<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD TO COMMISSION FILE
NUMBER 1-6366
------------------------
FLEET FINANCIAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
RHODE ISLAND 05-0341324
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
50 KENNEDY PLAZA 02903
PROVIDENCE, RHODE ISLAND (Zip Code)
(Address of principal executive office)
</TABLE>
(401) 278-5800
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for each shorter period that the
Registrant was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The number of shares of common stock of the Registrant outstanding as of
April 30, 1995 was 141,355,747.
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FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED MARCH 31, 1995
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I.
Item 1. Financial Information
Consolidated Statements of Income -- Three Months Ended March 31, 1995 and
1994....................................................................... 3
Consolidated Balance Sheets -- March 31, 1995 and December 31, 1994........ 4
Consolidated Statements of Changes in Stockholders' Equity -- Three Months
Ended March 31, 1995 and 1994.............................................. 5
Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1995
and 1994................................................................... 6
Condensed Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 11
PART II.
OTHER INFORMATION.......................................................... 28
SIGNATURES................................................................. 29
EXHIBITS................................................................... 30
</TABLE>
2
<PAGE> 3
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1995 1994
----- -----
DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS
<S> <C> <C>
Interest and fees on loans and leases.......................... $ 682 $ 561
Interest on taxable securities................................. 176 216
Interest on tax-exempt securities.............................. 9 7
----- -----
Total interest income................................ 867 784
----- -----
Interest expense:
Deposits.................................................. 244 161
Short-term borrowings..................................... 69 65
Long-term debt............................................ 67 55
----- -----
Total interest expense............................... 380 281
----- -----
Net interest income............................................ 487 503
----- -----
Provision for credit losses.................................... 20 22
----- -----
Net interest income after provision for credit losses.......... 467 481
----- -----
Noninterest income:
Mortgage banking.......................................... 99 100
Service charges, fees, and commissions.................... 80 70
Investment services revenue............................... 46 44
Student loan servicing fees............................... 15 12
Other..................................................... 68 68
----- -----
Total noninterest income............................. 308 294
----- -----
Noninterest expense:
Employee compensation and benefits........................ 241 258
Occupancy................................................. 39 45
Equipment................................................. 35 34
Purchased mortgage servicing rights amortization.......... 23 31
FDIC assessment........................................... 18 18
Core deposit and goodwill amortization.................... 18 13
Marketing................................................. 15 13
Legal and other professional.............................. 14 16
Printing and mailing...................................... 11 12
OREO expense.............................................. 3 7
Restructuring charges..................................... -- 25
Other..................................................... 81 77
----- -----
Total noninterest expense............................ 498 549
----- -----
Income before income taxes..................................... 277 226
Applicable income taxes........................................ 111 88
----- -----
Net income before minority interest............................ 166 138
Minority interest.............................................. 2 2
----- -----
Net income..................................................... $ 164 $ 136
===== =====
Net income applicable to common shares......................... $ 162 $ 128
===== =====
Weighted average common shares outstanding:
Primary................................................... 158,818,106 161,163,854
Fully diluted............................................. 158,854,199 161,241,430
Earnings per share:
Primary................................................... $1.02 $0.79
Fully diluted............................................. 1.02 0.79
Dividends declared............................................. 0.40 0.30
===== =====
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
3
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FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
DOLLARS IN MILLIONS,
EXCEPT SHARE AMOUNTS
ASSETS
Cash, due from banks and interest-bearing deposits.............. $ 2,297 $ 5,208
Federal funds sold and securities purchased under agreements to
resell........................................................ 250 649
Securities available for sale................................... 10,337 10,353
Securities held to maturity (market value: $955 and $890)....... 952 891
Loans and leases................................................ 29,498 27,709
Reserve for credit losses....................................... (966) (953)
--------- ------------
Net loans and leases............................................ 28,532 26,756
--------- ------------
Mortgages held for resale....................................... 655 489
Purchased mortgage servicing rights............................. 1,050 827
Premises and equipment.......................................... 687 656
Intangible assets............................................... 671 339
Accrued interest receivable..................................... 361 342
Other assets.................................................... 2,022 2,247
--------- ------------
Total assets.......................................... $47,814 $ 48,757
======== ==========
LIABILITIES
Deposits:
Demand..................................................... $ 6,056 $ 6,890
Regular savings, NOW, money market......................... 14,969 15,220
Time....................................................... 11,809 12,696
--------- ------------
Total deposits........................................ 32,834 34,806
--------- ------------
Federal funds purchased and securities sold under agreements to
repurchase.................................................... 2,916 2,846
Other short-term borrowings..................................... 3,243 3,105
Accrued expenses and other liabilities.......................... 1,278 1,163
Long-term debt.................................................. 3,623 3,457
--------- ------------
Total liabilities..................................... 43,894 45,377
--------- ------------
STOCKHOLDERS' EQUITY
Preferred stock................................................. 379 379
Common stock (shares issued: 141,730,961 in 1995 and 141,574,162
in 1994; shares outstanding: 141,241,973 in 1995 and
135,024,262
in 1994)...................................................... 142 142
Common surplus.................................................. 1,534 1,547
Retained earnings............................................... 2,018 1,936
Net unrealized gain (loss) on securities........................ (134) (374)
Less: Treasury stock, at cost, 488,988 shares in 1995 and
6,549,900 shares in 1994...................................... (19) (250)
--------- ------------
Total stockholders' equity............................ 3,920 3,380
--------- ------------
Total liabilities and stockholders' equity............ $47,814 $ 48,757
======== ==========
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
4
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FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON GAIN(LOSS)
PREFERRED STOCK COMMON RETAINED ON TREASURY
STOCK $1 PAR SURPLUS EARNINGS SECURITIES STOCK TOTAL
--------- ------ ------ -------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS
1994
Balance at December 31, 1993.... $ 501 $137 $1,492 $1,509 $ -- $ -- $3,639
Net unrealized gain on
securities available for sale
at January 1, 1994............ -- -- -- -- 224 --
Net income...................... -- -- -- 136 -- --
Cash dividends declared on
common stock ($0.30 per
share)........................ -- -- -- (41) -- --
Cash dividends declared on
preferred stock............... -- -- -- (8) -- --
Redemption of preferred stock... (122) -- -- -- -- --
Common stock issued in
connection with employee
benefit and stock option
plans......................... -- 1 6 (1) -- --
Adjustment of valuation reserve
for securities available for
sale.......................... -- -- -- -- (260) --
Other, net...................... -- 3 38 27 -- --
--------- ------ ------ -------- ------------- -------- ------
Balance at March 31, 1994....... $ 379 $141 $1,536 $1,622 $ (36) $ -- $3,642
======= ====== ====== ====== ========== ====== ======
1995
Balance at December 31, 1994.... $ 379 $142 $1,547 $1,936 $(374) $ (250) $3,380
Net income...................... -- -- -- 164 -- --
Cash dividends declared on
common stock ($0.40 per
share)........................ -- -- -- (59) -- --
Cash dividends declared on
preferred stock............... -- -- -- (2) -- --
Common stock issued in
connection with employee
benefit and stock option
plans......................... -- -- 4 -- -- --
Treasury stock issued in
connection with the
acquisition of NBB............ -- -- (17 ) (21) -- 234
Adjustment of valuation reserve
for securities available for
sale.......................... -- -- -- -- 240 --
Treasury stock purchases........ -- -- -- -- -- (3)
--------- ------ ------ -------- ------------- -------- ------
Balance at March 31, 1995....... $ 379 $142 $1,534 $2,018 $(134) $ (19) $3,920
======= ====== ====== ====== ========== ====== ======
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
5
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FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1995 1994
------- -------
DOLLARS IN MILLIONS
<S> <C> <C>
Cash Flows from Operating Activities
Net income.......................................................... $ 164 $ 136
Adjustments for noncash items:
Depreciation and amortization of premises and equipment........ 26 26
Amortization of purchased mortgage servicing rights and other
intangible assets............................................. 41 44
Provision for credit losses.................................... 20 22
Deferred income tax expense.................................... 28 5
Other gains on sales of assets................................. (24) (13)
Originations and purchases of mortgages held for sale............... (1,208) (4,365)
Proceeds from sales of mortgages held for sale...................... 1,151 5,421
Net decrease (increase) in trading account assets................... 28 (14)
Increase in accrued receivables, net................................ (47) (33)
Increase (decrease) in accrued liabilities, net..................... 96 (23)
Other, net.......................................................... 153 270
------- -------
Net cash flow provided by operating activities............ 428 1,476
------- -------
Cash Flows from Investing Activities
Purchases of securities available for sale.......................... (1,074) (980)
Proceeds from maturities of securities available for sale........... 494 502
Proceeds from sales of securities available for sale................ 1,915 --
Purchases of securities held to maturity............................ (162) (139)
Proceeds from maturities of securities held to maturity............. 100 77
Loans made to customers, nonbanking subsidiaries.................... (184) (244)
Principal collected on loans made to customers, nonbanking
subsidiaries....................................................... 198 263
Net cash and cash equivalents paid for businesses acquired.......... (218) --
Loans purchased from third parties.................................. (272) (16)
Proceeds from sales of loans........................................ 26 19
Net (increase) decrease in loans and leases, banking subsidiaries... (335) 230
Proceeds from sales of OREO......................................... 15 21
Proceeds from sale of subsidiary.................................... -- 76
Acquisition of minority interest in subsidiary...................... (158) --
Purchases of premises and equipment................................. (30) (34)
Purchases of purchased mortgage servicing rights.................... (29) (47)
------- -------
Net cash flow provided (used) by investing activities..... 286 (272)
------- -------
Cash Flows from Financing Activities
Net decrease in deposits............................................ (4,272) (363)
Net increase (decrease) in short-term borrowings.................... 140 (880)
Proceeds from issuance of long-term debt............................ 420 --
Repayments of long-term debt........................................ (254) (66)
Redemption of preferred stock....................................... -- (122)
Cash dividends paid................................................. (58) (49)
------- -------
Net cash flow used by financing activities................ (4,024) (1,480)
------- -------
Net decrease in cash and cash equivalents................................ (3,310) (276)
------- -------
Cash and cash equivalents at beginning of the period..................... 5,857 2,213
------- -------
Cash and cash equivalents at end of the period........................... $ 2,547 $ 1,937
======= =======
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
6
<PAGE> 7
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein has been
prepared in conformity with the accounting principles and practices in Fleet
Financial Group, Inc.'s ("Fleet, FFG or the Corporation") consolidated financial
statements included in the Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1994. The accompanying
interim consolidated financial statements contained herein are unaudited.
However, in the opinion of the Corporation, all adjustments consisting of normal
recurring items necessary for a fair statement of the operating results for the
periods shown, have been made. The results of operations for the three months
ended March 31, 1995 may not be indicative of the operating results for the year
ending December 31, 1995. Certain prior year and prior quarter amounts have been
reclassified to conform to current classifications.
NOTE 2. ACQUISITIONS
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, other than shares held in Shawmut's treasury or directly or indirectly by
Fleet or its subsidiaries or by Shawmut or its subsidiaries (except for in both
cases shares held in a fiduciary capacity or in respect of debts previously
contracted), 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 of
approximately $400 million 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. The extent to which cost
savings will be achieved is dependent upon various factors beyond the control of
Fleet and Shawmut, including the regulatory environment, economic conditions,
unanticipated changes in business conditions, inflation and the level of Federal
Deposit Insurance Corporation assessments. Therefore, no assurances can be given
with respect to the ultimate level of cost savings to be realized, or that such
savings will be realized in the time-frame currently anticipated. Fleet and
Shawmut expect to incur one-time merger expenses and restructuring charges
aggregating approximately $400 million in connection with 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.
On January 27, 1995 Fleet purchased NBB Bancorp, Inc. ("NBB"), New Bedford,
Massachusetts, which operated a savings bank franchise throughout southeastern
Massachusetts, Cape Cod, and northern Rhode Island, for approximately $230
million in cash and issued approximately 6.2 million treasury shares with an
aggregate carrying value of $196 million. Fleet also issued approximately 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 of the acquisition. Immediately
prior to the acquisition, NBB had assets of $2.4 billion, including net loans of
$1.3 billion and deposits of $2.2 billion. As a result of the NBB acquisition,
Fleet recorded goodwill and a core deposit intangible of $214 million and $50
million, respectively. These amounts are being amortized on a straight-line
basis over 15 and 7 years, respectively.
On March 3, 1995 Fleet purchased Plaza Home Mortgage Corporation ("Plaza"),
Santa Ana, California which operates a mortgage banking franchise, largely in
California, for approximately $88 million in cash. Immediately prior to the
acquisition, Plaza had assets of $255 million, including net loans of $120
million, and deposits of $144 million. As a result of the Plaza acquisition,
goodwill of $41 million was recorded. The goodwill is being amortized on a
straight-line basis over 15 years.
7
<PAGE> 8
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1995
On February 28, 1995, Fleet also completed its tender offer to purchase the
approximately 19% publicly-held shares of Fleet Mortgage Group, Inc., ("FMG")
common stock for $20.00 in cash per share. As a result of this purchase,
goodwill of $40 million was recorded. Goodwill is being amortized on a
straight-line basis over 15 years.
The information below presents, on a pro forma basis, certain historical
financial information for the Corporation, adjusted for each of the NBB, Plaza
and FMG transactions as if such transactions had been consummated on January 1,
1995 and 1994, respectively.
Pro Forma Results
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1994
----- -----
DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA
<S> <C> <C>
PRO FORMA -- FLEET, NBB, PLAZA AND FMG
Interest income................................................... $ 880 $ 821
Interest expense.................................................. 388 301
----- -----
Net interest income............................................... 492 520
Provision for credit losses....................................... 20 23
Noninterest income................................................ 308 319
Noninterest expense............................................... 522 602
----- -----
Income before income taxes........................................ 258 214
Income taxes...................................................... 104 85
----- -----
Net income........................................................ 154 129
Dividends on preferred stock...................................... 2 8
----- -----
Net income available to common shares............................. $ 152 $ 121
----- -----
Net income per common share....................................... $0.94 $0.75
===== =====
CORPORATION AS REPORTED
Net income........................................................ $ 164 $ 136
Net income applicable to common shares............................ 162 128
Net income per common share....................................... $1.02 $0.79
===== =====
</TABLE>
The pro forma adjustments reflect the sale of NBB's entire securities
portfolio of approximately $1 billion as if such sales had occurred at the
beginning of each such period, elimination of any corresponding interest income
recognized on these securities, and the use of the proceeds from the sale of
these securities to reduce short-term borrowings and related interest expense
using a cost of funds rate of 5.44% and 4.22% for 1995 and 1994, respectively.
Similarly, the pro forma results reflect the sale of $157 million, $230 million
and $18 million of Plaza's mortgage-backed securities, adjustable-rate loans,
and deposits, respectively, as if such sales had occurred at the beginning of
each such period, the elimination of any corresponding interest income or
expense recognized, and the use of the net proceeds from these sales to reduce
short-term borrowings and related interest expense using a cost of funds rate of
5.98% and 3.40% for 1995 and 1994, respectively. Pro forma results reflect the
amortization of adjustments recorded to reflect the fair value of the net assets
acquired as of the date of acquisition and any related amortization, as if the
adjustments were recorded at the beginning of the period. Additional funding
costs for the purchase prices of the acquisitions of NBB, Plaza and the 19%
publicly-held shares of FMG have also been reflected in the pro forma results.
8
<PAGE> 9
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1995
NOTE 3. RESERVE FOR CREDIT LOSSES
Effective January 1, 1995, the Corporation adopted Financial Accounting
Standards Board (FASB) Statement No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by Statement No. 118. Under these standards,
the 1995 reserve for credit losses related to loans that are identified as
impaired is based on discounted cash flows using the loan's effective interest
rate, or the fair value of the collateral for collateral-dependent loans, or
observable market price of the impaired loan.
Commercial and commercial real estate loans are considered impaired when it
is probable that the Corporation will not collect all amounts due in accordance
with the contractual terms of the loan. Except for certain restructured loans,
impaired loans are loans that are on nonaccrual status. Upon adoption of
Statement No. 114, the Corporation did not change its method of recognizing
interest income on impaired loans. 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. Subsequent cash receipts are generally
applied to reduce the unpaid principal balance. Loans are returned to accrual
status and are no longer considered to be impaired 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.
Loans which were restructured prior to the adoption of Statement No. 114,
and which are performing in accordance with the renegotiated terms are not
required to be reported as impaired. Loans restructured subsequent to the
adoption of Statement No. 114 are required to be reported as impaired in the
year of restructuring. Thereafter, such loans can be removed from the impaired
loan disclosure if the loans were paying a market rate of interest at the time
of restructuring and are performing in accordance with their renegotiated terms.
In accordance with Statement No. 114, a loan is classified as an
insubstance foreclosure when the Corporation has taken possession of the
collateral regardless of whether formal foreclosure proceedings have taken
place. Loans classified as insubstance foreclosures prior to adoption of
Statement No. 114, but for which the Corporation had not taken possession of the
collateral, were immaterial to the financial statements taken as a whole and,
therefore, were not reclassified upon adoption.
At March 31, 1995, the recorded investment in impaired loans was $293
million, all of which were on nonaccrual status. Included in this amount is $210
million of impaired loans for which the related impairment reserve is $43
million, and $83 million of impaired loans that, due primarily to charge-offs,
do not have an impairment reserve. The average recorded investment in impaired
loans during the quarter was $282 million. The amount of interest income
recognized on impaired loans during the quarter was immaterial. The reserve for
credit losses contains additional amounts for impaired loans as deemed necessary
to maintain reserves at levels considered adequate by management.
NOTE 4. LONG-TERM DEBT
During the first quarter of 1995, the Corporation issued $119 million of
its senior medium-term notes, all of which are due in 1996. On May 1, 1995, the
Corporation issued $250 million of 7.125% senior notes due May 1, 2000. The
Corporation intends to use the proceeds of these issuances for general corporate
purposes.
9
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FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1995
NOTE 5. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
Cash Flow Disclosure
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1995 1994
------ -----
<S> <C> <C>
DOLLARS IN MILLIONS
Supplemental disclosure for cash paid during the period for:
Interest expense.................................................. $ 393 $ 291
Income taxes, net of refunds...................................... 16 28
Supplemental disclosure of noncash investing and financing activities:
Transfer of loans to foreclosed property and repossessed
equipment........................................................ 17 26
Adjustment to unrealized loss on securities available for sale.... 380 (61)
Assets acquired and liabilities assumed in business combinations were
as follows:
Assets acquired, net of cash and cash equivalents paid............ 2,914 --
Net cash and cash equivalents paid for businesses acquired........ (218) --
Liabilities assumed............................................... 2,500 --
Treasury stock issued in connection with businesses acquired...... 196 --
</TABLE>
NOTE 6. INTEREST-RATE RISK-MANAGEMENT ACTIVITIES POLICY
The Corporation enters into interest-rate swaps to manage exposure to
interest-rate risk. For these interest-rate swaps, which alter the repricing
characteristics of assets or liabilities, the net differential to be paid or
received on the swaps is treated as an adjustment to the yield on the underlying
assets or liabilities (the accrual method). For interest-rate swaps entered into
in connection with the securities available for sale portfolio, which
synthetically alter the interest-rate characteristics of the securities, the net
differential to be paid or received on the swaps is recorded on the accrual
method and the swaps are reported at fair value with unrealized gains and losses
reflected as a separate component of stockholders' equity consistent with the
reporting of unrealized gains and losses on the securities.
To qualify for accrual accounting, the interest-rate swap must be
designated to specific assets or liabilities or pools of assets or liabilities,
and must be effective at altering the interest-rate characteristics of the
related assets or liabilities. To be effective there must be correlation between
the interest-rate index on the underlying asset or liability 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, accrual accounting would be discontinued and
the interest-rate swap would be accounted for as a trading instrument.
Fleet has entered into certain swaps with imbedded written options which,
under certain interest-rate scenarios, can cause the duration of the swaps to
extend. If the maximum duration of these swaps is within a range of acceptable
duration in accordance with asset/liability management parameters, Fleet applies
the same policies as are applied to swaps without imbedded written options.
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
designated assets or liabilities. If the designated asset or liability is sold
or settled or its balance falls below the notional amount of the swap, accrual
accounting is discontinued to the extent that the notional amount exceeds the
balance, and accounting for trading instruments is applied.
10
<PAGE> 11
FLEET FINANCIAL GROUP, INC.
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERALL PERSPECTIVE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1995 1994
------- -------
<S> <C> <C>
DOLLARS IN MILLIONS
EXCEPT PER SHARE DATA
EARNINGS
Net income.................................................... $ 164 $ 136
Net interest income (FTE)(a).................................. 497 512
PER COMMON SHARE
Fully diluted earnings........................................ $ 1.02 $ 0.79
Cash dividends declared....................................... 0.40 0.30
Book value.................................................... 25.07 23.10
OPERATING RATIOS
Return on average assets...................................... 1.43% 1.13%
Return on common equity....................................... 19.78 15.32
Efficiency ratio.............................................. 61.8 65.0
Equity to assets (period-end)................................. 8.20 7.68
AT MARCH 31
Total assets.................................................. $47,814 $47,438
Stockholders' equity.......................................... 3,920 3,642
Nonperforming assets.......................................... 578 613
</TABLE>
- ---------------
(a) Prepared on a fully taxable equivalent (FTE) basis. The FTE adjustment
included in net interest income was $10 million and $9 million for the three
months ended March 31, 1995 and 1994, respectively.
Fleet reported net income of $164 million, or $1.02 per fully diluted
share, for the quarter ended March 31, 1995, compared to $136 million, or $0.79
per fully diluted share, earned in the first quarter of 1994. Return on average
assets and return on equity improved to 1.43% and 19.78% for the first quarter
of 1995, from 1.13% and 15.32% for the first quarter of 1994, respectively.
These improved results reflect a stronger net interest margin, continued expense
control improvements, and steady loan growth.
INCOME STATEMENT ANALYSIS
Net Interest Income (FTE Basis)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1995 1994
------ ------
<S> <C> <C>
DOLLARS IN MILLIONS
Interest income..................................................... $ 877 $ 793
Tax-equivalent adjustment........................................... 10 9
Interest expense.................................................... 380 281
------ ------
Net interest income................................................. $ 487 $ 503
====== ======
</TABLE>
Net interest income on a fully taxable equivalent basis totaled $497
million for the three month period ended March 31, 1995 compared to $512 million
for the same period of 1994. The $15 million decrease was principally caused by
increased funding costs resulting from the rising short-term borrowing rates
coupled with decreased interest income on securities due to a $3.4 billion
decrease in average securities, offset by increased interest income on loans due
to both volume and rate increases.
11
<PAGE> 12
Net Interest Margin and Interest-Rate Spread
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1995 1994
---------------- ----------------
AVERAGE AVERAGE
BALANCE RATE(a) BALANCE RATE(a)
------- ----- ------- -----
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
Money market instruments................................ $ 482 6.56% $ 21 3.41%
Securities.............................................. 11,714 6.36 15,096 6.12
Loans and leases........................................ 28,717 9.49 26,460 8.16
Mortgages held for resale............................... 516 8.53 1,845 6.76
Other................................................... 93 -- 139 --
------- ----- ------- -----
Total interest-earning assets...................... 41,522 8.54 43,561 7.36
------- ----- ------- -----
Deposits................................................ 26,199 3.78 24,760 2.64
Short-term borrowings................................... 5,348 5.29 8,108 3.25
Long-term debt.......................................... 3,561 7.53 3,386 6.54
------- ----- ------- -----
Interest-bearing liabilities............................ 35,108 4.39 36,254 3.14
------- ----- ------- -----
Interest-rate spread.................................... 4.15 4.22
Interest-free sources of funds.......................... 6,414 7,307
------- ----- ------- -----
Total sources of funds............................. $41,522 3.71% $43,561 2.62%
======= ===== ======= =====
Net interest margin................................ 4.83% 4.74%
===== =====
</TABLE>
- ---------------
(a) Prepared using taxable equivalent rates.
The net interest margin for the first quarter of 1995 increased 9 basis
points to 4.83% from the first quarter of 1994, primarily due to a reduction in
the securities portfolio as a result of actions taken during the last half of
1994 to restructure the securities portfolio to improve the Corporation's
sensitivity to rising interest rates and an increase in higher-yielding average
loans outstanding, principally due to the acquisition of NBB. These actions,
coupled with numerous increases in the Corporation's prime lending rate over the
past year resulted in an increase in the yield on interest-earning assets from
7.36% in the first quarter of 1994 to 8.54% in the first quarter of 1995.
Offsetting these increases was the overall increase in the cost of funds
resulting from customers moving into higher-yielding time deposits coupled with
the impact of the numerous increases in short-term borrowing rates by the
Federal Reserve throughout 1994 and again in the first quarter of 1995.
Securities Portfolio
<TABLE>
<CAPTION>
MARCH 31,
1995 1994
---------- ----------
DOLLARS IN MILLIONS
<S> <C> <C>
Carrying value......................................................... $11,289 $15,069
Average maturity(a).................................................... 2.7 years 2.8 years
Yield(b)............................................................... 6.31% 5.89%
</TABLE>
- ---------------
(a) Average maturity relates to debt securities only and is calculated using
repricing dates rather than contract maturities.
(b) Relates to debt securities only.
The average balance of securities decreased from $15.1 billion for the
quarter ended March 31, 1994 to $11.7 billion for the first quarter of 1995.
This $3.4 billion decrease reflects the Corporation's repositioning program
during 1994 aimed at reducing the Corporation's exposure to rising interest
rates.
Average loans and leases increased $2.3 billion to $28.7 billion for the
first quarter of 1995 due primarily to the acquisition of NBB which added
approximately $1.3 billion in loans to Fleet's balance sheet, as well as steady
loan growth. The substantial increase in the yield on loans and leases from
8.16% for the first quarter of
12
<PAGE> 13
1994 to 9.49% for the first quarter of 1995 reflects the increase in Fleet's
prime lending rate to 9.00% at March 31, 1995.
The average balance of mortgages held for resale decreased $1.3 billion as
a result of a less favorable interest-rate environment and the resultant
negative impact on mortgage loan production.
Average deposits increased $1.4 billion to $26.2 billion for the first
quarter of 1995 due to increased wholesale funding. The net interest rate paid
on average deposits rose to 3.78% for the first quarter of 1995 compared to
2.64% for the first quarter of 1994, which reflects the Federal Reserve's
numerous increases in the short-term borrowing rate and the movement of
customers to higher yielding time deposits. The Corporation expects that deposit
costs will continue to increase during 1995.
The $2.8 billion decrease in average short-term borrowings corresponds to
the decrease in average securities and the decrease in mortgages held for
resale.
Average long-term debt remained relatively unchanged, however, the interest
rate paid on long-term debt increased almost 100 basis points as maturing
lower-rate long-term debt was replaced by new issuances of higher-rate long-term
debt.
The contribution to the net interest margin of interest-free sources during
the first quarter of 1995 was 68 basis points compared to 52 basis points for
the first quarter of 1994. This increase is the result of the increase in cost
of funds as interest-free sources of funds become more valuable during periods
of rising interest rates offset by a decrease in the average balances of the
interest-free sources of funds from $7.3 billion for the first quarter of 1994
to $6.4 billion for the same period of 1995.
Noninterest Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
DOLLARS IN MILLIONS
<S> <C> <C>
Mortgage banking revenue................................................ $ 99 $100
Investment services revenue............................................. 46 44
Service charges on deposits............................................. 37 34
Other service charges, fees, and commissions............................ 36 27
Student loan servicing fees............................................. 15 12
Trading income (loss)................................................... 14 (1)
FDIC loan administration fees........................................... 4 14
Brokerage fees and commissions.......................................... 4 5
Insurance............................................................... 3 4
Securities available for sale gains..................................... 1 --
Other noninterest income................................................ 49 55
---- ----
Total noninterest income........................................... $308 $294
==== ====
</TABLE>
Total operating noninterest income totaled $308 million for the first
quarter of 1995 compared to $294 million for the same period in 1994. This
increase was due primarily to increased fee-based revenues.
Mortgage Banking Revenue
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
DOLLARS IN MILLIONS
<S> <C> <C>
Net loan servicing revenue.............................................. $75 $ 66
Mortgage production revenue............................................. 1 23
Gains on sales of mortgage servicing.................................... 23 11
---- ----
Total mortgage banking revenue..................................... $99 $100
==== ====
</TABLE>
13
<PAGE> 14
Mortgage banking revenue of $99 million in 1995 was basically flat with the
$100 million recorded in 1994 reflecting a $22 million reduction in mortgage
production revenue offset by a 14% increase in loan servicing revenue and a $12
million increase in gains on sales of servicing. Mortgage production revenue
which includes income derived from the loan origination process and net gains on
sales of mortgage loans has been negatively impacted by a less favorable
interest-rate environment. Loan servicing revenue represents fees received for
servicing residential mortgage loans. The 14% increase in loan servicing revenue
is attributable to the $20 billion increase in the Corporation's servicing
portfolio from $70 billion at March 31, 1994 to $90 billion at March 31, 1995.
The increase in the servicing portfolio was caused by the acquisition of Plaza
in early March which added $9.2 billion in servicing, and the purchase of
approximately $15 billion in mortgage servicing over the past three quarters.
The Corporation sold mortgage servicing rights of approximately $3.3 billion and
$1.2 billion in the first quarter of 1995 and 1994, respectively, resulting in
pretax gains of $23 million and $11 million, respectively. The Corporation's
decision to sell any mortgage servicing rights depends on a variety of factors,
including the available markets and current market prices for such servicing
rights and the working capital requirements of the Corporation. Thus, the
likelihood or profitability of any such sales in the future cannot be predicted.
Investment services revenue increased $2 million, or 5%, from the first
quarter of 1994, due to the strengthening interest-rate environment and
improvement in the bond market which resulted in an increase in the overall
value of assets managed coupled with the implementation of various fee
enhancement initiatives developed as part of Fleet's efficiency improvement
programs. The investment services business had approximately $45 billion and $47
billion in assets under administration and management at March 31, 1995 and
1994, respectively.
Service charges on deposits, which consist primarily of fees from cash
management services, electronic transfers and other transaction related fees
increased $3 million to $37 million for the first quarter of 1995 from $34
million for the first quarter of 1994. This increase is primarily attributable
to an increased fee structure offset by a decline in average deposit levels from
period to period. Other service charges, fees, and commissions totaled $36
million for the first quarter of 1995 compared to $27 million for the same
period of 1994. These improved results reflect the implementation of various fee
enhancement programs initiated as part of Fleet's efficiency improvement
programs.
The $3 million increase in student loan servicing fees from 1994 to 1995 is
attributable to additional accounts added under the federal government's direct
student lending program. FDIC loan administration fees decreased $10 million
from $14 million for the first quarter of 1994 to $4 million for the first
quarter of 1995, as the pool of loans being administered for the FDIC is being
resolved.
Trading Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
DOLLARS IN MILLIONS
<S> <C> <C>
Debt securities....................................................... $ 5 $ 2
Foreign exchange...................................................... 4 2
Interest-rate contracts............................................... 5 (5 )
---- ----
Total trading income............................................. $14 $(1 )
==== ====
</TABLE>
The $15 million increase in total trading income is attributable to a $3
million increase in debt securities trading income, a $2 million increase in
foreign exchange gains and a $10 million increase in gains on interest-rate
contracts. The increase in debt securities trading gains was due to improved
bond market conditions during the first quarter of 1995. 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
$10 million increase in interest-rate contracts income is due to $5 million of
net losses on contracts used in managing the prepayment risk for the mortgage
servicing portfolio in 1994 compared to $5 million of net gains on these
contracts in 1995.
14
<PAGE> 15
Insurance revenue which represents commissions on insurance premiums paid
by Fleet's consumer customers decreased $1 million primarily due to a decline in
loan production at FMG and Fleet Finance.
Other noninterest income decreased $6 million from $55 million for the
three months ended March 31, 1994 compared to $49 million for the same period of
1995, primarily due a $4 million decline in consumer finance servicing fees over
the past year due to a lower level of loans being serviced at Fleet Finance,
coupled with a decrease in noninterest income at Fleet Private Equity.
Additionally, other noninterest income for the three months ended March 31, 1995
included the receipt of $10 million of interest on tax refunds in conjunction
with a settlement with the Internal Revenue Service; while noninterest income
for the three months ended March 31, 1994 included a $13 million gain on the
sale of the corporation's factoring business.
Noninterest Expense
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
---- ----
DOLLARS IN MILLIONS
<S> <C> <C>
Employee compensation and benefits.................................... $241 $258
Occupancy............................................................. 39 45
Equipment............................................................. 35 34
Purchased mortgage servicing rights amortization...................... 23 31
FDIC assessment....................................................... 18 18
Core deposit and goodwill amortization................................ 18 13
Marketing............................................................. 15 13
Legal and other professional.......................................... 14 16
Printing and mailing.................................................. 11 12
Telephone............................................................. 11 9
Office supplies....................................................... 8 7
Travel and entertainment.............................................. 6 6
Credit card........................................................... 5 4
OREO expense.......................................................... 3 7
Other................................................................. 51 51
---- ----
Total operating noninterest expense................................... 498 524
Restructuring charges................................................. -- 25
---- ----
Total noninterest expense............................................. $498 $549
==== ====
</TABLE>
Operating noninterest expense for the first quarter of 1995 totaled $498
million compared to $524 million, excluding the $25 million restructuring
charge, for the first quarter of 1994. This reduction in noninterest expenses
resulted in an improvement in the Corporation's efficiency ratio to 61.8% for
the first three months of 1995 compared to 65.0% for the same period in 1994.
The $26 million, or 5%, decrease was primarily attributable to decreases in
employee compensation and benefits, occupancy and other noninterest expense
categories as a result of the successful implementation of numerous cost-cutting
strategies developed as part of the Corporation's efficiency improvement
programs.
Purchased mortgage servicing rights amortization decreased $8 million to
$23 million for the first quarter of 1995 compared to $31 million for the first
quarter of 1994. The decrease was primarily attributable to the decline in
mortgage refinancings resulting from the interest-rate environment during the
first quarter of 1995 as compared to a year ago. In addition, the first quarter
of 1994 includes $3 million of accelerated amortization.
15
<PAGE> 16
Purchased Mortgage Servicing Rights
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
------ ----
DOLLARS IN MILLIONS
<S> <C> <C>
Balance at beginning of period....................................... $ 827 $560
Additions:
Purchases....................................................... 31 47
Acquisitions.................................................... 233 --
Servicing sales...................................................... (18) (1)
Amortization......................................................... (23) (31)
------ ----
Balance at end of period............................................. $1,050 $575
====== ====
</TABLE>
Core deposit and goodwill amortization expense increased $5 million on a
year to year comparison due to the completion of the NBB, Plaza and FMG
acquisitions during the first quarter of 1995, and OREO expense decreased $4
million from the first quarter of 1994 compared to the first quarter of 1995.
Charges of $25 million were recorded in connection with the Corporation's
efficiency improvement programs during the first quarter of 1994. The following
table presents a summary of activity with respect to the Corporation's
restructuring charges for the three month periods ended March 31, 1995 and 1994.
Restructuring Accrual
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
----- -----
DOLLARS IN MILLIONS
<S> <C> <C>
Balance at beginning of period........................................ $58 $119
Provision charged against income...................................... -- 25
Cash outlays.......................................................... (14) --
Noncash writedowns.................................................... -- --
----- -----
Balance at end of period.............................................. $44 $144
===== =====
</TABLE>
The cash outlays made during the first quarter of 1995 relate primarily to
severance costs. The Corporation's liquidity has not been significantly affected
by these cash outlays. During the first quarter of 1995, $6.3 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 $29 million of additional incremental costs will be incurred in
1995. The Corporation expects that the remaining accrual balance of $45 million
at March 31, 1995 will be sufficient to absorb the remaining restructuring
related costs.
Income Taxes
For the first quarter of 1995, the Corporation recognized income tax
expense of $111 million, an effective tax rate of 40.1%. Tax expense for the
same period of 1994 was $88 million, an effective tax rate of 39.0%.
16
<PAGE> 17
<TABLE>
Earnings by Subsidiary
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
-------- --------
DOLLARS IN THOUSANDS
<S> <C> <C>
BANKING GROUP
New York..................................................... $ 43,132 $ 38,025
Massachusetts................................................ 34,476 30,215
Rhode Island................................................. 29,011 24,426
Connecticut.................................................. 23,072 18,487
Maine........................................................ 7,610 6,439
New Hampshire................................................ 5,438 5,710
Fleet Investment Group....................................... 3,734 5,910
-------- --------
Total Banking Group..................................... 146,473 129,212
-------- --------
FINANCIAL SERVICES GROUP
Fleet Mortgage(a)............................................ 18,813 10,454
Fleet Credit................................................. 5,369 4,061
Fleet Finance................................................ (2,829) (144)
Other Financial Services..................................... 7,527 9,054
-------- --------
Total Financial Services Group.......................... 28,880 23,425
-------- --------
PARENT............................................................ (11,214) (17,075)
-------- --------
TOTAL............................................................. $164,139 $135,562
======== ========
<FN>
- ---------------
(a) Net of minority interest of $2.0 million and $2.5 million for the three
months ended March 31, 1995 and 1994, respectively.
</TABLE>
The Banking Group generated $146 million in first quarter earnings, a 13%
increase when compared to $129 million in the first quarter of 1994. These
positive results reflect a significant reduction in operating expenses,
specifically, $19 million (after-tax) decrease in employee compensation and
benefits, resulting from the implementation of cost-cutting strategies. These
results also reflect the completion of the acquisition of NBB in late January.
The Banking Group also benefited from an increase in fee-based revenues which
was attributable to the implementation of various fee-producing programs
initiated as part of Fleet's efficiency improvement programs. This group's
nonperforming assets increased $55 million, or 15%, from December 31, 1994, to
$429 million due in part to the acquisition of NBB. However, nonperforming
assets have decreased $17 million from a year ago.
The Financial Services Group's earnings increased $6 million from $23
million for the first quarter of 1994 to $29 million for the first quarter of
1995. Fleet Mortgage, the Corporation's mortgage banking subsidiary, contributed
$19 million to Fleet's earnings for the quarter compared to earnings of $10
million in the first quarter of 1994. The improved results reflect flat mortgage
banking revenue, reduced operating expenses, including PMSR amortization, and a
pretax gain of $5 million related to interest-rate products used to hedge the
value of mortgage servicing assets compared to a pretax loss on such products of
$5 million in the prior year. Refer to the Noninterest Income section and the
Noninterest Expense section for more information on mortgage banking revenue and
PMSRs, respectively.
Fleet Finance recognized a loss of $3 million for the first quarter of 1995
compared to a break-even position in the first quarter of 1994. The $3 million
loss reflects the decrease in net interest income and servicing revenue due to
reduced volume.
Earnings at Fleet's other financial services companies, which include the
Corporation's equity capital, student loan servicing, brokerage, and government
securities businesses, decreased $1.5 million from $9 million for the first
quarter of 1994 to $7.5 million for the first quarter of 1995.
17
<PAGE> 18
Fleet Private Equity had net income of $4 million for the first quarter of
1995, compared to $7 million for the first quarter of 1994. Results for the
first quarter of 1995 included $8 million (pretax) of gains on equity capital
investments compared to $12 million (pretax) for the same period in 1994.
AFSA Data Corp., the Corporation's student loan servicing subsidiary,
contributed earnings of $2 million for the first quarter of 1995 compared to $1
million for the same period in 1994. This increase reflects an increase in loans
serviced related to AFSA being named the primary servicer of the federal
government's direct student lending program late in 1994.
Fleet Brokerage Securities, the Corporation's brokerage subsidiary, and
Fleet Securities, the Corporation's government securities subsidiary, each
earned $1 million for the first quarter of 1995 compared to $1 million and
$262,000 respectively, a year earlier.
The parent company incurred a net loss of $11 million for the first quarter
of 1995 compared to a net loss of $17 million reported in 1994. The results for
1994 included the $25 million pretax restructuring charge.
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 organizational structure of the
Corporation.
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 as 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>
Selected Financial Highlights by Line of Business
<CAPTION>
INVESTMENT
COMMERCIAL CONSUMER SERVICES/ASSET
BANKING BANKING COLLECTION FINANCIAL TOTAL
------------------ ------------------ ---------------- ------------------ ----------------------
1ST 4TH 1ST 4TH 1ST 4TH 1ST 4TH 1ST 4TH
QTR QTR QTR QTR QTR QTR QTR QTR QTR QTR
1995 1994 1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
DOLLARS IN THOUSANDS
Total revenues(a)....... $356,848 $321,384 $504,383 $492,532 $89,412 $82,149 $235,284 $241,352 $1,185,927 $1,137,417
Net income.............. 44,755 46,908 76,639 56,738 19,306 14,774 23,439 46,770 164,139 165,190
ROE..................... 20.26% 19.20% 21.67% 16.04% 41.25% 31.58% 11.51% 39.62% 19.78% 21.71%
ROA..................... 1.16 1.27 1.94 1.39 5.13 3.80 0.71 1.35 1.43 1.42
AVERAGE BALANCES:
DOLLARS IN MILLIONS
Total assets............ $ 15,621 $ 14,642 $ 16,030 $ 16,239 $ 1,525 $ 1,543 $ 13,496 $ 13,742 $ 46,672 $ 46,166
Gross loans and
leases................ 13,839 13,145 12,157 12,288 1,107 1,121 1,614 765 28,717 27,319
Deposits................ 5,471 4,737 20,334 20,850 1,429 1,485 5,660 5,588 32,894 32,660
<FN>
- ---------------
(a) Calculated on an FTE basis.
</TABLE>
18
<PAGE> 19
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, achieved $45 million, or 27% of consolidated
net income for the three months ended March 31, 1995, compared to $47 million
for the three months ended December 31, 1994. Fourth quarter results include a
higher level of commercial banking related fees due to increased year end
activity and the normal seasonality of the business. The
commercial banking line of business had an ROA of 1.16% and an ROE of 20.26% for
the three months ended March 31, 1995. Included in this line of business is a
segregated pool of troubled assets that continue to run off. Excluding these
assets, the ROE of the commercial banking line would have been 23.77%.
Consumer Banking
Consumer banking, which includes retail and community banking, consumer
financing and the Corporation's major processing businesses, mortgage banking
and student loan servicing, achieved $77 million, or 47% of consolidated net
income for the three months ended March 31, 1995, compared to $57 million for
the three months ended December 31, 1994. This line of business had an ROA of
1.94% and an ROE of 21.67% for the period.
Consumer Banking - Net Income
<TABLE>
<CAPTION>
1ST 4TH
QUARTER QUARTER
1995 1994
-------- --------
DOLLARS IN
THOUSANDS
<S> <C> <C>
Retail and Community Banking........................................ $59,013 $56,235
Mortgage Banking.................................................... 18,868 19,044
Consumer Finance.................................................... (2,829) (20,157)
Student Loan Servicing.............................................. 1,587 1,616
-------- --------
Total Consumer Banking......................................... $76,639 $56,738
======== ========
</TABLE>
The retail and community banking segment which represents the largest
portion of Fleet's consumer banking business had net income of $59.0 million for
the quarter ended March 31, 1995 compared to $56.2 million in the fourth quarter
of 1994. This increase was primarily attributable to loan growth in the small
business lending, credit card and student loan portfolios.
Fleet's mortgage banking operations contributed $19 million, or 25% of
total consumer banking net income for the three months ended March 31, 1995,
which is essentially flat compared to the fourth quarter of 1994, as increases
in servicing revenue and gains on sales of mortgage servicing have been offset
by increases in the amortization of purchased mortgage servicing rights and
other expenses.
The consumer finance business had a net loss of $3 million for the three
months ended March 31, 1995, compared to $20 million for the three months ended
December 31, 1994. The $17 million improvement reflects the impact of charges
taken at Fleet Finance during the fourth quarter of 1994 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 the completion of an
efficiency improvement study that resulted in a $12 million restructuring
charge.
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 $19 million, or 12% of consolidated net income for the
first quarter of 1995, compared to $15 million for the three months ended
December 31, 1994. The $4 million increase is principally attributable to
improvements in the market value of investments in the Corporation's equity line
of business, coupled with increased fee income from investment services due to
the strengthening interest-rate environment and improvement in the bond market,
offset by a decrease in FDIC
19
<PAGE> 20
loan administration fees as the pool of loans being administered for the FDIC is
being resolved. This line of business had an ROA of 5.13% and an ROE of 41.25%
for the period.
Fleet's investment management business consists of personal asset
management, endowment and custody services, employee benefit management, and
mutual funds. At March 31, 1995, the investment services business had
approximately $45 billion in assets under administration and management.
Financial
The financial line of business generated net income of $23 million, or 14%
of consolidated net income for the three months ended March 31, 1995, compared
to $47 million for the three months ended December 31, 1994. The $24 million
decrease is attributable to $60 million relating to a tax settlement with the
Internal Revenue Service being recorded in the fourth quarter of 1994 partially
offset by $21 million of losses on the sale of securities during the same
quarter.
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
portfolio and trading group includes the overall management of the Corporation's
$11 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>
MARCH 31, 1995 DECEMBER 31, 1994 MARCH 31, 1994
------------------- ------------------- -------------------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
---------- ------- ---------- ------- ---------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
US Treasury and government
agencies................... $ 3,224 $3,145 $ 2,577 $2,444 $ 6,511 $6,515
Mortgage-backed securities... 6,622 6,449 7,897 7,465 7,323 7,234
Other debt securities........ 408 407 180 179 251 254
--------- ------- ---------- ------- ---------- -------
Total debt securities... 10,254 10,001 10,654 10,088 14,085 14,003
Marketable equity
securities................. 186 231 187 165 108 129
Other securities............. 105 105 100 100 88 88
--------- ------- ---------- ------- ---------- -------
Total securities
available for sale.... $ 10,545 $10,337 $ 10,941 $10,353 $ 14,281 $14,220
========= ======= ========= ======== ========== ========
SECURITIES HELD TO MATURITY:
State and municipal.......... $ 902 $ 905 $ 843 $ 842 $ 797 $ 801
Other debt securities........ 50 50 48 48 52 53
--------- ------- ---------- ------- ---------- -------
Total securities held to
maturity.............. $ 952 $ 955 $ 891 $ 890 $ 849 $ 854
========= ======== ========== ======== ========== ========
Total securities........ $ 11,497 $11,292 $ 11,832 $11,243 $ 15,130 $15,074
========= ======== ========== ======== ========== ========
</TABLE>
The amortized cost of securities available for sale remained relatively
unchanged from December 31, 1994 to March 31, 1995, but decreased $3.7 billion
from March 31, 1994. The decrease in US Treasury and government agencies
securities from $6.5 billion at March 31, 1994, to $3.2 billion at March 31,
1995 primarily reflects the Corporation's repositioning program during 1994
aimed at reducing the Corporation's exposure to rising interest rates. Also, the
Corporation sold approximately $700 million of mortgage-backed securities during
the first quarter of 1995 and reinvested such proceeds in shorter-term
government agencies securities. Additionally, the corporation sold $623 million
of GNMA ARMs during the first quarter of 1995. The Corporation does not
anticipate any negative impact to its net interest margin resulting from
20
<PAGE> 21
these transactions. The valuation reserve on securities available for sale
improved significantly to $(208) million at March 31, 1995 from $(588) million
at December 31, 1994, due to improvements in the bond market during the first
quarter of 1995.
Loans and Leases
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
DOLLARS IN MILLIONS
<S> <C> <C>
Loans:
Commercial and industrial.................................... $ 11,465 $ 11,102
Consumer..................................................... 7,992 7,882
Commercial real estate:
Construction....................................... 562 509
Interim/permanent.................................. 3,905 3,830
Residential real estate...................................... 4,167 2,937
Lease financing.............................................. 1,249 1,288
Other........................................................ 158 161
-------- --------
Total loans and leases........................ $ 29,498 $ 27,709
======== ========
</TABLE>
Total loans and leases increased $1.8 billion from $27.7 billion at
December 31, 1994 to $29.5 billion at March 31, 1995 due primarily to the
acquisition of NBB, which added $1.3 billion of principally residential real
estate loans, coupled with steady loan growth in commercial and consumer loans.
Commercial and industrial (C&I) loans increased $363 million, or 13% on an
annualized basis, due primarily to new loan originations experienced across all
banking franchises, as well as the purchase of NBB ($12 million).
Consumer Loans
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
DOLLARS IN MILLIONS
<S> <C> <C>
Home equity.................................................. $4,370 $4,381
Credit card.................................................. 1,515 1,473
Student loans................................................ 1,160 1,089
Installment.................................................. 763 750
Other........................................................ 184 189
------ ------
Total........................................................ $7,992 $7,882
====== ======
</TABLE>
Consumer loans increased $110 million from $7,882 million at December 31,
1994, to $7,992 million at March 31, 1995. This increase included approximately
$73 million of loans, primarily installment loans and student loans, acquired in
connection with the acquisition of NBB.
Credit card loans increased $42 million from December 31, 1994 to March 31,
1995 due to new originations and special cobranding promotions, including the
purchase of the Caldor credit card portfolio. Student loans increased $71
million from December 31, 1994 due to the NBB acquisition as well as seasonal
increases.
Excluding the acquisition of NBB which added $194 million of loans,
commercial real estate (CRE) loans decreased $66 million from December 31, 1994
to March 31, 1995.
Outstanding residential real estate loans secured by one-to four-family
residences were $4.2 billion at March 31, 1995, compared to $2.9 billion at
December 31, 1994. This $1.3 billion increase was primarily due to the
acquisition of NBB (approximately $1 billion).
21
<PAGE> 22
<TABLE>
Nonperforming Assets(a)
<CAPTION>
C & I CRE CONSUMER TOTAL
------ ---- -------- ----
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C>
Nonperforming loans and leases:
Current or less than 90 days past due................. $ 59 $ 54 $ 8 $121
Noncurrent............................................ 82 102 183 367
OREO....................................................... 8 45 37 90
---- ---- ---- ----
Total NPAs March 31, 1995........................ $149 $201 $228 $578
==== ==== ==== ====
Total NPAs December 31, 1994..................... $134 $173 $211 $518
==== ==== ==== ====
<FN>
- ---------------
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($114 million and
$96 million at March 31, 1995 and December 31, 1994, respectively), or
assets subject to federal financial assistance ($55 million and $59 million
at March 31, 1995 and December 31, 1994, respectively).
</TABLE>
Nonperforming assets (NPAs) increased $60 million from December 31, 1994 to
March 31, 1995. This increase includes approximately $32 million of NPAs
acquired in connection with acquisitions completed during the first quarter of
1995. NPAs at March 31, 1995, as a percentage of total loans, leases and OREO,
and as a percentage of total assets were 1.95% and 1.21%, respectively, compared
to 1.88% and 1.06%, respectively, at December 31, 1994.
Effective January 1, 1995, the Corporation adopted FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by Statement No.
118. Under this standard, a loan is impaired when it is probable that the
Corporation will not collect all amounts due according to the contractual terms
of the loan agreement. Certain loans are exempt from the provisions of Statement
No. 114 including large groups of smaller-balance homogenous loans that are
collectively evaluated for impairment, such as consumer and residential mortgage
loans. At March 31, 1995, the Corporation had approximately $293 million of
impaired loans all of which were on nonaccrual status, and a related impairment
reserve of $43 million.
<TABLE>
Activity in Nonperforming Assets
<CAPTION>
1ST 4TH 1ST
QUARTER QUARTER QUARTER
1995 1994 1994
------- ------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Balance at beginning of period.................................... $518 $526 $601
Additions......................................................... 139 133 133
Acquisitions...................................................... 32 -- --
Reductions:
Payments/interest applied.................................... (56) (69) (27)
Returned to accrual.......................................... (9) (7) (10)
Charge-offs/writedowns....................................... (29) (44) (44)
Sales/other.................................................. (17) (21) (40)
---- ---- ----
Total reductions........................................ (111) (141) (121)
---- ---- ----
Balance at end of period.......................................... $578 $518 $613
==== ==== ====
</TABLE>
22
<PAGE> 23
Reserve for Credit Loss Activity
<TABLE>
<CAPTION>
1ST 4TH 1ST
QUARTER QUARTER QUARTER
1995 1994 1994
------- ------- -------
DOLLARS IN MILLIONS
<S> <C> <C> <C>
Balance at beginning of period.................................... $ 953 $ 969 $ 1,000
Provision charged to income....................................... 20 17 22
Recoveries of loans and leases charged off........................ 15 16 21
Loans and leases charged off...................................... (50) (48) (53)
Acquisition/other................................................. 28 (1) (3)
------- ------- -------
Balance at end of period.......................................... $ 966 $ 953 $ 987
====== ====== ======
Ratio of net charge-offs to average loans and leases.............. 0.50% 0.47% 0.49%
Ratio of reserve for credit losses to period-end loans and
leases.......................................................... 3.27% 3.44% 3.79%
Ratio of reserve for credit losses to period-end NPAs............. 168% 184% 161%
Ratio of reserve for credit losses to period-end nonperforming
loans and leases................................................ 198% 216% 208%
</TABLE>
Fleet's reserve for credit losses increased $13 million from December 31,
1994 to $966 million at March 31, 1995. This increase is attributable to $28
million of reserves acquired in connection with acquisitions completed during
the first quarter of 1995. The first quarter of 1995 provision for credit losses
was $20 million, approximately even with the prior year's first quarter. Net
charge-offs increased to $35 million for the first quarter of 1995 from $32
million for the same period in 1994 due to a $6 million decrease in recoveries.
Slight deterioration of Fleet's credit quality ratios was noted when comparing
the first quarter of 1995 results to the fourth quarter of 1994, due in part to
the acquisitions of NBB and Plaza.
Acquisitions/other includes reserves acquired as a result of the
acquisitions of NBB and Plaza for the first quarter of 1995, and reserve
transfers to the FDIC.
Funding Sources
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
DOLLARS IN MILLIONS
<S> <C> <C>
Deposits:
Demand.................................................... $ 6,056 $ 6,890
Regular savings, NOW, money market........................ 14,969 15,220
Time:
Domestic............................................. 9,845 8,279
Foreign.............................................. 1,964 4,417
-------- --------
Total deposits.................................. 32,834 34,806
-------- --------
Borrowed funds:
Federal funds purchased................................... 1,650 1,410
Securities sold under agreements to repurchase............ 1,266 1,436
Commercial paper.......................................... 1,215 835
Other..................................................... 2,028 2,270
-------- --------
Total borrowed funds............................ 6,159 5,951
Notes and debentures........................................... 3,623 3,457
-------- --------
Total.......................................................... $ 42,616 $ 44,214
======== ========
</TABLE>
Total deposits decreased $2.0 billion to $32.8 billion at March 31, 1995,
primarily due to the liquidation of interest-bearing deposits acquired in late
1994 to take advantage of year-end arbitrage opportunities, the proceeds from
which were used to reduce foreign time deposits, offset by $2.1 billion of
deposits acquired through the purchase of NBB. Demand deposits, regular savings,
NOW and money market deposits decreased $1.1 billion, or $2.1 billion excluding
those deposits acquired from NBB, due to customer transfers to higher
23
<PAGE> 24
yielding investment accounts caused by the rising interest-rate environment.
Domestic time deposits increased $1.6 billion, or approximately $500 million
excluding those deposits acquired from NBB, due to an increase in higher
yielding certificates of deposit (CDs) balances. Foreign time deposits decreased
$2.5 billion due primarily to the liquidation of the interest-bearing deposits
mentioned previously.
Total borrowed funds increased $208 million due primarily to the borrowings
made to fund the acquisitions of NBB and Plaza. The balance of notes and
debentures increased $166 million primarily due to the issuance of $119 million
of medium-term notes in January coupled with an increase in floating-rate notes
secured by the bank's qualifying student loan portfolio at Fleet Bank of New
York.
ASSET AND LIABILITY MANAGEMENT
The asset/liability management process at Fleet ensures that the risk to
earnings fluctuations from changes in interest rates is prudently managed.
Fleet uses interest-rates 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 alter the repricing characteristics of
certain assets and liabilities, the interest-rate sensitivity of specific
portfolios is analyzed, as well as the impact of interest-rate swaps on the
entire balance sheet.
On a consolidated basis, Fleet had $6.8 billion (notional amount) of
interest-rate risk-management swaps with external counterparties at March 31,
1995.
Interest-Rate Risk-Management Analysis
<TABLE>
<CAPTION>
MARCH 31, 1995
------------------------------------------------------------
WEIGHTED AVERAGE
DESIGNATED RATE
ASSETS/ FAIR ------------------
NOTIONAL LIABILITIES VALUE RECEIVE PAY
--------- --------------------- ------ -------- -----
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
Interest-rate risk management swaps:
Receive fixed/pay variable............. $ 1,240 Variable-rate loans
1,157 Fixed-rate deposits
491 Long-term debt
-------
2,888 $ (4) 6.99% 6.68%
------- ------ ------- -----
Pay fixed/receive variable............. 100 Long-term debt (1) 6.46 7.94
------- ------ ------- -----
Basis swaps............................ 35 Deposits
2,297 Securities
-------
2,332 (10) 7.27(a) 7.24(a)
------- ------ ------- -----
Index amortizing swaps receive
fixed/pay variable................... 1,520 Variable-rate loans (37) 5.45 6.75
------- ------ ------- -----
Total.................................. $ 6,840 $ (52) 6.63% 6.84%
======= ====== ======= =====
</TABLE>
- ---------------
(a) Basis swaps are interest-rate swaps in which both amounts paid and received
are based on floating rates. At March 31, 1995, $1,165 million of basis
swaps have an average rate-receive of 7.27% and an average rate-pay of
7.24%. The remaining $1,167 million of basis swaps have forward starts in
June and September, 1995 for $384 million and $783 million, respectively.
The 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 London Interbank
Offered Rate (LIBOR). These swaps were structured as forward starts to match the
repricing characteristics of the GNMA ARMs.
24
<PAGE> 25
Index-amortizing swaps are intended to mitigate the repricing sensitivity
of floating-rate assets and consequently are designated to 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 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 4.47% to 6.47%. 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 March 31, 1995,
six-month LIBOR was 6.25%.
The interest-rate risk-management swap activity for the three months ended
March 31, 1995 is summarized in the following table (all amounts are notional
amounts):
Interest-Rate Risk-Management Swap Activity
<TABLE>
<CAPTION>
RECEIVE- PAY- INDEX-
FIXED FIXED BASIS AMORTIZING TOTAL
-------- ------ ------ ----------- ------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C>
Balance at December 31,1994.................... $2,388 $ -- $3,000 $ 2,770 $8,158
Additions...................................... 550 100 -- -- 650
Maturities..................................... (50) -- (45) -- (95)
Terminations................................... -- -- (623) (1,250) (1,873)
------- ---- ------ ------- ------
Balance at March 31, 1995...................... $2,888 $100 $2,332 $ 1,520 $6,840
====== ==== ====== ======= ======
</TABLE>
During the first quarter of 1995, the Corporation added $550 million of
receive-fixed swaps to hedge fixed-rate CDs added during the same period. The
Corporation also added $100 million of pay-fixed swaps to hedge medium-term
notes. During the quarter, Fleet terminated $623 million of its basis swaps that
were executed to synthetically alter the interest-rate characteristics of the
GNMA ARMs to more closely match the interest-rate characteristics of certain
liabilities. These swaps were terminated in connection with the sale of the
underlying assets (i.e., GNMA ARMs). Also terminated during the quarter was
$1,250 million of the index-amortizing swaps, designated to certain
variable-rate loans, which resulted in a $32 million loss that is being
amortized over approximately sixteen months. At March 31, 1995, Fleet had a
deferred gain of $53 million related to the termination of swaps in 1994 (which
will be amortized over a remaining life of approximately 47 months) and a
deferred loss of $31 million related to the termination of swaps in 1995 (which
will be amortized over a remaining life of approximately 16 months). The
amortization of deferred gains and losses on terminated swaps is recognized as
an adjustment to the yield on the assets or liabilities to which the swaps were
designated.
The maturities of the interest-rate risk-management swaps are shown in the
following table.
Maturities of the Interest-Rate Risk-Management Swaps
<TABLE>
<CAPTION>
MARCH 31, 1995
---------------------------------------------------------------------
WITHIN 1 1 TO 2 2 TO 3 3 TO 4 4 TO 5 AFTER 5
YEAR YEARS YEARS YEARS YEARS YEARS TOTAL
--------- ------- ------- ------- ------- -------- ------
DOLLARS IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Receive-fixed...................... $ 1,591 $ 510 $ 395 $ 75 $ 257 $ 60 $2,888
Pay-fixed.......................... -- 100 -- -- -- -- 100
Basis.............................. -- -- 1,130 1,202 -- -- 2,332
Index-amortizing(a)................ -- 1,320 -- -- 200 -- 1,520
------- ------ ------ ------ ------ ------ ------
Total......................... $ 1,591 $1,930 $1,525 $1,277 $ 457 $ 60 $6,840
======= ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(a) The maturities of the index-amortizing swaps reflect the full extension.
25
<PAGE> 26
LIQUIDITY
The primary sources of liquidity at the parent level are interest and
dividends from subsidiaries and access to the capital and money markets. The
Corporation's subsidiaries rely on cash flows from operations, core deposits,
borrowings, short-term high-quality liquid assets, and in the case of nonbanking
subsidiaries, excluding Fleet Mortgage, funds from the parent for liquidity.
During the first three months of 1995, the parent received $113 million in
interest and dividends from subsidiaries and paid $108 million in interest and
dividends to third parties. Dividends paid by the Corporation's banking
subsidiaries are limited by various regulatory requirements related to capital
adequacy and historic earnings. As shown in the consolidated statement of cash
flows, cash and cash equivalents decreased by $3.3 billion during the three
month period ended March 31, 1995. This decrease was primarily due to the $4.0
billion of net cash used by financing activities, partially offset by the $428
million and $286 million of net cash provided by operating activities and
investing activities, respectively. Net cash used by financing activities was
primarily due to the net decrease in deposits resulting from the liquidation of
interest-bearing deposits acquired in late 1994 to take advantage of year-end
arbitrage opportunities, the proceeds from which were used to reduce foreign
time deposits, and the repayments of maturing long-term debt, offset by the
issuance of additional long-term debt primarily for general corporate purposes.
Net cash provided by operating activities was principally generated by income
from operations and an increase in accrued liabilities. Net cash provided by
investing activities was primarily due to proceeds from sales and maturities of
securities offset by purchases of securities, the net increase in loans and
leases, the acquisition of the minority interest of FMG and the net cash and
cash equivalents paid for businesses acquired.
FMG has a separate funding program that includes two revolving-warehouse
credit agreements totaling $2.20 billion at both March 31, 1995 and December 31,
1994. On April 3, 1995, FMG renegotiated these agreements and incorporated the
terms of these two facilities into one credit facility with $1.8 billion of
total available funds.
FMG has $315 million outstanding under these credit agreements at March 31,
1995, compared to $500 million at December 31, 1994. FMG also sells commercial
paper to fund short-term needs. At March 31, 1995 and December 31, 1994, Fleet,
excluding FMG, had commercial paper outstanding of $915 million and $727
million, respectively. The Corporation has backup lines of credit to ensure that
funding is not interrupted if commercial paper is not available. Total amount of
funds available under these agreements was $1.0 billion at March 31, 1995. Fleet
had no outstanding balance under the line of credit.
Fleet has a universal shelf registration that provides for the issuance of
common and preferred stock, senior or subordinated debt securities, and other
securities with total amount of funds available of approximately $1 billion at
March 31, 1995. In January 1995, the Corporation issued $119 million of its
senior medium-term notes, all of which are due in 1996. On May 1, 1995, the
Corporation issued $250 million of 7.125% senior notes due May 1, 2000, which
reduces the amount of funds available from the universal shelf registration
program to approximately $760 million.
CAPITAL
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
<S> <C> <C>
DOLLARS IN MILLIONS
Risk-adjusted assets................................. $ 35,706 $35,498
Tier 1 risk-based capital (4% minimum)............... 9.79% 10.08%
Total risk-based capital (8% minimum)................ 13.97 14.21
Leverage ratio....................................... 7.57 7.77
Common equity-to-assets.............................. 7.41 6.16
Total equity-to-assets............................... 8.20 6.93
Tangible total equity-to-assets...................... 4.77 4.65
Capital in excess of minimum requirements:
Tier 1 risk-based............................... $ 2,067 $ 2,160
Total risk-based................................ 2,133 2,203
Leverage........................................ 1,649 1,737
</TABLE>
26
<PAGE> 27
At March 31, 1995, the Corporation exceeded all regulatory required minimum
capital ratios. The Corporation's risk based regulatory ratios decreased during
the first quarter of 1995 compared to December 31, 1994, primarily due to the
impact of additional intangible assets resulting from the NBB, Plaza and FMG
transactions which were completed during the first quarter of 1995. The impact
of these transactions, however was offset by the reissuance of treasury stock of
approximately $196 million in connection with the NBB transaction. The
Corporation's equity-to-asset ratios increased during the first quarter of 1995
due primarily to the aforementioned issuance of treasury stock, coupled with the
significant improvement in the valuation reserve for securities available for
sale.
27
<PAGE> 28
PART II. -- ITEM 1 THROUGH 5.
Not applicable.
PART II. -- ITEM 6.
(a) Exhibit Index
<TABLE>
<CAPTION>
PAGE OF
EXHIBIT THIS
NUMBER REPORT
- ------- --------
<C> <S> <C>
Instruments defining the right of security holders, including
4 debentures *
11 Statement re-computation of per share earnings 30
</TABLE>
- ---------------
* Registrant has no instruments defining the rights of holders of equity or debt
securities where the amount of securities authorized thereunder exceeds 10% of
the total assets of the registrant and its subsidiaries on a consolidated
basis. Registrant hereby agrees to furnish a copy of any such instrument to
the Commission upon request.
(b) Six Form 8-Ks were filed during the period from January 1, 1995 to the date
of the filing of this report.
- -- Current Report on Form 8-K dated January 18, 1995 (reporting fourth quarter
1994 earnings release.)
- -- Current Report on Form 8-K dated January 27, 1995 (reporting consummation of
the merger of NBB Bancorp, Inc.)
- -- Current Report on Form 8-K dated February 20, 1995 (filing the Merger
Agreement between Fleet and Shawmut National Corp.)
- -- Current Report on Form 8-K dated February 21, 1995 (reporting the
announcement of the proposed merger between Fleet and Shawmut National Corp.)
- -- Current Report on Form 8-K dated April 13, 1995 (filing the unaudited Pro
Forma Condensed Combined Financial Statements and notes thereto in connection
with the merger of Fleet and Shawmut National Corp. ("Shawmut") and the
consolidated balance sheets of Shawmut at December 31, 1994 and 1993 and the
related consolidated statements of income, of changes in stockholders equity
and of cash flows for each of the three years in the period ending December
31, 1994.)
- -- Current Report on Form 8-K dated May 11, 1995 (reporting the issuance of $250
million of its 7.125% senior notes due 2000).
28
<PAGE> 29
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEET FINANCIAL GROUP, INC.
....................................
(REGISTRANT)
/S/ EUGENE M. MCQUADE
....................................
EUGENE M. MCQUADE
EXECUTIVE VICE PRESIDENT
CHIEF FINANCIAL OFFICER
/S/ ROBERT C. LAMB, JR.
....................................
ROBERT C. LAMB, JR.
CHIEF ACCOUNTING OFFICER
CONTROLLER
May 12, 1995
29
<PAGE> 1
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31
---------------------------------------------------------
1995 1994
--------------------------- ---------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equivalent shares:...................... 139,338,382 139,338,382 141,122,691 141,122,691
Average shares outstanding
Additional shares due to:
Stock options...................... 514,159 525,452 812,793 850,937
Warrants........................... 2,931,571 2,956,371 3,194,376 3,233,808
Dual convertible preferred stock... 16,033,994 16,033,994 16,033,994 16,033,994
------------ ------------ ------------ ------------
Total equivalent shares....... 158,818,106 158,854,199 161,163,854 161,241,430
=========== =========== =========== ===========
Earnings per share
Net income.............................. $ 164,139 $ 164,139 $ 135,562 $ 135,562
Less: Preferred stock dividends......... (2,463) (2,463) (7,732) (7,732)
------------ ------------ ------------ ------------
Adjusted net income..................... $ 161,676 $ 161,676 $ 127,830 $ 127,830
=========== =========== =========== ===========
Total equivalent shares....... 158,818,106 158,854,199 161,163,854 161,241,430
=========== =========== =========== ===========
Earnings per share on net income........ $1.02 $1.02 $0.79 $0.79
=========== =========== =========== ===========
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1995 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,009
<INT-BEARING-DEPOSITS> 288
<FED-FUNDS-SOLD> 250
<TRADING-ASSETS> 64
<INVESTMENTS-HELD-FOR-SALE> 10,337
<INVESTMENTS-CARRYING> 952
<INVESTMENTS-MARKET> 955
<LOANS> 29,498
<ALLOWANCE> (966)
<TOTAL-ASSETS> 47,814
<DEPOSITS> 32,834
<SHORT-TERM> 6,159
<LIABILITIES-OTHER> 1,278
<LONG-TERM> 3,623
<COMMON> 1,676
0
379
<OTHER-SE> 1,865
<TOTAL-LIABILITIES-AND-EQUITY> 47,814
<INTEREST-LOAN> 682
<INTEREST-INVEST> 185
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 867
<INTEREST-DEPOSIT> 244
<INTEREST-EXPENSE> 380
<INTEREST-INCOME-NET> 487
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 498
<INCOME-PRETAX> 277
<INCOME-PRE-EXTRAORDINARY> 277
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 4.83
<LOANS-NON> 578
<LOANS-PAST> 114
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 953
<CHARGE-OFFS> 50
<RECOVERIES> 15
<ALLOWANCE-CLOSE> 966
<ALLOWANCE-DOMESTIC> 966
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
