeds from issuance of common stock 14 432 27
Redemption and repurchase of common and preferred stock (372) (126) -
Cash dividends paid (195) (149) (125)
- ------------------------------------------------------------------------------------------------------------
Net cash flow (used) provided by financing activities (234) (101) 324
- ------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (117) (157) 187
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 265 422 235
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 148 $ 265 $ 422
- ------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 44
<TABLE>
SUPPLEMENTAL FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS (Unaudited)
==============================================================================================================================
<CAPTION>
1994 Compared to 1993 1993 Compared to 1992
- ------------------------------------------------------------------------------------------------------------------------------
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 $ 1 $ - $ - $ -
Federal funds sold and securities purchased
under agreements to resell (1) 1 - (17) 8 (9)
Trading account securities - - - - (1) (1)
Securities available for sale 227 (78) 149 (46) (95) (141)
Securities held to maturity (98) (19) (117) 107 (1) 106
Nontaxable securities 8 (1) 7 14 6 20
Loans and leases 43 44 87 (42) (126) (168)
Mortgages held for resale (61) 1 (60) 181 (189) (8)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 118 (51) 67 197 (398) (201)
- ------------------------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits:
Savings (1) (10) (11) 39 (143) (104)
Time 22 9 31 (123) (105) (228)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 21 (1) 20 (84) (248) (332)
- ------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 58 56 114 32 (16) 16
Long-term debt (31) 26 (5) 32 (18) 14
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 48 81 129 (20) (282) (302)
- ------------------------------------------------------------------------------------------------------------------------------
Net interest differential(c) $ 70 $(132) $ (62) $ 217 $(116) $ 101
==============================================================================================================================
<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. The FTE adjustment included in
interest income was $40 million in 1994; $33 million, 1993; $30 million, 1992; $46 million, 1991; $94 million, 1990; and
$90 million, 1989.
(c) Includes fee income of $65 million, $58 million, and $69 million for the years ended December 31, 1994, 1993, and 1992,
respectively.
</TABLE>
<TABLE>
LOAN AND LEASE MATURITY (UNAUDITED)
===================================================================================
<CAPTION>
December 31, 1994 Within 1 1 to 5 After 5
Dollars in millions Year Years Years Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and
industrial $ 8,289 $1,988 $ 825 $11,102
Consumer 4,966 1,468 1,448 7,882
Commercial real estate:
Construction 378 92 39 509
Interim/permanent 2,838 710 282 3,830
Residential real estate 2,159 561 217 2,937
Lease financing 760 336 24 1,120
Other 105 52 4 161
- -----------------------------------------------------------------------------------
Total $19,495 $5,207 $2,839 $27,541
===================================================================================
</TABLE>
<TABLE>
INTEREST SENSITIVITY OF LOANS OVER ONE YEAR (UNAUDITED)
=========================================================================
<CAPTION>
December 31, 1994 Predetermined Floating
Dollars in millions Interest Rates Interest Rates Total
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1 to 5 years $4,880 $327 $5,207
After 5 years 2,836 3 2,839
- -------------------------------------------------------------------------
Total $7,716 $330 $8,046
=========================================================================
</TABLE>
51
<PAGE> 45
<TABLE>
SUPPLEMENTAL FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED-PAID/RATES 1990-1994 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Earned/ Average Earned/
Dollars in millions(a) Balance Paid(b) Rate Balance Paid(b) Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits $ 27 $ 2 6.38% $ 21 $ 1 2.87%
Federal funds sold and securities purchased
under agreements to resell 110 5 4.90 163 5 3.02
Trading account securities 73 3 4.99 79 3 4.05
Securities available for sale 14,573 871 5.98 10,442 722 6.91
Securities held to maturity 49 3 5.31 1,817 120 6.60
Nontaxable securities 816 51 6.26 679 44 6.49
Loans and leases(c) 26,637 2,297 8.62 26,144 2,210 8.46
Mortgages held for resale 1,120 80 7.14 1,979 140 7.05
Foreclosed property and repossessed equipment 120 - - 211 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 43,525 3,312 7.61% 41,535 3,245 7.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 341 - - 348 - -
Reserve for credit losses (986) - - (1,033) - -
Other assets 5,506 - - 5,116 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $48,386 $3,312 - $45,966 $3,245 -
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Deposits:
Savings $15,956 $ 331 2.08% $15,990 $ 342 2.14%
Time 9,689 433 4.47 9,183 402 4.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 25,645 764 2.98 25,173 744 2.96
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 7,645 294 3.85 5,971 180 3.02
Long-term debt 3,392 232 6.85 3,718 237 6.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 36,682 1,290 3.52 34,862 1,161 3.33
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread 2,022 4.09% - 2,084 4.48%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits and other
noninterest-bearing time deposits 6,733 - - 6,429 - -
Other liabilities 1,388 - - 1,222 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 44,803 1,290 - 42,513 1,161 -
- ------------------------------------------------------------------------------------------------------------------------------------
Dual convertible preferred stock - - - - - -
Stockholders' equity and dual
convertible preferred stock 3,583 - - 3,453 - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $48,386 $1,290 - $45,966 $1,161 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.64% 5.02%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(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 $65 million, $58 million, $69 million, $67 million, and $59 million for the years ended December 31,
1994, 1993, 1992, 1991, and 1990, respectively.
(c) Nonperforming loans are included in average balances used to determine rates.
</TABLE>
52
<PAGE> 46
<TABLE>
SUPPLEMENTAL FINANCIAL INFORMATION
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
December 31
=================================================================================================================
1992 1991
Interest Interest
Average Earned/ Average Earned/
Dollars in millions(a) Balance Paid(b) Rate Balance Paid(b)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits $ 22 $ 1 3.21% $ 68 $ 4
Federal funds sold and securities purchased
under agreements to resell 657 14 2.25 1,455 86
Trading account securities 81 4 4.86 73 5
Securities available for sale 11,059 863 7.80 1,376 91
Securities held to maturity 196 14 7.06 5,838 530
Nontaxable securities 454 24 5.25 949 66
Loans and leases(c) 26,615 2,378 8.94 23,995 2,475
Mortgages held for resale 1,630 148 9.08 1,225 118
Foreclosed property and repossessed equipment 514 - - 468 -
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 41,228 3,446 8.36% 35,447 3,375
=================================================================================================================
Accrued interest receivable 335 - - 307 -
Reserve for credit losses (1,058) - - (828) -
Other assets 4,661 - - 3,913 -
- -----------------------------------------------------------------------------------------------------------------
Total assets $45,166 $ 3,446 - $38,839 $3,375
=================================================================================================================
Liabilities and stockholders' equity:
Deposits:
Savings $14,816 $ 446 3.01% $10,849 $ 523
Time 11,735 630 5.37 13,399 957
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 26,551 1,076 4.05 24,248 1,480
- -----------------------------------------------------------------------------------------------------------------
Short-term borrowings 4,753 164 3.45 3,284 217
Long-term debt 3,127 223 7.10 3,020 233
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 34,431 1,463 4.25 30,552 1,930
- -----------------------------------------------------------------------------------------------------------------
Net interest spread - 1,983 4.11% - 1,445
- -----------------------------------------------------------------------------------------------------------------
Demand deposits and other
noninterest-bearing time deposits 6,850 - - 5,267 -
Other liabilities 991 - - 617 -
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 42,272 1,463 - 36,436 1,930
- -----------------------------------------------------------------------------------------------------------------
Dual convertible preferred stock
Stockholders' equity and dual
convertible preferred stock 283 - - 134 -
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 2,611 - - 2,269 -
- -----------------------------------------------------------------------------------------------------------------
Net interest margin $45,166 $1,463 - $38,839 $1,930
=================================================================================================================
4.80%
=================================================================================================================
<CAPTION>
December 31
- --------------------------------------------------------------------------------------------------
1990
Interest
Average Earned/
Dollars in millions(a) Rate Balance Paid(b) Rate
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Interest-bearing deposits 5.46% $ 193 $ 17 8.98%
Federal funds sold and securities purchased
under agreements to resell 5.93 1,681 135 8.05
Trading account securities 6.89 31 2 6.48
Securities available for sale 6.63 - - -
Securities held to maturity 9.07 5,473 535 9.78
Nontaxable securities 6.91 1,654 117 7.04
Loans and leases(c) 10.31 21,027 2,434 11.57
Mortgages held for resale 9.67 1,227 133 10.86
Foreclosed property and repossessed equipment - 503 - -
- --------------------------------------------------------------------------------------------------
Total interest-earning assets 9.52% 31,789 3,373 10.61%
==================================================================================================
Accrued interest receivable - - - -
Reserve for credit losses - (563) - -
Other assets - 3,137 - -
- --------------------------------------------------------------------------------------------------
Total assets - $34,363 $3,373 -
==================================================================================================
Liabilities and stockholders' equity: -
Deposits:
Savings 4.82% $ 7,439 $ 420 5.65%
Time 7.15 11,168 923 8.27
- --------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6.11 18,607 1,343 7.22
- --------------------------------------------------------------------------------------------------
Short-term borrowings 6.60 6,366 551 8.65
Long-term debt 7.71 2,544 232 9.12
- --------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 6.32 27,517 2,126 7.73
- --------------------------------------------------------------------------------------------------
Net interest spread 3.20% - 1,247 2.88%
- --------------------------------------------------------------------------------------------------
Demand deposits and other
noninterest-bearing time deposits - 4,118 - -
Other liabilities - 531 - -
- --------------------------------------------------------------------------------------------------
Total liabilities - 32,166 2,126 -
- --------------------------------------------------------------------------------------------------
Dual convertible preferred stock - - - -
Stockholders' equity and dual
convertible preferred stock - 2,197 - -
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity - $34,363 $2,126 -
==================================================================================================
Net interest margin 4.09% 3.92%
==================================================================================================
<FN>
(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 $65 million, $58 million, $69 million, $67 million, and $59 million for the years ended December 31,
1994, 1993, 1992, 1991, and 1990, respectively.
(c) Nonperforming loans are included in average balances used to determine rates.
</TABLE>
53
<PAGE> 47
<TABLE>
SUPPLEMENTAL FINANCIAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TEN-YEAR STATISTICAL SUMMARY (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions,
except per share data 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 613 $ 488 $ 280 $ 98 $ (74) $ 371 $ 336 $ 200 $ 253 $ 209
Earnings (loss) per share 3.75 3.01 1.77 0.67 (0.75) 3.30 3.01 1.82 2.37 1.97
Return on average assets 1.27% 1.06% 0.62% 0.25% (0.21)% 1.25% 1.24% 0.81% 1.19% 1.19%
Return on average
common equity 18.77 16.07 11.01 4.02 (3.93) 17.70 18.15 11.88 17.50 16.34
Book value per share $22.23 $22.84 $19.50 $18.15 $17.65 $19.87 $17.84 $15.83 $14.84 $13.21
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY SUMMARIZED FINANCIAL INFORMATION (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
By quarter 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars in millions,
except per share data 1 2 3 4 Year 1 2 3 4 Year
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income $ 784 $ 814 $ 850 $ 824 $3,272 $ 814 $ 802 $ 801 $ 795 $3,212
Interest expense 281 311 356 342 1,290 309 292 279 281 1,161
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 503 503 494 482 1,982 505 510 522 514 2,051
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 22 12 11 17 62 85 70 61 55 271
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 481 491 483 465 1,920 420 440 461 459 1,780
Securities available for sale
gains (losses) - 19 1 (21) (1) 19 114 127 22 282
Other noninterest income 300 257 286 331 1,174 290 277 318 298 1,183
- ------------------------------------------------------------------------------------------------------------------------------------
781 767 770 775 3,093 729 831 906 779 3,245
Noninterest expense 555 510 501 504 2,070 543 641 687 553 2,424
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 226 257 269 271 1,023 186 190 219 226 821
Applicable income taxes 88 106 102 102 398 75 78 87 87 327
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before minority interest 138 151 167 169 625 111 112 132 139 494
Minority interest (2) (3) (3) (4) (12) (5) 7 (5) (3) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 136 $ 148 $ 164 $ 165 $ 613 $ 106 $ 119 $ 127 $ 136 $ 488
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share $0.79 $0.90 $1.01 $1.05 $ 3.75 $0.66 $0.72 $0.78 $0.85 $ 3.01
- ------------------------------------------------------------------------------------------------------------------------------------
Taxable-equivalent basis:
Interest income--as above $ 784 $ 814 $ 850 $ 824 $3,272 $ 814 $ 802 $ 801 $ 795 $3,212
Taxable-equivalent adjustment 9 10 11 10 40 8 8 9 8 33
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income--taxable-
equivalent basis 793 824 861 834 3,312 822 810 810 803 3,245
Interest expense 281 311 356 342 1,290 309 292 279 281 1,161
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income--taxable-
equivalent basis $ 512 $ 513 $ 505 $ 492 $2,022 $ 513 $ 518 $ 531 $ 522 $2,084
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK PRICE AND DIVIDEND INFORMATION(a) (unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
By quarter 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in millions,
except per share data 1 2 3 4 Year 1 2 3 4 Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Price
High 38 41 3/8 40 1/2 37 7/8 41 3/8 37 7/8 37 5/8 35 1/2 35 5/8 37 7/8
Low 31 3/4 34 3/8 34 7/8 29 7/8 29 7/8 30 1/4 28 1/4 30 3/8 29 1/2 28 1/4
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends declared .30 .35 .35 .40 1.40 .225 .250 .25 .30 1.025
Dividends paid .25 .30 .35 .35 1.25 .225 .225 .25 .25 .95
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Fleet's common stock is listed on the New York Stock Exchange (NYSE). The table above sets forth, for the periods 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, 1994, the corporation had 38,174 common stockholders of record.
</TABLE>
54
<PAGE> 1
EXHIBIT 22
FLEET FINANCIAL GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY 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 Bank New York
Merrill/Norstar Bankshare Association Maine
Fleet Bank of Maine Maine
Indian Head Banks, Inc. New Hampshire
Fleet Bank-NH New Hampshire
Non-Banking 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 Mortgage Asset Management Corp. 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
Fleet Management and Recovery Corp. Rhode Island
</TABLE>
<PAGE> 1
EXHIBIT 23
FLEET FINANCIAL GROUP, INC.
ACCOUNTANTS' CONSENT
The Board of Directors
Fleet Financial Group, Inc.
We consent to incorporation by reference in the Registration Statements (Nos.
33-19425, 33-22045, 33-48818, 33-55095, 33-56061, 33-57501, and 33-57677) on
Form S-8, the Registration Statements (Nos. 33-36707, 33-50214, 33-50216, and
33-55555) on Form S-3 and the Registration Statement (No. 33-55579) on Form
S-4 of Fleet Financial Group, Inc. of our report dated January 18, 1995,
relating to the consolidated balance sheets of Fleet Financial Group,
Inc. as of December 31, 1994 and 1993 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, 1994, which report has been
incorporated by reference in the 1994 annual report of Fleet Financial Group,
Inc. on Form 10-K. Our report refers to a change in the method of accounting
for investments.
Providence, Rhode Island /s/ KPMG Peat Marwick LLP
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1994 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,676
<INT-BEARING-DEPOSITS> 2,532
<FED-FUNDS-SOLD> 619
<TRADING-ASSETS> 92
<INVESTMENTS-HELD-FOR-SALE> 10,363
<INVESTMENTS-CARRYING> 891
<INVESTMENTS-MARKET> 890
<LOANS> 27,541
<ALLOWANCE> (953)
<TOTAL-ASSETS> 48,757
<DEPOSITS> 34,806
<SHORT-TERM> 5,951
<LIABILITIES-OTHER> 1,163
<LONG-TERM> 3,457
<COMMON> 1,689
0
379
<OTHER-SE> 1,312
<TOTAL-LIABILITIES-AND-EQUITY> 48,767
<INTEREST-LOAN> 2,367
<INTEREST-INVEST> 905
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,272
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</TABLE>
