SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 15, 1996
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FLEET FINANCIAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
RHODE ISLAND
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(State or other jurisdiction of incorporation)
1-6366 05-0341324
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(Commission File Number) (IRS Employer
Identification No.)
One Federal Street, Boston, Massachusetts 02211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-292-2000
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<PAGE>
Item 5. Other Events.
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On December 19, 1995, Fleet entered into an Agreement and Plan of
Merger (the "Merger Agreement") with National Westminster Bank Plc
("NatWest Plc") providing for the merger (the "Merger") of Fleet Bank of
New York, National Association ("FBNY"), a wholly-owned subsidiary of
Fleet, with and into NatWest Bank N.A. ("Natwest") which shall continue its
existence as the surviving bank under the name "Fleet Bank of New York,
National Association". Pursuant to the terms of the Merger Agreement, Fleet
will purchase from NatWest Plc the three main operating entities of NatWest
Bancorp (Bancorp), a wholly-owned, indirect subsidiary of NatWest Plc: NatWest
Bank N.A., NatWest (Delaware) and NatWest Services Inc. The Merger Agreement
also requires that certain assets and liabilities of NatWest will be retained
by Bancorp or transferred to other affiliates of NatWest Plc. NatWest is a
wholly-owned, direct subsidiary of National Westminster Bancorp NJ, a New
Jersey corporation, which is a wholly-owned, direct subsidiary of National
Westminster Bancorp, Inc., a Delaware corporation ("Bancorp"). Bancorp is a
wholly-owned, indirect subsidiary of NatWest Plc.
Fleet hereby files its Unaudited Pro Forma Combined Financial Statements
and Notes thereto in connection with the Merger as of December 31, 1995.
For additional information regarding the Merger, see the Registrant's
Current Report on Form 8-K dated December 19, 1995.
Item 7. Financial Statements and Exhibits.
---------------------------------
The following exhibits are filed as part of this report:
23 Consent of KPMG Peat Marwick, LLP
99(a) Unaudited Pro Forma Combined Financial Statements and
Notes Thereto
99(b) Management's Discussion and Analysis; Selected Financial
Highlights; Supplemental Financial Information;
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993; Consolidated Balance
Sheets as of December 31, 1995 and 1994; Consolidated
Statements of Changes in Stockholders' Equity, and
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993 and footnotes
related thereto; Management's Report on Financial
Statements; and Report of Independant Auditors.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed in
its behalf by the undersigned hereunto duly authorized.
FLEET FINANCIAL GROUP, INC.
Registrant
By /s/ Robert C. Lamb, Jr.
---------------------------
Robert C. Lamb, Jr.
Chief Accounting Officer
and Controller
Dated: March 15, 1996
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fleet Financial Group, Inc.
We consent to incorporation by reference in the registration statements (Nos.
33-19425, 33-22045, 33-48818, 33-56061, 33-57501, 33-57677, 33-62367, 33-58933,
33-64635, and 33-59139) on Form S-8, the registration statements (Nos. 33-36707,
33-55555, 33-63631, 33-58933, and 333-00701) on Form S-3, and the registration
statements (Nos. 33-55579, 33-58573, and 33-58933) on Form S-4 of Fleet
Financial Group, Inc. of our report dated January 17, 1996, relating to the
consolidated balance sheets of Fleet Financial Group, Inc. as of December 31,
1995 and 1994, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1995, which report appears in the Current Report on
Form 8-K of Fleet Financial Group, Inc. dated March 15, 1996. Our report refers
to changes in the methods of accounting for mortgage servicing rights,
investments in debt and equity securities, and income taxes.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
March 15, 1996
EXHIBIT 99(a)
FLEET FINANCIAL GROUP, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
December 31, 1995
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On December 19, 1995, Fleet Financial Group, Inc. ("Fleet") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with National
Westminster Bank, Plc ("NatWest Plc") providing for the merger (the
"Merger") of Fleet Bank of New York, National Association ("FBNY"), a
wholly-owned subsidiary of Fleet, with and into NatWest Bank N.A.
("NatWest"), a wholly-owned indirect subsidiary of NatWest Plc, which shall
continue as the surviving bank under the name "Fleet Bank, N.A." (the
"Surviving Bank"). The following Unaudited Pro Forma Combined Balance
Sheet as of December 31, 1995, and the Unaudited Pro Forma Combined
Statement of Income for the year ended December 31, 1995, give effect to
the Merger accounted for by the purchase method of accounting as if such
transaction had occurred on January 1, 1995.
The pro forma information is based on the historical consolidated
financial statements of Fleet and National Westminster Bancorp, Inc.
("Bancorp") and their subsidiaries under the assumptions and adjustments
set forth in the accompanying Notes to the Unaudited Pro Forma Combined
Financial Statements. NatWest is a wholly-owned direct subsidiary of
National Westminster Bancorp NJ, a New Jersey corporation, which is a
wholly-owned direct subsidiary of National Westminster Bancorp, Inc., a
Delaware corporation. Bancorp is a wholly-owned indirect subsidiary of
NatWest Plc. Pursuant to the terms of the Merger Agreement, certain
operating subsidiaries of Bancorp, including its leasing subsidiary, and
certain assets and liabilities of NatWest will be retained by Bancorp or
transferred to other affiliates of NatWest Plc. Such assets and
liabilities are included as pro forma adjustments in the Unaudited Pro
Forma Combined Financial Statements. The Unaudited Pro Forma Combined
Financial Statements should be read in conjunction with the consolidated
financial statements of Fleet, filed on Form 8-K dated March 15, 1996.
The pro forma information is presented for comparative purposes only and is
not necessarily indicative of the combined financial position or results of
operations in the future or of the combined financial position or results
of operations which would have been realized had the acquisition been
consummated during the period or as of the date for which the pro forma
information is presented.
<PAGE>
<TABLE><CAPTION>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1995 (a)
Fleet /
Balance Sheet NatWest
Fleet NatWest Pro Forma Restructuring Pro Forma
(Dollars in millions) Historical Pro Forma Adjustments Adjustments (d) Combined
----------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <c) <C>
ASSETS:
Cash and cash equivalents $ 4,505 $ 2,021 $ 0 $ 0 $ 6,526
Federal funds sold and securities purchased
under agreements to resell 61 2,965 0 (3,026) 0
Securities 19,331 3,033 (1,700) (b) (13,400) 7,264
Loans and leases 51,525 13,926 0 0 65,451
Reserve for credit losses (1,321) (255) 0 0 (1,576)
Mortgages held for resale 2,005 3,784 0 (3,500) 2,289
Premises and equipment 991 422 (88) (c) 0 1,325
Mortgage servicing rights 1,276 14 5 (c) 0 1,295
Excess cost over net assets acquired 935 982 (398) (c) 0 1,519
Other intangibles 181 25 242 (c) 0 448
Other assets 4,943 2,005 (12) (c) 0 6,936
----------- ----------- ----------- -------------- ----------
Total assets $ 84,432 $ 28,922 $ (1,951) $ (19,926) $ 91,477
=========== =========== =========== ============== ==========
LIABILITIES and STOCKHOLDERS' EQUITY:
Deposits:
Demand $ 12,305 $ 4,866 $ 0 $ 0 $ 17,171
Regular savings, NOW, money market 22,835 8,606 0 0 31,441
Time 21,982 7,534 0 (4,600) 24,916
----------- ----------- ----------- -------------- ----------
Total deposits 57,122 21,006 0 (4,600) 73,528
----------- ----------- ----------- -------------- ----------
Federal funds purchased and securities sold
under agreements to repurchase 7,425 2,049 0 (9,474) 0
Other short-term borrowings 5,144 1,804 0 (5,852) 1,096
Accrued expenses and other liabilities 1,895 683 429 (c) 0 3,007
Long-term debt 6,481 0 400 (b) 0 6,881
----------- ----------- ----------- -------------- ----------
Total liabilities 78,067 25,542 829 (19,926) 84,512
----------- ----------- ----------- -------------- ----------
Stockholders' equity:
Preferred equity 399 0 600 (b) 0 999
Common equity 5,966 3,380 (3,380) (c) 0 5,966
----------- ----------- ----------- -------------- ----------
Total stockholders' equity 6,365 3,380 (2,780) 0 6,965
----------- ----------- ----------- -------------- ----------
Total liabilities and stockholders' equity $ 84,432 $ 28,922 $ (1,951) $ (19,926) 91,477
=========== =========== =========== ============== ==========
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1995 (a)
<TABLE><CAPTION>
NatWest
Bancorp Pro Forma NatWest
(Dollars in millions) Historical Adjustments (e) Pro Forma
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,022 $ (1) $ 2,021
Federal funds sold and securities purchased
under agreements to resell 2,965 0 2,965
Securities 3,036 (3) 3,033
Loans and leases 14,428 (502) 13,926
Reserve for credit losses (258) 3 (255)
Mortgages held for resale 3,784 0 3,784
Premises and equipment 543 (121) 422
Mortgage servicing rights 14 0 14
Excess cost over net assets acquired 982 0 982
Other intangibles 25 0 25
Other assets 2,074 (69) 2,005
---------- ----------- ----------
Total assets $ 29,615 $ (693) $ 28,922
========== =========== ==========
LIABILITIES and STOCKHOLDERS' EQUITY:
Deposits:
Demand $ 4,866 $ 0 $ 4,866
Regular savings, NOW, money market 8,606 0 8,606
Time 7,534 0 7,534
---------- ----------- ----------
Total deposits 21,006 0 21,006
---------- ----------- ----------
Federal funds purchased and securities sold
under agreements to repurchase 2,049 0 2,049
Other short-term borrowings 1,866 (62) 1,804
Accrued expenses and other liabilities 805 (122) 683
Long-term debt 654 (654) 0
---------- ----------- ----------
Total liabilities 26,380 (838) 25,542
---------- ----------- ----------
Stockholders' equity:
Preferred equity 0 0 0
Common equity 3,235 145 3,380
---------- ----------- ----------
Total stockholders' equity 3,235 145 3,380
---------- ----------- ----------
Total liabilities and stockholders' equity $ 29,615 $ (693) $ 28,922
========== =========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
<TABLE><CAPTION>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Twelve Months Ended December 31, 1995 (a)
Fleet /
Balance Sheet NatWest
Fleet NatWest Pro Forma Restructuring Pro Forma
(Dollars in millions, except per share data) Pro Forma Pro Forma Adjustments Adjustments (d) Combined
----------- --------- ----------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Interest and fees on loans and leases $ 4,785 $ 1,499 $ 0 $ (279) $ 6,005
Interest on securities 1,365 641 (105)(b) (1,006) 895
---------- -------- --------- -------------- ---------
Total interest income 6,150 2,140 (105) (1,285) 6,900
Interest expense:
Deposits 1,782 619 0 (271) 2,130
Short-term borrowings 836 446 0 (872) 410
Long-term debt 478 0 26 (b) 0 504
---------- -------- --------- -------------- ---------
Total interest expense 3,096 1,065 26 (1,143) 3,044
---------- -------- --------- -------------- ---------
Net interest income 3,054 1,075 (131) (142) 3,856
Provision for credit losses 102 95 0 0 197
---------- -------- --------- -------------- ---------
Net interest income after provision for credit losses 2,952 980 (131) (142) 3,659
---------- -------- --------- -------------- ---------
Mortgage banking 512 30 0 0 542
Investment services revenue 322 16 0 0 338
Service charges, fees and commissions 496 237 0 0 733
Securities available for sale gains 38 90 0 0 128
Other noninterest income 496 143 0 0 639
---------- -------- --------- -------------- ---------
Total noninterest income 1,864 516 0 0 2,380
---------- -------- --------- -------------- ---------
Employee compensation and benefits 1,474 452 (2)(c) 0 1,924
Occupancy and equipment 468 136 (4)(c) 0 600
Mortgage servicing rights amortization 196 2 1 (c) 0 199
FDIC assessment 70 21 0 0 91
Marketing 94 52 0 0 146
Intangible asset amortization 113 77 (21)(c) 0 169
OREO expense 16 6 0 0 22
Merger and restructuring related charges 490 7 0 0 497
Loss on assets held for sale or accelerated disposition 175 0 0 0 175
Other noninterest expense 701 210 0 0 911
---------- -------- --------- -------------- ---------
Total noninterest expense 3,797 963 (26) 0 4,734
---------- -------- --------- -------------- ---------
Income before income taxes 1,019 533 (105) (142) 1,305
Applicable income taxes 420 210 (64) (57) 509
---------- -------- --------- -------------- ---------
Net income $ 599 $ 323 $ (41) $ (85) $ 796
========== ======== ========= ============== =========
Net income applicable to common shares: (f) $ 404 $ 323 $ (86)(b) $ (85) $ 556
========== ======== ========= ============== =========
Weighted average common shares outstanding: (g)
Primary 264,352,367 264,352,367
Fully Diluted 265,442,513 265,442,513
Earnings per share:
Primary $ 1.53 $ 2.10
Fully Diluted 1.52 2.09
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
<TABLE><CAPTION>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Twelve Months Ended December 31, 1995 (a)
Fleet Pro Forma Fleet
(Dollars in millions, except per share data) Historical Adjustments (h) Pro Forma
------------ ------------ -----------
<S> <C> <C> <C>
Interest and fees on loans and leases $ 4,721 $ 64 $ 4,785
Interest on securities 1,304 61 1,365
------------ ------------ ------------
Total interest income 6,025 125 6,150
Interest expense:
Deposits 1,726 56 1,782
Short-term borrowings 801 35 836
Long-term debt 478 0 478
------------ ------------ ------------
Total interest expense 3,005 91 3,096
------------ ------------ ------------
Net interest income 3,020 34 3,054
Provision for credit losses 101 1 102
------------ ------------ ------------
Net interest income after provision for credit losses 2,919 33 2,952
------------ ------------ ------------
Mortgage banking 511 1 512
Investment services revenue 322 0 322
Service charges, fees and commissions 492 4 496
Securities available for sale gains 32 6 38
Other noninterest income 493 3 496
------------ ------------ ------------
Total noninterest income 1,850 14 1,864
------------ ------------ ------------
Employee compensation and benefits 1,448 26 1,474
Occupancy and equipment 459 9 468
Mortgage servicing rights amortization 190 6 196
FDIC assessment 67 3 70
Marketing 93 1 94
Intangible asset amortization 105 8 113
OREO expense 15 1 16
Merger and restructuring related charges 490 0 490
Loss on assets held for sale or accelerated disposition 175 0 175
Other noninterest expense 693 8 701
------------ ------------ ------------
Total noninterest expense 3,735 62 3,797
------------ ------------ ------------
Income before income taxes 1,034 (15) 1,019
Applicable income taxes 424 (4) 420
------------ ------------ ------------
Net income $ 610 $ (11) $ 599
============ ============ ============
Net income applicable to common shares: (f) $ 416 $ (12) $ 404
============ ============ ============
Weighted average common shares outstanding: (g)
Primary 264,796,217 264,352,367
Fully Diluted 265,886,363 265,442,513
Earnings per share:
Primary $ 1.57 $ 1.53
Fully Diluted 1.57 1.52
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Twelve Months Ended December 31, 1995(a)
<TABLE><CAPTION>
NatWest
Bancorp Pro Forma NatWest
(Dollars in millions, except per share data) Historical Adjustment(s) (e) Pro Forma
------------ --------------- ---------------
<S> <C> <C> <C>
Interest and fees on loans and leases $ 1,508 $ (9) $ 1,499
Interest on securities 642 (1) 641
----------- -------------- --------------
Total interest income 2,150 (10) 2,140
Interest expense:
Deposits 619 - 619
Short-term borrowings 420 26 446
Long-term debt 61 (61) -
----------- -------------- --------------
Total interest expense 1,100 (35) 1,065
----------- -------------- --------------
Net interest income 1,050 25 1,075
Provisions for credit losses 95 - 95
----------- -------------- --------------
Net interest income after provision for credit losses 955 25 980
----------- -------------- --------------
Mortgage banking 30 - 30
Investment services revenue 16 - 16
Service charges, fees and commissions 237 - 237
Securities available for sale gains 90 - 90
Other noninterest income 145 (2) 143
----------- -------------- --------------
Total noninterest income 518 (2) 516
----------- -------------- --------------
Employee compensation and benefits 459 (7) 452
Occupancy and equipment 137 (1) 136
Mortgage servicing rights amoritization 2 - 2
FDIC assessment 21 - 21
Marketing 56 (4) 52
Intangible asset amortization 78 (1) 77
OREO expense 6 - 6
Merger and restructuring related charges 10 (3) 7
Loss on assets held for sale or accelerated disposition - - -
Other noninterest expense 197 13 210
----------- -------------- --------------
Total noninterest expense 966 (3) 963
----------- -------------- --------------
Income before income taxes 507 26 533
Applicable income taxes 201 9 210
----------- -------------- --------------
Net income $ 306 $ 17 $ 323
=========== ============== ==============
Net income applicable to common shares: (f) $ 306 $ 17 $ 323
=========== ============== ==============
See accompanying notes to the unaudited pro forma combined financial statements
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) The pro forma information presented is not necessarily indicative
of the results of operations or the combined financial position that would
have resulted had the Merger been consummated at the beginning of the
period indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities. Under generally accepted accounting principles
("GAAP"), the assets and liabilities of NatWest will be combined at market
value with those of Fleet with the excess of the purchase price over the
net assets acquired allocated to goodwill. On November 30, 1995, Fleet
completed the merger (the "Shawmut Merger") of Shawmut National Corporation
("Shawmut") with and into Fleet with such merger accounted for as a pooling
of interests.
The pro forma combined financial statements do not give effect to the
anticipated cost savings in connection with the Merger or the Shawmut
Merger. While no assurance can be given, Fleet expects to achieve cost
savings of approximately $200 million (pre-tax) within eighteen months
following the Merger. Cost savings of $400 million are also expected to be
achieved in connection with the Shawmut Merger. Such cost savings are
expected to be achieved within the first fifteen months after the
consummation of the Shawmut Merger. Cost savings from both the Merger and
the Shawmut Merger are expected to be realized primarily through reductions
in staff, elimination and consolidation of certain branches, and the
consolidation of certain offices, data processing and other redundant back-
office operations. The extent to which cost savings will be achieved in
connection with the Merger and the Shawmut Merger is dependent upon various
factors beyond the control of Fleet, including the regulatory environment,
economic conditions, unanticipated changes in business conditions and
inflation. 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.
The pro forma information gives effect to the Merger as if such Merger
had occurred on January 1, 1995. In connection with the Merger, Fleet
intends to substantially restructure its balance sheet to replace lower
yielding assets, primarily securities and residential loans, with higher
earning assets acquired from NatWest and to replace higher cost funding
with lower cost deposits acquired from NatWest (see note d). The pro forma
information gives effect to the balance sheet restructuring. However, due
to differences in market conditions and the balance sheet mix and size
during 1995 compared to the current market conditions and the current
balance sheet mix and size, pro forma results of operations may not be
indicative of the results of operations in the future or which would have
resulted had the acquisition been consummated during the period for which
the pro forma information is presented.
In connection with the Shawmut Merger, Fleet signed definitive
agreements to divest 64 branches to comply with anti-trust concerns. The
sales will consist of approximately $2.6 billion in deposits and $1.9
billion in loans. The negative impact of the divestitures is not expected
to be material to the business operations or financial condition of Fleet
and such impact has not been included in the accompanying Unaudited Pro
Forma Combined Financial Statements. No divestitures are anticipated from
the Merger.
During 1995, Fleet recorded pre-tax charges of $490 million relating
to the Shawmut Merger and $175 million related to Fleet's decision to sell
Fleet Finance, the corporation's Atlanta based consumer finance subsidiary,
and certain nonperforming assets that have been identified for accelerated
disposition. In connection with this charge, approximately $1.7 billion of
assets (primarily loans) were classified to held for sale or accelerated
disposition. The after-tax effect of these charges was $429 million.
During the fourth quarter of 1995, Fleet exchanged all of the corporation's
dual convertible preferred stock for 19.9 million shares of Fleet common
stock. As part of that transaction, $283 million of preferred equity was
reclassified to common equity and earnings available to common shareholders
was reduced by $0.59 per share. These transactions are reflected in the
accompanying Unaudited Pro Forma Combined Financial Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
All dollar amounts included in these Notes to Unaudited Pro Forma
Combined Financial Statements are in thousands unless otherwise indicated.
(b) The Merger Agreement provides for the payment of $2.7 billion in
cash at the closing; provided that Fleet may elect to pay (i) up to $175
million of the purchase price in shares of its common stock, $0.01 par
value (the "Common Stock") and (ii) up to $300 million of the purchase
price in shares of a new series of Fleet preferred stock with a stated
value of $250 per share. The Unaudited Pro Forma Combined Financial
Statements assume that no common stock is issued as part of the purchase
price and that no preferred stock is issued to NatWest PLC as part of the
purchase price. The following funding assumptions have been made in
conjunction with the Merger and are reflected in the accompanying Unaudited
Pro Forma Combined Financial Statements. The $2.7 billion purchase price
will be funded through the issuance of $600 million of preferred stock with
a dividend rate of 7.50%, the issuance of $400 million of long-term debt
with an average borrowing rate of 6.50%, and that the remaining $1.7
billion purchase price is funded through dividends received from Fleet
subsidiaries ($1.375 billion) and asset sales within Fleet Bank N.A. ($325
million). The source of funds for the $1.375 billion in dividends received
from subsidiaries is assumed to be the result of asset sales, primarily
securities. These funding assumptions are based on the best information
available as of the date of the filing of these Unaudited Pro Forma
Combined Financial Statements and may be different from the actual
adjustments to reflect the funding transactions actually consummated. All
funding transactions are assumed to have occurred as of January 1, 1995.
(c) Purchase accounting adjustments include adjustments to reflect
the fair value of the assets acquired and liabilities assumed, the
elimination of NatWest's stockholder's equity, and the recording of
goodwill and core deposit intangible in accordance with the purchase method
of accounting. These adjustments are based on the best information
available as of the date of the filing of these Unaudited Pro Forma
Combined Financial Statements and may be different from the actual
adjustments to reflect the fair value of the net assets purchased as of
the date of consummation of the merger. Adjustments have been made to the
Unaudited Pro Forma Combined Balance Sheet to reflect the recording of
goodwill as well as to eliminate any goodwill balances previously recorded
at NatWest, in accordance with the purchase method of accounting.
Purchase price $2,700
Historical net tangible assets acquired $3,380
Elimination of NatWest goodwill and identifiable
intangibles (990) 2,390
-------
Estimated fair value adjustments (34)
Estimated purchase price adjustment (71)(1)
--------
Estimated fair value of net assets acquired 2,285
--------
Excess cost over net assets acquired (goodwill) $ 415
========
(1) In accordance with the Merger Agreement the purchase price will be
adjusted based upon the tangible equity of NatWest as of the closing
date of the Merger, The pro forma adjustment reflects the estimated
increase in the purchase price as if the Merger had been consummated
on December 31, 1995.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Goodwill of $415 million has been estimated assuming a purchase price of
$2.7 billion which excludes any payments to be made under the earnout
agreements. The Merger Agreement provides for additional payments (the
"Earnout") to be made annually based upon the level of earnings from the
NatWest franchise, not to exceed $560 million during an eight year "Earnout
Period", which will commence (a) on July 1, 1996 and end on June 30, 2004
if the closing occurs on or before June 30, 1996, or, if the closing occurs
after June 30, 1996, (b) on the first day of the fiscal quarter immediately
following such closing and end on the eighth anniversary of such first day
of such fiscal quarter. Assuming full payout of the Earnout, the total
purchase price would be $3.26 billion resulting in an increase to goodwill
of $560 million. Such increase, if any, will be recorded when earned
during the Earnout Period and will be amortized over the remaining life of
the goodwill. Included in the pro forma adjustments is an increase to
goodwill of $169 million as of December 31, 1995, reflecting the estimated
payment required under the Earnout assuming consummation of the Merger as
of January 1, 1995. This estimate is based on the level of NatWest pro
forma earnings in 1995 and is not necessarily indicative of payments that
may be made, if any, upon consummation of the Merger. Estimated fair
value adjustments include merger related charges and other adjustments to
reflect the estimated fair value of assets being acquired and liabilities
being assumed. Significant adjustments include core deposit intangible of
$150 million, net of tax, and a liability of $106 million, net of tax, to
reflect Fleet's best estimate of merger related charges. Goodwill due to
the Merger will be amortized on a straight line basis over 25 years. Other
identifiable intangible assets due to the Merger will be amortized over the
estimate period of benefit (primarily core deposit intangible, not
exceeding 10 years).
(d) In conjunction with or prior to the Merger, Fleet and Bancorp
will take certain actions to restructure the Combined Balance Sheet through
the liquidation of low-return assets and the reduction of borrowed funds.
These restructuring adjustments are reflected in the accompanying Unaudited
Pro Forma Combined Financial Statements. The accompanying Unaudited Pro
Forma Combined Financial Statements assume the reduction of approximately
$19.9 billion of assets and an equal amount of borrowed funds. The assets
assumed to be reduced include approximately $13.4 billion of securities
with an average yield of 6.18%, approximately $3.5 billion of loans,
primarily residential real estate, with an average yield of 7.98%, and
approximately $3.0 billion in federal funds sold with an average yield of
5.89%. The $19.9 billion of borrowed funds assumed to be reduced includes
approximately $15.3 billion of short-term borrowings with an average
borrowing rate of 5.69%, and $4.6 billion of time deposits with an average
borrowing rate of 5.89%. Asset yields and funding costs have been
estimated based upon historical weighted average yields and funding costs
of similar assets and liabilities in the aggregate and may not be
indicative of the results of operations in the future or which would have
been realized had such transactions been consummated during the period for
which the pro forma information is presented. The balance sheet
restructuring adjustments have been calculated assuming a certain balance
sheet size as well as a certain mix of balance sheet assets (primarily
securities and residential loans) to total assets as of December 31, 1995.
As a result, restructuring assumptions may not be indicative of the results
of operations in the future or that would have been achieved had the Merger
been consummated at the beginning of the period indicated. Also, due to
changing market conditions, balance sheet mix and balance sheet size
restructuring assumptions may differ as compared to the ultimate balance
sheet restructuring upon consummation of the Merger.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(e) Pursuant to the Merger Agreement, certain operating subsidiaries
of Bancorp, including its leasing business, and certain assets and
liabilities of NatWest will be retained by Bancorp. Pro forma adjustments
reflect the approximate impact of those assets not being purchased and
liabilities not being assumed.
(f) The Fleet/NatWest Pro Forma net income applicable to common
shares reflects the sum of the Fleet Pro Forma net income applicable per
common share and the NatWest Pro Forma net income applicable per common
share adjusted for the purchase accounting, funding, and restructuring
adjustments.
(g) The Fleet Pro Forma weighted average shares outstanding for the
year ended December 31, 1995, reflects the effect of issuing treasury stock
in connection with the NBB Bancorp, Inc. ("NBB") and Northeast Federal
Corp. ("Northeast") transactions as if such repurchase of common stock and
reissuance of the treasury stock occurred on January 1, 1995.
(h) During 1995, Fleet also completed the merger (the "NBB Merger")
of NBB with and into Fleet, the merger (the "Plaza Merger") of Plaza Home
Mortgage Corp. ("Plaza") with and into Fleet, the merger (the "Northeast
Merger") of Northeast with and into Fleet, the acquisition (the "Barclays
Acquisition") of substantially all of the assets of Barclays Business
Finance Division of Barclays Business Credit, Inc. ("Barclays") by Fleet
and Fleet's repurchase (the "FMG Repurchase") of the publicly-held share of
Fleet's majority-owned subsidiary, Fleet Mortgage Group, Inc. ("FMG"), each
of which was accounted for by the purchase method of accounting and each of
which is included in the Unaudited Pro Forma Combined Balance Sheet. Pro
forma adjustments to the Unaudited Pro Forma Combined Statements of Income
reflect the impact of the NBB Merger, the Barclays Acquisition, the FMG
Repurchase, the Plaza Merger and the Northeast Merger which were
consummated on January 27, 1995, January 31, 1995, February 28, 1995, March
3, 1995 and June 9, 1995, respectively, as if such transactions had been
consummated on January 1, 1995. Certain acquisitions completed by NatWest
during 1995 have not been reflected in the Unaudited Pro Forma Combined
Financial Statements due to immateriality.
Selected Financial Highlights(a)
Dollars in millions, except per share data
<TABLE><CAPTION>
December 31 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
. For the Year
Interest income .............................. $6,069 $5,260 $5,086 $5,318 $5,425
Interest expense ............................. 3,005 2,161 1,917 2,337 3,142
Net interest income .......................... 3,064 3,099 3,169 2,981 2,283
Provision for credit losses .................. 101 65 327 728 995
Securities gains (losses) .................... 32 (1) 295 301 253
Noninterest income ........................... 1,850 1,555 1,883 1,897 1,627
Noninterest expense .......................... 3,735 3,145 3,579 3,479 2,864
Net income (loss) ............................ 610(b) 849 817 366 (76)
. Per Common Share
Earnings (loss) .............................. $1.57(b) $3.09 $3.03 $1.40 $(0.44)
Market value (year end) ...................... 40.75 32.38 33.38 32.75 24.88
Cash dividends declared ...................... 1.63 1.40 1.025 0.825 0.80
Book value (year end) ........................ 22.71 20.68 21.76 17.65 16.81
. At Year End
Assets ....................................... $84,432 $81,026 $79,250 $76,188 $72,323
Securities ................................... 19,331 21,141 24,839 19,936 16,505
Loans and leases ............................. 51,525 46,035 43,713 43,722 43,700
Reserve for credit losses .................... 1,321 1,496 1,669 1,937 2,065
Deposits ..................................... 57,122 55,528 49,827 52,729 55,489
Short-term borrowings ........................ 12,569 12,586 16,376 11,446 7,516
Long-term debt ............................... 6,481 5,931 5,217 5,007 3,917
Total stockholders' equity ................... 6,365 5,471 5,965 4,735 3,779
. Operating Ratios
Return on average common equity .............. 9.32%(b) 15.66% 17.11% 9.12% (2.73)%
Return on average assets ..................... 0.74(b) 1.07 1.09 0.51 (0.12)
Common dividends declared as a percentage
of earnings per share ...................... 103.8 45.3 33.8 58.9 N/A
Net interest margin .......................... 4.12 4.30 4.63 4.57 3.85
Efficiency ratio ............................. 62.5 63.8 68.8 70.6 72.4
Common stockholders' equity-to-assets (year end) 7.07 6.06 6.65 5.15 4.69
Average total stockholders' equity-to-assets . 7.91 7.27 7.05 6.14 5.52
- -----------------------------------------------------------------------------------------------
</TABLE>
(a) This schedule is prepared on a fully taxable equivalent (FTE) basis.
(b) Includes impact of the loss on assets held for sale or accelerated
disposition ($112 million, after-tax), merger-related charges ($317
million, after-tax), and the conversion of the dual convertible preferred
stock recorded in 1995. Excluding these special charges, return on average
common equity and return on average assets would have been 16.29% and
1.26%, respectively, while earnings and earnings per share would have been
$1,039 million and $3.77, respectively.
<PAGE>
Overview
. Fleet Financial Group (Fleet or the corporation) reported net income for 1995
of $610 million, or $1.57 per share, compared to the $849 million, or $3.09 per
share, reported in 1994. Return on assets (ROA) and return on equity (ROE) were
.74% and 9.32%, respectively, for 1995 compared to 1.07% and 15.66%,
respectively, for 1994. Excluding the impact of special charges, earnings and
earnings per share were $1,039 million and $3.77, respectively, in 1995 compared
to $952 million and $3.48, respectively, in 1994 representing an increase of $87
million, or 9.1%. Return on assets and return on equity were 1.26% and 16.29%,
respectively, in 1995, excluding special charges.
During 1995 the corporation incurred several special charges including a $317
million (after-tax) charge for merger-related charges in connection with Fleet's
merger with Shawmut National Corporation, which was consummated on November 30,
1995, and a $112 million (after-tax) charge related to the corporation's
strategic decisions to sell Fleet Finance, Inc., the corporation's consumer
finance subsidiary located in Atlanta, Georgia, and approximately $150 million
of nonperforming loans. The corporation also incurred a $.59 reduction in
earnings per share related to the conversion of $283 million of dual convertible
preferred stock into 19.9 million shares of Fleet's common stock. This charge
did not impact net income. During 1994, the corporation incurred special charges
totaling $185 million in connection with restructuring and efficiency
improvement programs and several acquisitions.
. Net interest income on a fully taxable equivalent (FTE) basis totaled $3.1
billion for both 1995 and 1994. The net interest margin for 1995 was 4.12%
compared to 4.30% in 1994. The decrease of 18 basis points was due principally
to an increase in the cost of interest-bearing liabilities outpacing the
increase in yields on interest-earning assets, which reflects an increasingly
competitive market for customer deposits. The impact of the narrower margin in
1995 was substantially offset by a $2.2 billion increase in the corporation's
average earning assets from $72.0 billion in 1994 to $74.2 billion in 1995.
. The provision for credit losses was $101 million in 1995 compared to $65
million in 1994, with the increase due to an increase in net charge-offs during
1995. Net charge-offs increased by $63 million, while nonperforming assets
(NPAs) decreased $262 million, after the reclassification of $317 million of
nonperforming assets to assets held for sale or accelerated disposition.
. Noninterest income increased 19% to $1.85 billion in 1995 compared to $1.56
billion in 1994. Noninterest income was positively impacted by increases of 10%
or more in several categories, including: mortgage banking revenue; service
charges, fees, and commissions; and investment services.
. Noninterest expense, excluding $490 million of merger-related charges and a
$175 million loss on assets held for sale or accelerated disposition, totaled
$3.1 billion for 1995, compared to $3.0 billion in 1994, excluding $185 million
of merger and restructuring charges. The slight increase is primarily
attributable to tight expense controls that have enabled the corporation to keep
expenses essentially flat despite the completion of several acquisitions during
1995.
. Total loans at December 31, 1995 were $51.5 billion, compared to $46.0 billion
at December 31, 1994. The increase is attributable to both acquisitions and new
originations, offset by the reclassification of $1.6 billion of loans to assets
held for sale or accelerated disposition during the fourth quarter of 1995.
. During 1995 the corporation completed several strategic initiatives including:
. Consummated the merger with Shawmut National Corporation, which added $21.1
billion in loans and $21.4 billion in deposits throughout New York,
Connecticut, and Massachusetts.
. Signed a definitive agreement to purchase the commercial banking assets
of NatWest Bank, N.A. This transaction is expected to close in the second
quarter of 1996. Subsequent to the closing, the corporation is expected to
have approximately $90 billion in assets, reflecting a reduction in the
combined corporation's total assets as lower return assets, primarily
securities, are liquidated and the proceeds are used to pay down higher
cost borrowings.
. Exchanged Kohlberg, Kravis and Roberts' (KKR) ownership interest in
Fleet's Massachusetts and Connecticut bank franchises, represented by its
holdings of dual convertible preferred stock, into direct ownership of
Fleet common stock. This will allow Fleet to efficiently integrate its
banking operations with those acquired from Shawmut.
. Completed four other acquisitions: NBB Bancorp, Plaza Home Mortgage
Corporation, Northeast Federal Corporation, and the Business Finance
Division of Barclays Business Credit, Inc.
. Announced the decision to sell the assets of Fleet Finance, as this
consumer finance company no longer fits the core strategic business plan of
the corporation.
. Repurchased the 19% publicly held shares of Fleet Mortgage Group's common
stock, the corporation's mortgage banking subsidiary.
<PAGE>
INCOME STATEMENT ANALYSIS
Net Interest Income
- ----------------------------------------------------------
Year ended December 31
Dollars in millions
FTE basis 1995 1994 1993
- ----------------------------------------------------------
Interest income $6,025 $5,208 $5,040
Tax-equivalent adjustment 44 52 46
Interest expense 3,005 2,161 1,917
- ----------------------------------------------------------
Net interest income $3,064 $3,099 $3,169
- ----------------------------------------------------------
Net interest income on an FTE basis for the year ended December 31, 1995,
decreased $35 million compared to 1994, due primarily to a reduction in net
interest margin. However, the negative impact of the reduction in net interest
margin was substantially offset by growth in the corporation's average earning
assets from $72.0 billion in 1994 to $74.2 billion in 1995. Increases in average
interest-earning assets were principally the result of growth in the
corporation's loan and lease portfolio due to both acquisitions and new
originations.
Net Interest Margin and Interest-Rate Spread
- --------------------------------------------------------------------------
Year ended December 31 1995 1994
- --------------------------------------------------------------------------
Taxable-equivalent rates Average Average
Dollars in millions Balance Rate Balance Rate
- --------------------------------------------------------------------------
Money market instruments $987 6.30% $588 4.99%
Securities 20,515 6.18 25,710 5.92
Loans and leases 51,043 9.03 44,102 8.17
Mortgages held for resale 1,459 7.96 1,322 6.90
Other 176 2.27 265 1.89
- --------------------------------------------------------------------------
Total interest-earning assets 74,180 8.17 71,987 7.29
- --------------------------------------------------------------------------
Deposits 43,120 4.00 40,113 2.92
Short-term borrowings 14,046 5.69 15,355 4.07
Long-term debt 6,581 7.26 5,383 6.76
- --------------------------------------------------------------------------
Total interest-bearing
liabilities 63,747 4.71 60,851 3.55
- --------------------------------------------------------------------------
Interest-rate spread 3.46 3.74
Interest-free sources of funds 10,433 11,136
- --------------------------------------------------------------------------
Total sources of funds $74,180 4.05% $71,987 2.99%
Net interest margin 4.12% 4.30%
- --------------------------------------------------------------------------
The net interest margin for 1995 decreased 18 basis points to 4.12%
compared to 4.30% for 1994, primarily due to the increase in cost of interest-
bearing liabilities outpacing the increase in yields on interest-earning assets
reflecting an increasingly competitive market for customer deposits. Offsetting
the negative impact of increasing funding costs was a more favorable mix of
interest-earning assets as the corporation has replaced lower-yielding
securities with higher-yielding loans through acquisitions and new loan
origination activity. Average securities represented 27.7% of average interest-
earning assets in 1995 compared to 35.7% in 1994, while higher-yielding loans
represented 68.8% of average interest-earning assets in 1995 compared to 61.3%
in 1994.
Average securities decreased $5.2 billion in 1995 resulting from the
corporation's repositioning program aimed at reducing the average maturity of
the securities portfolio coupled with a shifting of funds to higher-yielding
loans and leases.
Percentage Composition of Average Interest-Earning Assets
- ---------------------------------------------------------
Securities Loans & Leases Other
---------- -------------- ---------
1995 27.7% 68.8% 3.5%
1994 35.7% 61.3% 3.0%
Average loans increased from $44.1 billion at December 31, 1994, to $51.0
billion at December 31, 1995. This $6.9 billion increase primarily reflects
growth in the commercial and residential loan portfolios due to both new
origination activity and acquisitions. In addition, the corporation's leasing
portfolio increased $740 million, or 50%, due to higher lease volume.
The average balance of mortgages held for resale increased approximately
$137 million as a result of a more favorable interest-rate environment for
mortgage refinancing during the latter portion of 1995 and the resultant
positive impact on mortgage loan production.
Average deposits increased to $43.1 billion at December 31, 1995, from
$40.1 billion a year ago due primarily to acquisitions. The interest rate paid
on average deposits was 4.00% in 1995 compared to 2.92% in 1994 as a result of
both a more competitive consumer marketplace and higher average interest rates
in 1995 compared to 1994.
Average short-term borrowings decreased $1.3 billion from $15.4 billion at
December 31, 1994. This decrease corresponds to an increase of $1.2 billion in
average long-term debt. Higher average interest rates in 1995 caused a 162
basis-point increase in the rate paid on short-term borrowings in 1995 and a 50
basis point increase in long-term debt rates.
The contribution of 66 basis points to the net interest margin from
interest-free sources during 1995 increased slightly from 56 basis points in
1994. Although the balance of average interest-free sources of funds decreased
from $11.1 billion in 1994 to $10.4 billion in 1995, the 10 basis point increase
results from interest-free sources of funds becoming more valuable during
periods of higher interest rates.
<PAGE>
Noninterest Income
- -----------------------------------------------------------------------
Year ended December 31
- -----------------------------------------------------------------------
Dollars in millions 1995 1994 1993
- -----------------------------------------------------------------------
Mortgage banking revenue $511 $391 $445
Service charges, fees, and commissions 492 438 423
Investment services revenue 322 294 291
Student loan servicing fees 72 54 51
Trading revenue 39 32 35
FDIC loan administration fees 23 52 45
Brokerage fees and commissions 21 18 23
Insurance 15 15 19
Other noninterest income 323 262 256
Securities available for sale gains (losses) 32 (1) 295
- -----------------------------------------------------------------------
Total noninterest income $1,850 $1,555 $1,883
- -----------------------------------------------------------------------
Noninterest income totaled $1.85 billion for 1995, up nearly 20% when
compared to $1.56 billion for 1994 with increases of 10% or more noted in
several lines of business, most notably mortgage banking where revenues of $511
million in 1995 represented a 31% increase over 1994 results.
Mortgage Banking Revenue
- --------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- --------------------------------------------------------------------
Net loan servicing revenue $342 $285 $243
Mortgage production revenue 98 31 176
Gains on sales of mortgage servicing 71 75 26
- --------------------------------------------------------------------
Total mortgage banking revenue $511 $391 $445
- --------------------------------------------------------------------
The 31% increase in mortgage banking revenue is largely due to higher
mortgage production revenue, which increased from $31 million in 1994 to $98
million in 1995. Such revenue includes income derived from the loan origination
process and net gains on sales of mortgage loans, both of which have been
positively impacted by a more favorable interest-rate environment as Fleet
originated approximately $13 billion of mortgage loans in 1995. Mortgage
production revenue was also positively impacted by the corporation's adoption of
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights," as of
April 1, 1995. In accordance with SFAS No. 122, the corporation capitalizes a
portion of the total cost of mortgage loans originated as originated mortgage
servicing rights (OMSRs) with the remaining cost allocated to the loan balance.
The incremental impact of capitalizing OMSRs resulted in an increase of $50
million in mortgage production revenue during 1995. Additionally, net loan
servicing revenue increased 20% from $285 million in 1994 to $342 million in
1995 due to a 30% increase in the corporation's loan servicing portfolio from
$89 billion at December 31, 1994, to $116 billion at December 31, 1995. The
increase in the mortgage servicing portfolio is due to $25 billion of
acquisitions of servicing rights during 1995, as well as originations of
mortgage loans by FMG and correspondent lenders.
Service charges, fees, and commissions, which consist primarily of cash
management services, electronic banking fees, and other transaction-related fees
totaled $492 million in 1995 compared to $438 million in 1994, an increase of
12%. This increase was primarily attributable to various fee enhancement
programs implemented during the latter part of 1994 and early 1995 as part of
the corporation's efficiency improvement program.
Investment services revenue was $322 million in 1995 compared to $294
million in 1994, an increase of $28 million, or 10%. The increase in investment
services revenue is attributable to an increase in assets under management and
administration from $148 billion at December 31, 1994, to $156 billion at
December 31, 1995, coupled with strong stock and bond markets in 1995, which
increased the value of the assets on which management fees are based. Investment
services revenue comprises primarily personal asset management fees, which
include services provided to meet the unique financial needs of affluent
individuals with custom portfolio management and trust services. Personal asset
management fees also include mutual funds revenue, which is derived from
managing the $7.8 billion Galaxy family of mutual funds. Other components of
investment services revenue include fees generated from providing investment
management, record keeping, plan administration, and fiduciary services to
employee benefit plans, and revenue earned from Fleet's endowment and foundation
management and corporate trust divisions.
Trading Revenue
- --------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- --------------------------------------------------------------------
Interest-rate contracts $ 5 $ 5 $ 2
Debt securities 19 16 27
Foreign exchange contracts 15 11 6
- --------------------------------------------------------------------
Total trading revenue $ 39 $ 32 $ 35
- --------------------------------------------------------------------
Trading revenue of $39 million increased $7 million compared to the $32
million recorded in 1994. Modest improvements were noted in both debt securities
and foreign exchange trading.
The $18 million increase in student loan servicing fees in 1995 is
attributable to additional accounts added under the federal government's direct
student lending program at the corporation's student loan subsidiary, AFSA Data
Corp.
Federal Deposit Insurance Corporation (FDIC) loan administration fees
decreased $29 million during 1995 to $23 million as the pool of loans being
administered for the FDIC was resolved in 1995. The contract relating to FDIC
loan administration fees expired on December 31, 1995. As a result, the
corporation does not anticipate revenues from this source in 1996.
Fleet's brokerage fees and commissions increased $3 million due primarily
to favorable market conditions in the stock markets during 1995.
<PAGE>
The corporation recognized $32 million of net gains on sales of securities
in 1995, compared to $1 million of net securities losses in 1994. The increase
in securities gains is the result of a favorable interest-rate environment in
1995 as an improving bond market coupled with declining interest rates resulted
in a positive impact on the valuation of the corporation's securities portfolio.
The likelihood of profitability of any such sales in the future cannot be
predicted.
Other noninterest income increased $61 million from $262 million in 1994 to
$323 million in 1995. Included in other noninterest income is approximately $77
million of net gains attributable to interest-rate contracts used in managing
prepayment risk associated with the corporation's mortgage servicing portfolio
compared to $6 million of net losses in 1994. These gains were fully offset by
an increase in the amortization expense of mortgage servicing rights (refer to
Noninterest Expense and Asset/Liability Management sections for additional
information). Other noninterest income in 1995 compared to 1994 also included
increases in tax processing fees of $18 million, increased gains on sale of
loans of $14 million, and an increase of $30 million in gains related to the
corporation's equity capital business. Due to the volatility of the fair value
of investments relating to the corporation's equity capital business the
likelihood of any further net gains or losses in the future cannot be predicted.
The impact of these positive items were offset by the receipt of $60 million of
interest relating to a tax settlement with the Internal Revenue Service (IRS)
and a $13 million gain on the sale of Fleet Factors, the corporation's factoring
business, both of which occurred in 1994.
Noninterest Expense
- ----------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------
Employee compensation and benefits $1,448 $1,428 $1,529
Occupancy 250 265 280
Equipment 209 188 188
Mortgage servicing rights amortization 190 90 247
Intangible assets amortization 105 65 60
Legal and other professional 102 95 100
Marketing 93 84 75
FDIC assessment 67 114 128
Telephone 61 54 57
Printing and mailing 58 54 54
Office supplies 51 43 49
Travel and entertainment 41 36 34
OREO expense 15 51 163
Other 380 393 454
- ----------------------------------------------------------------
Total noninterest expense,
excluding special charges 3,070 2,960 3,418
Loss on assets held for sale or
accelerated disposition 175 - -
Merger and restructuring related charges 490 185 161
- -----------------------------------------------------------------
Total noninterest expense $3,735 $3,145 $3,579
- -----------------------------------------------------------------
Total noninterest expense, excluding special charges, was $3,070 million in
1995 and $2,960 million in 1994. The $110 million increase, or approximately 4%,
was predominantly due to acquisitions completed during the year coupled with a
$100 million increase in the amortization of mortgage servicing rights.
Employee compensation and benefits increased $20 million, or 1.4%, to
$1,448 million in 1995. The slight increase is attributable to several
acquisitions taking place in 1995 as well as normal salary and benefit
increases. This increase was offset by reductions in personnel from management
cost-savings initiatives undertaken during 1994 and 1995, and savings associated
with acquisition consolidations as full-time equivalent employees has decreased
slightly to 30,800 at December 31, 1995, despite four acquisitions completed
during 1995.
The $100 million increase in mortgage servicing rights (MSRs) amortization
is due primarily to an increase in the servicing portfolio from $89 billion at
December 31, 1994, to $116 billion at December 31, 1995, and an increase in
prepayment activity during 1995. High prepayment activity combined with
projections of future prepayment activity adversely affected the value of FMG's
mortgage servicing assets, which resulted in increased amortization of mortgage
servicing rights during the year. Prepayments in excess of those anticipated at
the time MSRs are recorded result in decreased anticipated future net servicing
income. Such decreases in expected future net servicing income did result in
accelerated amortization and/or impairment of MSRs. The corporation's net
earnings and future net earnings could be adversely affected by unanticipated
prepayments of the mortgage loans underlying its MSRs. However, the corporation
has established economic hedges against a substantial portion of MSRs to protect
its value.
Intangible assets amortization increased $40 million from 1994 as goodwill
and core deposit intangible assets were recorded in connection with several
acquisitions during 1995, including the repurchase of the 19% of publicly held
FMG common stock.
Marketing expense increased 11% from 1994 to 1995 resulting from promotions
relating to several new business initiatives undertaken during 1995, including
several credit card programs, as well as promotions undertaken in connection
with the Shawmut merger.
FDIC assessment fees decreased $47 million as the FDIC reduced the deposit
premium effective June 1, 1995 from twenty-three cents to four cents per $100 of
domestic deposits. The FDIC has announced that the deposit premium will be
eliminated for well-capitalized banks, effective January 1, 1996. However, the
corporation has $3.5 billion of deposits insured by the Savings Association
Insurance Fund (SAIF) that are
<PAGE>
still subject to deposit charges.
Other real estate owned (OREO) expense decreased more than 70% due to a
reduction in write-downs of OREO property of $36 million from the $51 million
recorded in 1994. The decline in OREO expense during this period reflects the
decline in the level of foreclosed properties and repossessed equipment, the
stabilization of property values in the corporation's primary markets, and the
continued effective management of these assets.
Merger-related charges of $490 million were recorded in 1995 in connection
with the Shawmut merger. The merger-related charges are direct incremental costs
associated with the Shawmut merger and are presented in the table below:
Merger-Related Charges
- --------------------------------------------
Year ended December 31
Dollars in millions 1995
- --------------------------------------------
Personnel $270
Facilities 115
Data processing 60
Other merger expenses 45
- --------------------------------------------
Total $490
- --------------------------------------------
Personnel charges relate primarily to the costs of employee severance, the
costs related to the termination of certain employee benefit plans and employee
assistance for separated employees. Facilities charges are the result of the
consolidation of branch offices as well as back-office operations, and consist
of lease-termination costs, writedowns of owned properties, and other
facilities-related costs. Data processing costs consist primarily of the write-
off of duplicate or incompatible systems hardware and software. Other merger
expenses consist primarily of transaction-related costs, such as professional
and other fees.
Merger-related charges of $101 million were also recorded in 1994 to
reflect the integration of certain acquisitions. The merger-related charges
included: $19 million for personnel charges; $39 million for the closure of
branches and facilities, and lease-termination costs; $11 million of
transaction-related costs; and $32 million of other costs representing the sale
of certain assets as well as other merger-related costs.
Charges totaling $84 million were recorded in 1994, in connection with a
program to restructure the corporation's banking and mortgage operations. These
programs were intended to enhance the corporation's competitive position through
a comprehensive review of its operations. Refer to Note 8 of the Notes to the
Consolidated Financial Statements for further information regarding the
corporation's merger and restructuring accruals.
The corporation also incurred a loss on assets held for sale or accelerated
disposition in the fourth quarter of 1995 as a charge of $175 million was
recorded relating to the corporation's decisions to sell Fleet Finance and
approximately $150 million of certain nonperforming assets from the
corporation's banking franchise that have been identified for accelerated
disposition. These nonperforming assets are primarily commercial and commercial
real estate loans. The charge was taken in order to reduce these assets to the
lower of cost or estimated market value.
Income Taxes
In 1995, the corporation recognized income tax expense of $424 million, an
effective rate of 40.9%. Tax expense for 1994 was $531 million, an effective tax
rate of 38.2%. The higher effective rate during 1995 was primarily attributable
to nondeductible merger-related costs and increased amortization of goodwill.
Deferred tax assets, net of the valuation reserves, are expected to be realized
from the recognition of future taxable income, and the reversal of existing
deferred tax liabilities. For further information concerning the corporation's
provision for income taxes, refer to Note 14 of the Notes to the Consolidated
Financial Statements.
Earnings by Subsidiary
- --------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994
- --------------------------------------------------------
Banking Group:
Massachusetts $338 $329
Connecticut 225 230
Rhode Island 145 145
New York 140 178
Maine 44 34
New Hampshire 43 40
- --------------------------------------------------------
Total Banking Group 935 956
- --------------------------------------------------------
Financial Services Group:
Fleet Mortgage Group(a) 86 55
Fleet Credit Corp. 23 20
Fleet Private Equity 16 3
AFSA Data Corp. 9 5
Fleet Capital 6 -
Fleet Finance (73) (31)
Other Financial Services 13 5
- ---------------------------------------------------------
Total Financial Services Group 80 57
- ---------------------------------------------------------
Parent (88) (44)
Merger and restructuring-related charges(317) (120)
- ---------------------------------------------------------
Total $610 $849
- ---------------------------------------------------------
(a)Net of minority interest of $2 million and $12 million, for the years ended
December 31, 1995 and 1994, respectively.
<PAGE>
The Banking Group earned $935 million in 1995 compared to $956 million in
1994, primarily due to a loss of $37 million (after-tax) recorded as a result of
the corporation's decision to sell certain nonperforming assets during 1995. Net
interest income decreased $26 million due to an increasingly competitive market
for deposits offset in part by a $2 billion increase in average interest-earning
assets. The Banking Group experienced a $52 million increase in the provision
for credit losses as net charge-offs increased $72 million to $254 million in
1995. Noninterest income increased $127 million primarily as a result of growth
in service charges and investment services revenue due to fee-enhancement
initiatives. Partially offsetting these increases was a $29 million decrease in
FDIC loan administration fees as the pool of loans being administered for the
FDIC was resolved as of December 31, 1995. Noninterest expenses increased
slightly as increased operating costs due to acquired institutions were
substantially offset by the successful implementation of several cost-cutting
strategies, coupled with lower OREO expense and reduced FDIC premiums.
The Financial Services Group's earnings increased $23 million in 1995.
Fleet Mortgage Group (FMG) contributed income of $86 million in 1995, an
increase of $31 million. As previously discussed, increased loan servicing
revenue and mortgage production revenue contributed to the improved earnings,
partially offset by higher mortgage servicing rights amortization.
Fleet Credit Corp. reported net income of $23 million, representing a $3
million increase compared to 1994. Increased earnings were primarily due to an
increase of 50% in the leasing portfolio as a result of new origination
activity, partially offset by a $4 million loss due to the aforementioned charge
taken to reflect the reclassification of certain nonperforming assets to held
for sale or accelerated disposition.
Fleet Private Equity (also known as Fleet Equity Partners) had net income
of $16 million for 1995, compared to $3 million for 1994. Results for 1995
included $36 million of gains on equity capital investments compared to $6
million in 1994. During 1995, Fleet Private Equity added approximately $75
million of new investments resulting in total investments of $180 million at
December 31, 1995.
Fleet Capital, the corporation's asset-based lending subsidiary, earned $6
million in 1995. Fleet Capital, formerly the Business Finance Division of
Barclays Business Credit, Inc., was acquired in January 1995.
AFSA Data Corp., the corporation's student loan servicing subsidiary, is
the nation's largest third-party servicer of student loans, servicing in excess
of 3.5 million accounts with more than $13 billion in total loans serviced.
AFSA's earnings increased to $9 million for the year ended December 31,
1995, reflecting continued growth in student loan products as well as cost
efficiencies.
Fleet Finance lost $73 million in 1995 compared to a $31 million loss
recognized in 1994. This loss is primarily the result of the charge taken in
connection with the corporation's strategic decision to sell Fleet Finance.
Substantially all of Fleet Finance's assets have been reclassified to assets
held for sale or accelerated disposition.
Earnings at Fleet's other financial services companies, which include the
corporation's brokerage, government securities businesses, and alternative
mortgage financing business increased $8 million to $13 million in 1995.
The parent company's net loss of $88 million in 1995 exceeded 1994's net
loss by $44 million primarily due to the recognition in 1994 of $60 million of
interest received in a tax settlement with the IRS.
Lines of Business
Fleet is managed functionally by major lines of business. At the center of
the corporation's management accounting process is a profitability measurement
system that produces financial results for each of these business lines. The
profitability measurement system uses a rigorously derived set of principles
that ensure business line financial results reflect the underlying economics of
each business unit.
At this time, there is no authoritative source to promulgate uniform
standards for management accounting practices as there is for financial
accounting principles. As such, Fleet's line of business results may not be
directly comparable with similar information from other financial institutions.
Management accounting methodologies are periodically refined and results may be
restated from time to time to reflect profitability measurement system
enhancements and organizational changes. The line of business results presented
reflect the company's most recent methodological enhancements as well as
significant changes made during 1995 to the corporation's organizational
structure following the Shawmut merger.
The corporation is managed along the following major lines of business:
Financial Services and National Consumer, Commercial Financial Services,
Consumer and Investment Services, and Treasury/Asset Collection/Equity Capital.
The business line results reflect performance on a risk-adjusted basis.
Capital is attributed to each business line based on the inherent risk in that
unit. Provision for credit losses is
<PAGE>
allocated based on the credit profile of the loans and leases in a particular
business line. Assets, liabilities, and assigned capital are match funded to
minimize interest-rate risk in the business lines and centralize that exposure.
Because of Fleet's integrated operations, management accounting methodologies
allocate expenses incurred by support units such as operations, technology, and
overhead to business lines. Business line results are presented on a fully
taxable equivalent basis and net income is shown after application of effective
tax rates by business line.
Selected Financial Highlights by Line of Business
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995
Average
Net Average Loans and
Dollars in millions Revenues(a) Income ROE ROA Assets Leases
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services and National Consumer $ 994 $ 159 20.18% 2.55% $ 6,214 $ 1,136
Commercial Financial Services 2,387 195 15.07 .76 25,681 24,304
Consumer and Investment Services 2,093 382 24.91 2.39 15,962 13,501
Treasury/Asset Collection/Equity Capital 2,244 109 18.99 .32 33,631 10,472
All other (b) -- 203 11.89 N/M (582) --
Merger-related charges and other
nonrecurring items 201 (438) N/M N/M 1,821 1,630
- -----------------------------------------------------------------------------------------------------------------
Total $ 7,919 $ 610 9.32% .74% $ 82,727 $ 51,043
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated on an FTE basis.
(b) All other includes differences between legal and economic allocations of
loan loss provision, credit reserve, and equity.
Financial Services and National Consumer
The Financial Services and National Consumer business line earned $159
million in 1995. Financial Services and National Consumer includes government
banking, financial institutions, mortgage banking, national consumer lending,
and processing businesses. For 1995, Financial Services and National Consumer
had an ROA of 2.55% and an ROE of 20.18%.
Commercial Financial Services
Commercial Financial Services contributed $195 million of earnings in 1995.
With average loans and leases of more than $24 billion, Commercial Financial
Services had an ROA of .76% and ROE of 15.07%. This business line provides a
full range of services to national, middle-market and commercial real estate
customers as well as certain specialty businesses, including leasing, media, and
precious metals. Also included is Fleet Capital, a national asset-based lending
business that was acquired in January 1995. Commercial Financial Services earned
$225 million for an ROA of .88% and ROE of 17.43%, excluding the premium
associated with the acquisition of Fleet Capital.
Consumer and Investment Services
Consumer and Investment Services contributed $382 million of earnings in
1995. Consumer and Investment Services includes retail banking, small business
banking, credit card products, personal financial services, and investment
services. The major provider of funding for the company with average deposits of
almost $38 billion, the Consumer and Investment Services unit had an ROA of
2.39% and an ROE of 24.91%.
Treasury/Asset Collection/Equity Capital
This unit generated earnings of $109 million in 1995. This unit includes
the treasury function, which manages the corporation's securities and
residential mortgage portfolios, trading operations, asset/liability management
function, and the wholesale funding needs of the corporation. This unit also
includes two fee-based businesses: Fleet Equity Partners and RECOLL Management
Corporation. Fleet Equity Partners provides venture capital financing and earned
$16 million in 1995. RECOLL Management Corporation provides distressed asset
management services, primarily to the FDIC. RECOLL earned $13 million in 1995.
The contract relating to FDIC loan administration expired on December 31, 1995.
As a result, the corporation does not anticipate such revenues in 1996.
<PAGE>
Balance Sheet Analysis
Securities
<TABLE><CAPTION>
December 31 1995 1994 1993
Dollars in millions Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and government agencies $ 7,891 $ 7,889 $ 3,851 $ 3,667 $ 7,511 $ 7,686
Mortgage-backed securities 8,457 8,470 8,352 7,898 8,238 8,434
Other debt securities 1,621 1,662 180 179 250 257
- -----------------------------------------------------------------------------------------------------
Total debt securities 17,969 18,021 12,383 11,744 15,999 16,377
Marketable equity securities 359 393 360 356 419 438
Other securities 119 119 150 150 93 93
- -----------------------------------------------------------------------------------------------------
Total securities available for sale $18,447 $18,533 $12,893 $12,250 $16,511 $16,908
- -----------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury and government agencies $ 7 $ 7 $ 1,980 $ 1,864 $ 1,746 $ 1,743
Mortgage-backed securities -- -- 4,158 3,924 3,677 3,735
State and municipal 687 695 843 842 734 748
Other debt securities 104 80 1,910 1,822 1,774 1,796
- -----------------------------------------------------------------------------------------------------
Total securities held to maturity $ 798 $ 782 $ 8,891 $ 8,452 $ 7,931 $ 8,022
- -----------------------------------------------------------------------------------------------------
Total securities $19,245 $19,315 $21,784 $20,702 $24,442 $24,930
- -----------------------------------------------------------------------------------------------------
</TABLE>
The total amortized cost of the securities portfolio decreased $2.5 billion
to $19.2 billion at December 31, 1995. This decrease resulted from the
corporation's repositioning program aimed at reducing the average maturity of
the securities portfolio coupled with a shifting of funds to higher-yielding
loans and leases. The shift in the components of the securities portfolio is due
to a strategy to shorten the duration of the overall portfolio's maturity by
replacing longer-term mortgage-backed securities with shorter-term U.S. Treasury
and government agencies securities. During the fourth quarter of 1995 the
corporation reclassified substantially all of its securities held to maturity to
securities available for sale as the FASB permitted a one-time opportunity for
institutions to reassess the appropriateness of the designations of all
securities.
At December 31, 1995, the securities available for sale portfolio had net
unrealized gains of $86 million compared to net unrealized losses of $643
million at December 31, 1994. The $729 million improvement is attributable to
declining interest rates and the strong performances in both the stock and bond
markets during 1995.
Loans and Leases
Loan and lease portfolios inherently include credit risk. Fleet attempts to
control such risk through review processes that include careful analysis of
credit applications, portfolio diversification, and ongoing examinations of
outstandings and delinquencies. Fleet strives to identify potential classified
assets early, to take charge-offs promptly based on realistic assessments of
probable losses, and to maintain strong loss reserves. The corporation's
portfolio is well-diversified by borrower, industry, and product, thereby
reducing risk.
Total loans and leases increased $5.5 billion to $51.5 billion at December
31, 1995. Total loans and leases at December 31, 1995, reflects the
reclassification of $1.6 billion of loans, primarily real estate and consumer
loans, to assets held for sale or accelerated disposition during the fourth
quarter of 1995 in connection with the corporation's initiative to sell the
assets of Fleet Finance as well as $150 million of nonperforming loans from its
banking franchise. The $5.5 billion increase in total loans and leases
represented an increase of approximately 12% and was attributable to new loan
originations across all banking franchises as well as various acquisitions
throughout 1995.
Loan Portfolio Composition
(Dollars in billions)
- ------------------------------------------------------------------------------
Consumer Residential C&I CRE Leases Total
-------- ----------- --- --- ------ -----
1995 23.2 11.5 9.6 2.2 5.0 $51.5
1994 19.7 8.5 10.9 1.5 5.4 $46.0
Significant increases were noted in the commercial, residential real
estate, and leasing portfolios. Excluding loans obtained from acquisitions and
the reclassification of loans to assets held for sale or accelerated
disposition, total loans and leases increased $2.1 billion, or approximately
5.0%.
<PAGE>
Commercial and Industrial
- -------------------------------------------------------
December 31
Dollars in millions 1995 1994
- -------------------------------------------------------
Bank and insurance $2,007 $2,208
Communications 1,901 2,094
Real estate/construction/contractors 1,557 1,771
Transportation 1,498 1,265
Precious metals/jewelry 1,467 1,082
Business services 1,254 1,051
Healthcare 1,246 1,256
Machine and equipment 1,219 624
Retail 1,168 768
Tourism and entertainment 1,076 776
Food distribution and production 978 1,107
Apparel and textiles 961 736
Printing and publishing 834 562
Energy production and distribution 827 812
Home furnishings and durable goods 703 266
Forest products 656 531
Plastics and rubber 600 404
Agriculture 581 487
Other 2,718 1,875
- -------------------------------------------------------
Total $23,251 $19,675
- -------------------------------------------------------
Commercial and industrial loans increased $3.6 billion to $23.3 billion at
December 31, 1995, as new loan originations have occurred across nearly all
banking franchises. Commercial and industrial borrowers consist primarily of
middle-market corporate customers and are well-diversified as to industry and
companies within each industry, thereby mitigating risk. The acquisition of
Fleet Capital in 1995 added approximately $2.3 billion of commercial and
industrial loans.
Consumer and Residential Real Estate
- -------------------------------------------------------
December 31
Dollars in millions 1995 1994
- -------------------------------------------------------
Residential real estate $11,475 $ 8,529
Home equity 4,791 6,007
Credit card 1,588 1,474
Student loans 1,179 1,156
Installment/other 1,998 2,256
- -------------------------------------------------------
Total $21,031 $19,422
- -------------------------------------------------------
Approximately 77% of the consumer and residential real estate portfolio
represented loans secured by residential real estate, including second mortgage
and home equity loans and lines of credit.
Outstanding residential real estate loans secured by one-to-four-family
residences were $11.5 billion at December 31, 1995, compared to $8.5 billion at
December 31, 1994. The $3.0 billion, or 35%, increase is primarily attributable
to the acquisition of NBB Bancorp in January 1995, as well as loan purchases by
various banking subsidiaries. Except for selected programs, such as loans
obtained through business acquisitions or held for asset/liability management
purposes, residential mortgage loans are generally originated by FMG and sold in
the secondary market.
Home equity loans decreased from $6.0 billion at December 31, 1994, to $4.8
billion at December 31, 1995, primarily the result of the reclassification of
$1.5 billion of such loans to assets held for sale or accelerated disposition.
Credit card outstandings increased $114 million to $1.6 billion at
December 31, 1995. The increase was due to new originations resulting from
special promotions, including cobranding arrangements with major retailers.
The corporation manages the risk associated with most types of consumer
loans by utilizing uniform credit standards when extending credit, together with
enhanced computer systems that streamline the process of monitoring
delinquencies and assisting in customer contact.
Commercial Real Estate-Product Diversification
- -------------------------------------------------------
December 31
Dollars in millions 1995 1994
- -------------------------------------------------------
Retail $1,159 $1,225
Apartments 1,137 1,102
Office 1,077 1,223
Industrial 444 436
Hotel 220 284
Land 85 131
Condominiums 85 81
Residential 62 75
Other 751 898
- -------------------------------------------------------
Total $5,020 $5,455
- -------------------------------------------------------
Commercial real estate loans decreased $435 million to $5.0 billion at
December 31, 1995. The 8% decrease is primarily due to an increasingly
competitive marketplace coupled with Fleet's stringent credit quality standards.
The decrease also includes a reclassification of $79 million of commercial real
estate loans to assets held for sale or accelerated disposition.
Lease financing totaled $2.2 billion at December 31, 1995, compared to $1.5
billion at December 31, 1994. This increase in lease financing is primarily
attributable to increased volume obtained through geographic expansion and
specialization in targeted industries. The corporation provides lease financing
for mid-to large-sized equipment acquisitions.
<PAGE>
Nonperforming Assets
Nonperforming Assets(a)
- ------------------------------------------------------------------------------
Commercial Commercial
and Real
Dollars in millions Industrial Estate Consumer Total
- ------------------------------------------------------------------------------
Nonperforming loans and leases:
Current or less than
90 days past due $124 $ 21 $ 12 $157
Noncurrent 116 51 116 283
OREO 4 40 15 59
- ------------------------------------------------------------------------------
Total NPAs at
December 31, 1995 $244 $112 $143 $499
- ------------------------------------------------------------------------------
Total NPAs
at December 31, 1994 $236 $261 $264 $761
- ------------------------------------------------------------------------------
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($198 million and
$139 million at December 31, 1995 and 1994, respectively), or assets
subject to federal financial assistance ($28 million and $59 million at
December 31, 1995 and 1994, respectively). NPAs and related ratios at
December 31, 1995, also do not include $317 million of NPAs classified as
held for sale or accelerated disposition ($46 million of commercial and
industrial, $77 million of commercial real estate and $194 million of
consumer).
Nonperforming assets (NPAs) decreased $262 million, or 34%, to $499 million
at December 31, 1995, primarily due to the reclassification of $317 million of
certain NPAs during the fourth quarter of 1995. These assets, primarily real
estate and consumer loans, were reclassified to assets held for sale or
accelerated disposition. Excluding this reclassification, NPAs would have been
$816 million, an increase of $55 million from $761 million at December 31, 1994,
which is reflective of acquisitions and the economy in the Northeast during
1995. During 1995, NPAs additions were $956 million, a 36% increase over 1994.
This increase is primarily attributable to increases in consumer loan NPAs,
principally Fleet Finance, and commercial and industrial NPAs. Reductions in
NPAs during the year were primarily attributable to payments, loan charge-offs,
and sales.
Activity in Nonperforming Assets
- ---------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994
- ---------------------------------------------------------------------------
Balance at beginning of year $761 $1,038
Additions 956 702
Acquisitions 70 2
Reductions:
Payments/interest applied (486) (438)
Charge-offs/writedowns (306) (330)
Sales/other (110) (132)
Returned to accrual (69) (81)
- ---------------------------------------------------------------------------
Total reductions (971) (981)
- ---------------------------------------------------------------------------
Subtotal 816 761
Assets held for sale or accelerated disposition (317) -
- ---------------------------------------------------------------------------
Balance at end of year $499 $761
- ---------------------------------------------------------------------------
NPAs at December 31, 1995, as a percentage of total loans, leases, and
OREO, and as a percentage of total assets, were .97% and .59%, respectively,
compared to 1.65% and .94%, respectively, at December 31, 1994. At December 31,
1995 and 1994, loans in the 90 days past due and still accruing interest
category amounted to $198 million and $139 million, respectively, which included
approximately $162 million and $102 million, respectively, of consumer loans.
Although these amounts are not included in NPAs, management reviews loans in
this category when considering risk elements to determine the adequacy of
Fleet's credit loss reserve.
NPAs totals and related ratios do not include nonaccrual assets classified
as held for sale or accelerated disposition. At December 31, 1995, NPAs
classified as held for sale or accelerated disposition totalled $317 million as
follows:
<TABLE><CAPTION>
Nonperforming Assets Held For Sale
Or Accelerated Disposition
- ------------------------------------------------------------------------------
Commercial Commercial
and Real
Dollars in millions Industrial Estate Consumer Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans and leases $46 $77 $172 $295
OREO - - 22 22
- ------------------------------------------------------------------------------
Total $46 $77 $194 $317
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
Reserve for Credit Losses
Reserve for Credit Loss Activity
- --------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $1,496 $1,669 $1,937 $2,065 $1,671
Gross charge-offs:
Consumer 141 130 133 136 169
Commercial and industrial 109 91 257 383 354
Commercial real estate 99 95 269 367 329
Residential real estate 65 52 49 121 35
Lease financing 4 9 21 34 26
- --------------------------------------------------------------------------------------
Total gross charge-offs 418 377 729 1,041 913
- --------------------------------------------------------------------------------------
Recoveries:
Consumer 34 35 34 29 28
Commercial and industrial 48 60 63 50 39
Commercial real estate 25 27 34 32 14
Residential real estate 4 11 4 4 1
Lease financing 5 5 9 3 3
- --------------------------------------------------------------------------------------
Total recoveries 116 138 144 118 85
- --------------------------------------------------------------------------------------
Net charge-offs 302 239 585 923 828
Provision 101 65 327 728 995
Acquired/other 26 1 (10) 67 227
- --------------------------------------------------------------------------------------
Balance at end of year $1,321 $1,496 $1,669 $1,937 $2,065
- --------------------------------------------------------------------------------------
Ratio of net charge-offs to
average loans and leases .59% .54% 1.35% 2.15% 2.02%
- --------------------------------------------------------------------------------------
Ratio of reserve for credit losses
to year-end loans and leases 2.56% 3.25% 3.82% 4.43% 4.73%
- --------------------------------------------------------------------------------------
Ratio of reserve for credit losses
to year-end NPAs 265% 196% 161% 96% 65%
- --------------------------------------------------------------------------------------
Ratio of reserve for credit losses
to year-end nonperforming
loans and leases 301% 224% 199% 129% 93%
- --------------------------------------------------------------------------------------
</TABLE>
Net charge-offs increased $63 million to $302 million in 1995. Net charge-
offs increased primarily in the commercial and residential loan portfolios. The
sluggish economy as well as higher levels of personal bankruptcies directly
contributed to higher net charge-offs in the consumer loan portfolio,
particularly the consumer credit card portfolio and Fleet Finance related loans.
The ratio of net charge-offs to average loans and leases increased to .59% at
December 31, 1995, from .54% at December 31, 1994.
<TABLE><CAPTION>
Reserve for Credit Loss Allocation
- --------------------------------------------------------------------------------------------------------------------------------
December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loan Type to Loan Type to Loan Type to Loan Type to Loan Type to
Dollars in millions Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $606 45.1% $620 42.7% $678 43.5% $895 43.1% $878 39.6%
Consumer 209 18.5 226 23.7 196 23.4 222 21.5 187 21.9
Commercial real estate:
Construction 23 1.2 17 1.5 7 1.4 39 3.3 - 4.3
Interim/permanent 138 8.6 190 10.4 241 12.1 317 12.5 353 14.4
Residential real estate 90 22.3 47 18.5 50 16.9 60 17.0 81 16.2
Lease financing 19 4.3 18 3.2 36 2.7 31 2.6 33 3.6
Unallocated 236 - 378 - 461 - 373 - 533 -
- --------------------------------------------------------------------------------------------------------------------------------
Total $1,321 100.0% $1,496 100.0% $1,669 100.0% $1,937 100.0% $2,065 100.0%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fleet's reserve for credit losses decreased $175 million from December 31,
1994, to $1,321 million at December 31, 1995. The corporation's ratios of
reserve for credit losses to NPAs and reserve for credit losses to nonperforming
loans and leases have increased due to the reclassification of $317 million of
NPAs at December 31, 1995, to assets held for sale or accelerated disposition.
The increase in the provision for credit losses from $65 million for 1994 to
$101 million for 1995 reflects a higher level of net charge-offs for all loan
types.
The reserve for credit losses represents amounts available for future
credit losses and reflects management's ongoing detailed review of certain
individual loans and leases, supplemented by analyses of historical net charge-
off experience of the portfolio and an evaluation of current and anticipated
<PAGE>
economic conditions and other pertinent factors. Based on these analyses, the
corporation believes that its year-end reserve is adequate.
Loans and leases (or portions thereof) deemed uncollectable are charged
against the reserve, while recoveries of amounts previously charged off are
added to the reserve. Loss provisions charged to earnings are added to the
reserve. Amounts are charged off once the probability of loss has been
established, with consideration given to factors such as the customer's
financial condition, underlying collateral and guarantees, and general and
industry economic conditions.
Funding Sources
Components of Funding Sources
- -------------------------------------------------------
December 31
Dollars in millions 1995 1994
- -------------------------------------------------------
Deposits:
Demand $12,305 $12,028
Regular savings, NOW, money market 22,835 23,870
Time:
Domestic 17,554 14,338
Foreign 4,428 5,292
- -------------------------------------------------------
Total deposits $57,122 $55,528
- -------------------------------------------------------
Borrowed funds:
Federal funds purchased $ 4,461 $ 2,753
Securities sold under agreements
to repurchase 2,964 6,170
Commercial paper 2,138 835
Other 3,006 2,828
- -------------------------------------------------------
Total borrowed funds 12,569 12,586
- -------------------------------------------------------
Long-term debt 6,481 5,931
- -------------------------------------------------------
Total $76,172 $74,045
- -------------------------------------------------------
Total deposits increased $1.6 billion to $57.1 billion at December 31,
1995, from $55.5 billion at December 31, 1994, primarily due to an increase in
wholesale funding. In addition, the corporation's mix of total deposits has
shifted as domestic time deposits have increased by $3.2 billion while foreign
time deposits have decreased by $.9 billion, and regular savings, NOW, and money
market deposits have decreased by $1.0 billion. This shift reflects the
increasingly competitive market for customer deposits as increases in lower cost
deposits (i.e., demand deposits, savings, NOW, and money market accounts) due to
acquisitions during 1995 have been substantially offset by the migration of
similar types of deposits to time deposits and other alternative savings and
investment products.
Certificates of deposit (CDs) and other time deposits issued by domestic offices
in amounts of $100,000 or more as of December 31, 1995, will mature as follows:
Maturity of Time Deposits
- ----------------------------------------------------------
December 31, 1995 Certificates All Other
Remaining maturity of Time
Dollars in millions Deposit Deposits
- ----------------------------------------------------------
3 months or less $3,265 $5,907
3 to 6 months 3,046 242
6 to 12 months 3,112 253
Over 12 months 4,491 1,666
- ----------------------------------------------------------
Total $13,914 $8,068
- ----------------------------------------------------------
Total borrowed funds remained relatively stable from December 31, 1994, to
December 31, 1995. Other short-term borrowings include: treasury, tax, and loan;
bank notes; and revolving credit facilities at FMG and Fleet. The amount
outstanding under the revolving credit facility at FMG decreased $70 million to
$430 million at December 31, 1995.
The balance of long-term debt increased $550 million as repayments of $2.7
billion were replaced by new issuances of approximately $3.3 billion. New
issuances included $840 million of bank notes due primarily in 1996; $663
million of medium-term notes due 1996-2003; $750 million of other senior notes
due 1998-2001; and $250 million of subordinated notes due 2005. The proceeds
from these issuances were primarily used for general corporate purposes.
Asset/Liability Management
The asset/liability management process at Fleet ensures that the risk to
earnings from changes in interest rates is prudently managed. Asset/liability
management uses three key measurements to monitor interest-rate risk: (1) the
interest-rate sensitivity "gap" analysis; (2) a "rate shock" to measure earnings
volatility due to an immediate increase or decrease in market interest rates of
up to 200 basis points; and (3) simulations of net interest income under
alternative balance sheet and interest-rate scenarios.
Internal parameters have been established as guidelines for monitoring the
gap analysis and the 200 basis-point rate shock. These guidelines serve as
benchmarks for determining actions to balance the current position against
overall strategic goals. Current exposures are reported to both corporate and
bank asset/liability committees as well as the boards of directors.
<PAGE>
Interest-Rate Gap Analysis
<TABLE><CAPTION>
- ---------------------------------------------------------------------------------------------------------
Cumulatively Repriced Within
December 31, 1995 3 4 12 2
Dollars in millions Months to 12 to 24 to 5 After 5
by repricing date or Less Months Months Years Years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 4,566 $ - $ - $ - $ - $ 4,566
Securities 8,524 3,447 1,342 4,674 1,344 19,331
Loans and leases 28,919 7,999 3,681 6,710 4,216 51,525
Mortgages held for resale 2,005 -- -- -- -- 2,005
Other assets 1,489 519 416 1,189 3,392 7,005
- ---------------------------------------------------------------------------------------------------------
Total assets 45,503 11,965 5,439 12,573 8,952 84,432
- ---------------------------------------------------------------------------------------------------------
Deposits:
Demand 5,065 -- 811 -- 6,429 12,305
Savings 9,659 6,035 3,668 3,015 458 22,835
Time 9,171 6,654 3,161 2,808 188 21,982
- ---------------------------------------------------------------------------------------------------------
Total deposits 23,895 12,689 7,640 5,823 7,075 57,122
- ---------------------------------------------------------------------------------------------------------
Short-term borrowings 12,371 60 88 48 2 12,569
Long-term debt 2,793 184 592 1,539 1,373 6,481
Other liabilities 216 -- -- -- 1,679 1,895
Stockholders' equity -- 95 -- 125 6,145 6,365
- ---------------------------------------------------------------------------------------------------------
Total liabilities and equity 39,275 13,028 8,320 7,535 16,274 $ 84,432
- ---------------------------------------------------------------------------------------------------------
Net off-balance-sheet (4,199) 794 2,309 1,851 (755) --
- ---------------------------------------------------------------------------------------------------------
Periodic gap 2,029 (269) (572) 6,889 (8,077) --
Cumulative gap $ 2,029 $ 1,760 $ 1,188 $ 8,077 $ 0 --
Cumulative gap as a percent
of total assets -1995: 2.4% 2.1% 1.4% 9.6%
- ---------------------------------------------------------------------------------------------------------
Cumulative gap as a percent
of total assets -1994: (10.9)% (3.2)% 13.9% 14.1%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Interest-rate gap analysis provides a static analysis of the repricing
characteristics of the entire balance sheet. It is prepared by scheduling assets
and liabilities into time bands based on their next opportunity to reprice. For
floating-rate instruments, the entire balances are placed at the next date on
which their rates could be reset and for fixed-rate instruments the balances are
placed in time bands according to their principal repayment schedules. It is
necessary to apply further assumptions to refine this process. For instance, in
order to recognize the potential for mortgage-related instruments to experience
early payments of principal, a prepayment assumption based on management's
expectations is layered on top of the scheduled principal payments. Other
categories that are scheduled using management assumptions include
noncontractual deposits, such as demand deposits, interest-bearing checking,
savings, and money market deposits. In the interest-rate gap analysis, core
demand deposits are allocated as follows: 10% in 3 months and under, 10% in year
2, and 80% after year 5. Interest-bearing checking and savings are allocated as
follows: 12% in 3 months and under, 33% in months 4-12, 23% in year 2, 28% in
years 3-5, and 4% after year 5. Additionally, money market deposits are
allocated as follows: 63% in 3 months and under, 25% in months 4-12, and 12% in
year 2. These allocations are consistent with management's current estimate of
the sensitivity of the rates and balances of these accounts to changes in market
interest rates. Management continues to analyze recent Fleet and industry data
in order to maintain reasonable gap placements, based upon historical and
expected pricing characteristics.
At December 31, 1995, the corporation was 2.1% asset sensitive at the one-
year cumulative gap interval compared to 3.2% liability sensitive at December
31, 1994. Fleet's one-year cumulative gap guideline is plus or minus 10% of
total assets.
Simulation analysis provides a dynamic and much more detailed analysis of the
earnings sensitivity of the balance sheet. As a result, simulation analysis is
the main tool for managing interest-rate risk at Fleet. Simulation analyses are
used to examine the earnings impact of immediate interest-rate "shocks," gradual
interest-rate "ramps," yield-curve "twists," as well as numerous other
forecasted or planned scenarios. Within each scenario, the analysis incorporates
what management believes to be the most reasonable assumptions about such
variables as the prepayment rates on mortgages and the repricing of
noncontractual deposits. Utilizing a 200 basis-point immediate rate-shock
simulation, the most recent earnings simulation model projects net interest
income for the next twelve months would decrease by an amount equal to
approximately 3.5% if rates declined by 200 basis points immediately. The
projection is within the corporation's 10% policy limit.
<PAGE>
<TABLE><CAPTION>
Interest-Rate Risk-Management Analysis
- -------------------------------------------------------------------------------------------------------
Weighted
Assets/ Average Weighted Average
December 31, 1995 Notional Liabilities Maturity Fair Rate
Dollars in millions Value Designated (years) Value Receive Pay
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Rate Swaps
Receive-fixed/pay-variable swaps $2,965 Variable-rate loans
1,592 Fixed-rate deposits
610 Short-term borrowings
609 Long-term debt
5,776 2.1 $69 6.19% 5.84%
- -------------------------------------------------------------------------------------------------------
Pay-fixed/receive-variable 1,885 Short-term borrowings .6 (25) 5.78 6.84
- -------------------------------------------------------------------------------------------------------
Basis swaps 35 Fixed-rate deposits
615 Long-term debt
2,092 Securities
2,742 2.2 (4) 5.86 5.96
- -------------------------------------------------------------------------------------------------------
Index-amortizing swaps
receive-fixed/pay-variable 2,038 Variable-rate loans 1.2 1 5.08 5.43
- -------------------------------------------------------------------------------------------------------
Total interest-rate swaps $12,441 2.0 $41 5.87% 5.95%
- -------------------------------------------------------------------------------------------------------
Other Interest-Rate Instruments
Interest-rate cap agreements $550 Short-term borrowings 1.4 $6 - -
- -------------------------------------------------------------------------------------------------------
Interest-rate corridor agreements 206 Short-term borrowings .7 1 - -
- -------------------------------------------------------------------------------------------------------
Interest-rate collar agreements 10 Short-term borrowings 2.8 - - -
- -------------------------------------------------------------------------------------------------------
Total other instruments $766 1.21 $7 - -
- -------------------------------------------------------------------------------------------------------
Total interest-rate instruments $13,207 1.95 $48
- -------------------------------------------------------------------------------------------------------
</TABLE>
Fleet uses interest-rate instruments to manage interest-rate risk within
management guidelines limiting risk to earnings. Since interest-rate instruments
are used to manage the interest-rate risk of specific assets and liabilities,
the analysis considers the interest-rate sensitivity of specific portfolios, as
well as the sensitivity of the entire balance sheet. There are situations where
interest-rate instruments will be executed that increase existing asset or
liability sensitivity (as measured by the gap position), but the resulting risk
profile is desired and within Fleet's asset/liability management guidelines.
Fleet considers the duration of the interest-rate instruments program within its
asset/liability management parameters for interest-rate risk-management.
Derivative instruments totaling $13.2 billion (notional amount) are being
used for interest-rate risk-management purposes. These derivative instruments
consist primarily of interest-rate swaps. During 1995 and 1994 the corporation
also utilized interest-rate caps, floors and futures contracts for interest-rate
risk-management purposes.
During 1995, Fleet substantially reduced its asset/liability management
positions in certain interest-rate instruments, such as swaps, options (caps,
corridors, collars), and futures. These reductions occurred gradually as a
result of a combination of maturities, sales, and terminations. The positions
were eliminated because management determined they were no longer necessary
given the nature of Fleet's balance sheet and the interest-rate environment.
While Fleet reduced the size of these positions in 1995, the corporation
envisions continued use of these instruments in the future.
At December 31, 1995 the corporation had approximately $12.4 billion of
interest-rate swaps outstanding for interest-rate risk-management purposes,
including $2.0 billion of index-amortizing swaps. Under the terms of the index-
amortizing swaps, Fleet receives a fixed rate and pays a floating rate based on
certain indices such as a six-month London Interbank Offered Rate (LIBOR). Under
certain conditions, if these indices fall below a specified range, the swaps
would amortize (i.e., the swaps would wholly or partly mature) before the stated
final maturity; if these indices remain above the specified range, none of the
swaps would amortize until the stated final maturity.
<PAGE>
In addition to interest-rate swap agreements, the corporation had utilized
interest-rate cap and floor agreements during 1995 to manage interest-rate risk.
Interest-rate cap and floor agreements are similar to interest-rate swap
agreements except that interest payments are only made or received if current
interest rates rise above/below a predetermined interest rate. At year-end 1995,
the corporation had approximately $550 million in notional amounts of purchased
interest-rate cap agreements and $10 million in notional amounts of interest-
rate collar arrangements (consisting of a cap and floor) outstanding. The
corporation also had approximately $206 million in notional amounts of interest-
rate corridor agreements outstanding, which consist of a cap that is sold for a
higher-strike rate than the one that is purchased. Interest-rate corridors are
utilized to protect the corporation from a contraction in the interest-rate
spread due to a moderate rise in interest rates.
The periodic net settlement of interest-rate risk-management instruments is
recorded as an adjustment to net interest income. These interest-rate risk-
management instruments generated $18 million and $6 million of net interest
expense during 1995 and 1994, respectively. As of December 31, 1995, the
corporation has net deferred income of $28 million relating to terminated
interest-rate contracts, which will be amortized over the remaining life of the
underlying interest-rate contracts of approximately three years.
The interest-rate risk-management instrument activity for the two years
ended December 31, 1995, is summarized in the following table (all amounts are
notional amounts):
<TABLE><CAPTION>
Interest-Rate Risk-Management Instrument Activity
Interest-rate swaps
---------------------------------------
Receive- Pay- Index-
Dollars in millions Fixed Fixed Basis Amortizing Caps Corridors Collars Futures Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Balance at January 1, 1994 $2,390 $1,928 $ - $3,670 $950 $2,406 $ - $ 2,528 $13,872
Additions 1,611 1,886 3,605 500 825 275 500 30,497 39,699
Maturities (1,128) (434) - (51) - (1,650) - (27,020) (30,283)
Terminations - (1,296) - - - - - - (1,296)
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 2,873 2,084 3,605 4,119 1,775 1,031 500 6,005 21,992
Additions 4,928 370 615 - - - 10 2,771 8,694
Maturities (1,600) (94) (650) (831) (1,225) (257) (500) (677) (5,834)
Terminations (425) (475) (828) (1,250) - (568) - (8,099) (11,645)
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $5,776 $1,885 $2,742 $2,038 $550 $ 206 $ 10 $ - $13,207
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Maturities of the Interest-Rate Risk-Management Instruments
- ------------------------------------------------------------------------------------------------------------------
December 31, 1995
Dollars in millions Within 1 1 to 2 2 to 3 3 to 4 4 to 5 After 5
Year Years Years Years Years Years Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Interest-rate swaps
Receive-fixed $ 621 $2,664 $1,695 $137 $619 $40 $5,776
Pay-fixed 555 660 - 450 200 20 1,885
Basis 585 805 1,317 35 - - 2,742
Index-amortizing 1,440 356 42 200 - - 2,038
- ------------------------------------------------------------------------------------------------------------------
Total interest-rate swaps 3,201 4,485 3,054 822 819 60 12,441
- ------------------------------------------------------------------------------------------------------------------
Other interest-rate instruments 570 36 10 150 - - 766
- ------------------------------------------------------------------------------------------------------------------
Total interest-rate instruments $3,771 $4,521 $3,064 $972 $819 $60 $13,207
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Mortgage Servicing Rights Prepayment-Risk Management. The corporation also
uses interest-rate contracts to manage the prepayment risk associated with the
corporation's mortgage servicing portfolio. The value of the corporation's
mortgage servicing portfolio may be adversely impacted if mortgage interest
rates decline and loan prepayments increase. As a result, the carrying value of
the corporation's mortgage servicing rights are subject to a great degree of
volatility in the event of unanticipated prepayments or defaults. To mitigate
the risk related to adverse changes in interest rates and the potential
resultant impairment to MSRs, the corporation holds interest-rate contracts
(primarily purchased interest-rate floor contracts and purchased-call option
contracts on U.S. Treasury securities). Such contracts, which are carried at a
market value of $87.8 million at December 31, 1995, had unrealized and realized
gains of $77 million in 1995. These gains are included in other noninterest
income.
Mortgage Servicing Rights Prepayment Risk-Management Analysis
- -------------------------------------------------------------------------------
Weighted Weighted
December 31, 1995 Notional Average Average Market
Dollars in millions Value Maturity (yrs) Strike Rate Value
- -------------------------------------------------------------------------------
Interest-rate floors $5,885 4.33 5.58% $71.2
Interest-rate caps 200 4.52 7.25 (.7)
Purchased-call options 825 - - 17.3
- -------------------------------------------------------------------------------
Total $6,910 - - $87.8
- -------------------------------------------------------------------------------
The above instruments are used in an effort to protect the economic value
of the corporation's mortgage servicing rights. Interest-rate caps and floors
have a strike price that is indexed to the 5 and 10 year constant maturity
treasury rate. These contracts mature as follows: $700 million and $5,385
million in 1999 and 2000, respectively. Purchased-call options consist of option
contracts on long-term U.S. treasury securities. These option contracts mature
between March and May of 1996.
LIQUIDITY
Liquidity is the ability of the corporation to meet each maturing
obligation or customer demand for funds. Liquidity is provided through issuing
liabilities, selling assets, or allowing assets to mature. The corporation's
Asset and Liability Committee (ALCO) is responsible for implementing the Board
of Directors' policies and guidelines for the maintenance of prudent levels of
liquidity. The ALCO is responsible for monitoring the performance of each of the
banking subsidiaries and the parent company relative to these policies and
guidelines.
The primary sources of liquidity for the parent company are interest and
dividends from subsidiaries and access to the capital and money markets.
Dividends from banking subsidiaries are limited by various regulatory
requirements related to capital adequacy and earning trends.
The corporation's subsidiaries rely on cash flows from operations, core
deposits, borrowings, short-term high-quality liquid assets, and in the case of
the nonbanking subsidiaries, funds from the parent company for liquidity.
FMG has a separate funding program that includes a revolving-warehouse credit
agreement of $1.8 billion at December 31, 1995, a decrease from the $2.2 billion
available at December 31, 1994. FMG also has a shelf registration that provides
for the issuance of debt securities. At December 31, 1995, $100 million of debt
securities were available for future issuance under this shelf registration. FMG
also sells commercial paper to fund short-term needs. At December 31, 1995, FMG
had commercial paper outstanding of $1.4 billion compared to $108 million at
December 31, 1994.
At December 31, 1995, Fleet, excluding FMG, had commercial paper
outstanding of $772 million, including $630 million placed directly by Fleet in
its local markets, compared to $727 million and $472 million, respectively, at
December 31, 1994.
The corporation has backup lines of credit totaling $1 billion to ensure
that funding is not interrupted if commercial paper is not available. At
December 31, 1995 and 1994, Fleet had no outstanding balances under the line of
credit. Certain of the corporation's banking subsidiaries have established a $5
billion bank note program of which $1.7 billion is outstanding at December 31,
1995. Through the issuance of senior debt, the corporation raised $3.3 billion
in 1995, thereby strengthening its liquidity position.
<PAGE>
Fleet also has an effective universal shelf registration with the
Securities and Exchange Commission (SEC), providing for the issuance of common
and preferred stock, senior or subordinated debt securities, and other debt
securities. The total amount of funds available as of December 31, 1995, under
the corporation's shelf registration was $913 million. On February 21, 1996, the
corporation issued $425 million of preferred stock leaving $488 million
available under this registration statement. In addition, on February 2, 1996,
the corporation filed a new registration statement for $1.0 billion, which is
currently pending approval by the SEC.
As shown in the Consolidated Statements of Cash Flows, cash and cash
equivalents decreased by $4.0 billion during 1995. This decrease was primarily
due to $4.0 billion of net cash used in financing activities as a result of net
decreases of $3.2 billion in deposits and $801 million in short-term borrowings.
Net cash provided by operating activities was principally generated by income
from operations and proceeds from the sale of mortgages held for resale, offset
in part by originations and purchases of such mortgages. Net cash used by
investing activities was principally due to a net decrease in securities offset
by loans to customers.
Capital
December 31
Dollars in millions 1995 1994
- --------------------------------------------------------------------
Risk-adjusted assets $69,384 $60,650
Tier 1 risk-based capital (4% minimum) 7.62% 9.14%
Total risk-based capital (8% minimum) 11.29 12.92
Leverage ratio (4% minimum) 6.41 7.15
Common equity-to-assets 7.07 6.06
Total equity-to-assets 7.54 6.75
Tangible total equity-to-assets 6.30 6.17
Capital in excess of minimum requirements:
Tier 1 risk-based $1,123 $3,120
Total risk-based 895 2,983
Leverage 1,161 2,445
- --------------------------------------------------------------------
A financial institution's capital serves to support growth and provide
protection against loss to depositors and creditors. Equity capital represents
the stockholders' investment in the corporation. Management strives to maintain
an optimal level of capital on which an attractive return to the stockholders
will be realized over both the short and long term, while serving depositors'
and creditors' needs.
Regulatory capital requirements are set forth in terms of (1) Leverage
(Tier 1 capital/quarterly average assets); (2) risk-based Tier 1 capital (Tier 1
capital/risk-weighted on- and off-balance sheet assets); and (3) risk-based
Total Capital (Total Capital/risk-weighted on- and off-balance sheet assets).
The minimum requirements for each of these ratios is 4%, 4%, and 8%,
respectively. In addition, under the FDIC Improvement Act (FDICIA), banks are
categorized according to their capital levels (together with regulatory
evaluations) into one of five categories ranging from "well-capitalized" to
"critically undercapitalized." Each category serves to determine a bank's
deposit insurance premium as well as any mandated restrictive regulatory
actions. As of December 31, 1995, all of the Fleet affiliate banks were
categorized as "well-capitalized," which specifies for minimum Leverage, Tier 1,
and Total Capital ratios of 5%, 6%, and 10%, respectively.
Lower regulatory capital ratios were mainly due to increased risk-adjusted
assets primarily the result of the acquisitions of NBB Bancorp, the Business
Finance Division of Barclays Business Credit, Inc., Plaza Home Mortgage, and
Northeast Federal Corporation. At year end, KKR converted its dual convertible
preferred stock into 19.9 million shares of Fleet common stock. This resulted in
a reclassification from preferred equity to common equity, thereby improving the
common equity-to-assets ratio, but leaving total equity-to-assets unchanged.
COMPARISON OF 1994 AND 1993
Fleet reported net income for 1994 of $849 million, or $3.09 per share,
compared to the $764 million, or $2.82 per share, reported in 1993, which was
before a cumulative effect of a change in method of accounting of $53 million
pertaining to income taxes. Return on assets and return on equity were 1.07% and
15.66%, respectively, for 1994 compared to 1.01% and 15.94%, respectively, for
1993.
Net interest income on a fully taxable equivalent basis totaled $3.1
billion for 1994, compared to $3.2 billion in 1993. The net interest margin for
1994 was 4.30%, compared to 4.63% in 1993. The decrease of 33 basis points was
due principally to the rise in interest rates during 1994 as the increased cost
of funding sources outpaced the increase in yield on earning assets. The impact
of the narrower margin in 1994 was substantially offset by growth in the
corporation's average earning assets from $68.5 billion in 1993 to $72.0 billion
in 1994.
<PAGE>
Net Interest Margin and Interest-Rate Spread
- ---------------------------------------------------------------------
December 31 1994 1993
- ---------------------------------------------------------------------
Taxable-equivalent rates Average Average
Dollars in millions Balance Rate Balance Rate
- ---------------------------------------------------------------------
Money market instruments $588 4.99% $617 3.07%
Securities 25,710 5.92 21,875 6.55
Loans and leases 44,102 8.17 43,283 7.99
Mortgages held for resale 1,322 6.90 2,384 7.10
Other 265 1.89 325 1.54
- ---------------------------------------------------------------------
Total interest-earning assets 71,987 7.29 68,484 7.43
- ---------------------------------------------------------------------
Deposits 40,113 2.92 39,766 2.93
Short-term borrowings 15,355 4.07 12,807 3.03
Long-term debt 5,383 6.76 5,039 7.20
- ---------------------------------------------------------------------
Interest-bearing liabilities 60,851 3.55 57,612 3.33
- ---------------------------------------------------------------------
Interest-rate spread 3.74 4.10
Interest-free sources of funds 11,136 10,872
- ---------------------------------------------------------------------
Total sources of funds $71,987 2.99% $68,484 2.80%
- ---------------------------------------------------------------------
Net interest margin 4.30% 4.63%
- ---------------------------------------------------------------------
The provision for credit losses was $65 million in 1994 compared to $327
million in 1993, with the decline due to continued improvements in asset quality
and significant reductions in net charge-offs. Net charge-offs decreased $346
million and nonperforming assets decreased $277 million to $761 million.
Noninterest income, excluding securities gains (losses), totaled $1.56
billion during 1994 compared to $1.59 billion in 1993. Noninterest income was
adversely affected by a decrease in mortgage banking revenues resulting from the
negative impact of increasing interest rates on mortgage originations.
Noninterest expense, excluding $185 million of merger and restructuring-
related charges, totaled $3.0 billion for the year ended December 31, 1994.
Excluding the $161 million of merger and restructuring-related charges and the
$90 million charge related to accelerated amortization of mortgage servicing
assets in 1993, noninterest expense was reduced by $368 million, or 11%.
Significant reductions were noted in employee compensation and several other
expense categories. These reductions are attributable to the successful
implementation of strategies developed as part of the corporation's efficiency-
improvement programs.
Total loans of $46.0 billion at December 31, 1994, represented an increase
of approximately $2.3 billion, or 5%, compared to $43.7 billion at December 31,
1993.
RECENT ACCOUNTING DEVELOPMENTS
The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," which the corporation
adopted on January 1, 1996. This statement requires that long-lived assets and
certain identifiable intangibles to be held be reviewed for impairment whenever
management becomes aware of events or changes in circumstances indicating that
the carrying amount of an asset may not be recoverable. An impairment loss based
on the fair value of the asset is recognized if the expected cash flows from the
use and eventual disposition of the asset, on an undiscounted basis and without
interest charges, are less than the carrying amount of the asset. Long-lived
assets and certain identifiable intangibles to be disposed of are required to be
reported at the lower of the carrying amount or fair value less cost to sell,
except for assets being disposed of in connection with the disposal of a segment
of a business, which will continue to be reported at the lower of the carrying
amount or net realizable value. It is management's belief that the adoption of
this statement will not have a material impact on the corporation or its results
of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective for awards granted in fiscal years beginning
after December 15, 1995. This standard defines a fair value based method of
measuring employee stock options or similar equity instruments. In lieu of
recording the value of such options as compensation expense, companies may
provide pro forma disclosures quantifying the difference between compensation
cost included in net income as prescribed by current accounting standards and
the related cost measured by such fair value based method. The corporation will
provide such disclosure in its financial statements after the effective date of
the standard. However, the statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no
compensation cost is recorded if, at the grant date, the exercise price of the
options is equal to the fair market value of the corporation's common stock. The
corporation has elected to continue to follow the accounting under APB No. 25.
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements and related notes of the
corporation were prepared by management in conformity with generally accepted
accounting principles. Management is responsible for the integrity and fair
presentation of these financial statements and related notes.
Management has in place an internal accounting control system designed to
safeguard corporate assets from material loss or misuse and to ensure that all
transactions are first properly authorized and then recorded in its records. The
internal control system includes an organizational structure that provides
appropriate delegation of authority and segregation of duties, established
policies and procedures, and comprehensive internal audit and loan review
programs. Management believes that this system provides assurance that the
corporation's assets are adequately safeguarded and that its records, which are
the basis for the preparation of all financial statements, are reliable.
The Audit and Risk Management Committees of the Board of Directors consist
solely of directors who are not employees of the corporation or its
subsidiaries. During 1995, the committees met nine times with internal auditors,
loan review management, the independent auditors, and representatives of senior
management to discuss the results of examinations and to review their activities
to ensure that each is properly discharging its responsibilities. The
independent auditors, internal auditors, and loan review management have direct
and unrestricted access to these committees at all times.
The corporation's consolidated financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Its independent
auditors' report, which is based on an audit made in accordance with generally
accepted auditing standards, expresses an opinion as to the fair presentation of
the consolidated financial statements. In performing its audit, KPMG Peat
Marwick LLP considers the corporation's internal control structure to the extent
it deems necessary in order to issue its opinion on the consolidated financial
statements.
/s/ Terrence Murray /s/ Eugene M. McQuade
Terrence Murray Eugene M. McQuade
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Fleet Financial Group, Inc.:
We have audited the accompanying consolidated balance sheets of Fleet
Financial Group, Inc., as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Fleet
Financial Group, Inc. at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 7 of the notes to consolidated financial
statements, the corporation changed its method of accounting for mortgage
servicing rights to adopt the provisions of the Financial Accounting Standards
Board's Statement No. 122, "Accounting for Mortgage Servicing Rights," as of
April 1, 1995. Also as discussed in Notes 1 and 14, in 1993, the corporation
changed its methods of accounting for investments in debt and equity securities
and accounting for income taxes.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
January 17, 1996
<PAGE>
<TABLE><CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions, except per share amounts 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans and leases $4,721 $3,694 $3,612
Interest on securities (includes interest from
tax-exempt securities of $36 million, $33
million, and $27 million in 1995, 1994, and
1993, respectively) 1,304 1,514 1,428
- -----------------------------------------------------------------------------------------
Total interest income 6,025 5,208 5,040
- -----------------------------------------------------------------------------------------
Interest expense:
Deposits 1,726 1,171 1,166
Short-term borrowings 801 628 388
Long-term debt 478 362 363
- -----------------------------------------------------------------------------------------
Total interest expense 3,005 2,161 1,917
- -----------------------------------------------------------------------------------------
Net interest income 3,020 3,047 3,123
- -----------------------------------------------------------------------------------------
Provision for credit losses 101 65 327
- -----------------------------------------------------------------------------------------
Net interest income after provision for credit
losses 2,919 2,982 2,796
- -----------------------------------------------------------------------------------------
Noninterest income:
Mortgage banking 511 391 445
Service charges, fees, and commissions 492 438 423
Investment services revenue 322 294 291
Student loan servicing fees 72 54 51
Trading revenue 39 32 35
Securities available for sale gains (losses) 32 (1) 295
Other 382 347 343
- -----------------------------------------------------------------------------------------
Total noninterest income 1,850 1,555 1,883
- -----------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 1,448 1,428 1,529
Occupancy 250 265 280
Equipment 209 188 188
Mortgage servicing rights amortization 190 90 247
Intangible asset amortization 105 65 60
Legal and other professional 102 95 100
Marketing 93 84 75
FDIC assessment 67 114 128
OREO expense 15 51 163
Merger and restructuring-related charges 490 185 161
Loss on assets held for sale or accelerated
disposition 175 - -
Other 591 580 648
- -----------------------------------------------------------------------------------------
Total noninterest expense 3,735 3,145 3,579
- -----------------------------------------------------------------------------------------
Income before income taxes 1,034 1,392 1,100
Applicable income taxes 424 531 330
- -----------------------------------------------------------------------------------------
Income before minority interest and cumulative
effect of change in method of accounting 610 861 770
Minority interest - (12) (6)
Cumulative effect of change in method of accounting - - 53
- -----------------------------------------------------------------------------------------
Net income $ 610 $ 849 $ 817
- -----------------------------------------------------------------------------------------
Net income applicable to common shares $ 416 $ 818 $ 780
- -----------------------------------------------------------------------------------------
Fully diluted weighted average common shares
outstanding 265,886,363 264,828,469 257,373,073
Fully diluted earnings per share before cumulative
effect of change in method of accounting $1.57 $3.09 $2.82
Fully diluted earnings per share 1.57 3.09 3.03
Dividends declared 1.63 1.40 1.025
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------
December 31
Dollars in millions 1995 1994
- ---------------------------------------------------------------------------
Assets
Cash, due from banks, and interest-bearing deposits $4,505 $7,613
Federal funds sold and securities purchased under
agreements to resell 61 957
Securities available for sale at market 18,533 12,250
Securities held to maturity (market value: $782
and $8,452) 798 8,891
Loans and leases 51,525 46,035
Reserve for credit losses (1,321) (1,496)
- ---------------------------------------------------------------------------
Net loans and leases 50,204 44,539
- ---------------------------------------------------------------------------
Mortgages held for resale 2,005 560
Premises and equipment 991 985
Mortgage servicing rights 1,276 840
Accrued interest receivable 503 570
Deferred taxes 239 506
Excess cost over net assets acquired 935 317
Other intangibles 181 177
Other assets 4,201 2,821
- ---------------------------------------------------------------------------
Total assets $84,432 $81,026
- ---------------------------------------------------------------------------
Liabilities
Deposits:
Demand $12,305 $12,028
Regular savings, NOW, money market 22,835 23,870
Time 21,982 19,630
- ---------------------------------------------------------------------------
Total deposits 57,122 55,528
- ---------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase 7,425 8,923
Other short-term borrowings 5,144 3,663
Accrued expenses and other liabilities 1,895 1,510
Long-term debt 6,481 5,931
- ---------------------------------------------------------------------------
Total liabilities 78,067 75,555
- ---------------------------------------------------------------------------
Stockholders' equity
Preferred stock 399 557
Common stock (shares issued: 262,864,257 in 1995
and 244,140,469 in 1994; shares outstanding:
262,721,926 in 1995 and 237,590,569 in 1994) 3 244
Common surplus 3,149 2,612
Retained earnings 2,768 2,719
Net unrealized gain (loss) on securities available
for sale 52 (411)
Treasury stock, at cost (142,331 shares in 1995
and 6,549,900 shares in 1994) (6) (250)
- ---------------------------------------------------------------------------
Total stockholders' equity 6,365 5,471
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $84,432 $81,026
- ---------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE><CAPTION>
Net Unrealized
Gain (Loss)
Common on Securities
Dollars in millions, Preferred Stock $.01(a) Common Retained Available Treasury
except per share amounts Stock Par Surplus Earnings For Sale Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $814 $222 $2,143 $1,602 $- $(46) $4,735
Net income - - - 817 - - 817
Cash dividends declared on common
stock ($1.025 per share) - - - (140) - - (140)
Cash dividends declared on preferred stock - - - (22) - - (22)
Cash dividends declared by pooled
companies prior to mergers - - - (67) - - (67)
Purchase of preferred stock (100) - - (26) - - (126)
Redemption of FDIC preferred stock (16) - - (2) - - (18)
Common stock issued in connection with:
Common stock offering, net of
issuance costs of $10 - 15 404 - - - 419
Employee benefit plans and conversion of
preferred stock (3) 5 70 (4) - 47 115
Net unrealized gain on securities available for
sale at December 31, 1993 - - - - 238 - 238
Adjustment of valuation account for
securities at lower of cost or market - - - 24 - - 24
Other items, net - - 8 (15) - (3) (10)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $695 $242 $2,625 $2,167 $238 $ (2) $5,965
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 849 - - 849
Cash dividends declared on common
stock ($1.40 per share) - - - (192) - - (192)
Cash dividends declared on preferred stock - - - (15) - - (15)
Cash dividends declared by pooled
companies prior to mergers - - - (109) - - (109)
Redemption of adjustable-rate preferred stock (122) - - - - - (122)
Redemption of FDIC preferred stock (16) - - (3) - - (19)
Common stock issued in connection
with employee benefit plans - 4 66 (4) - 4 70
Adjustment to valuation reserve-
securities available for sale - - - - (666) - (666)
Treasury stock purchased - - - - - (252) (252)
Other items, net - (2) (79) 26 17 - (38)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $557 $244 $2,612 $2,719 $(411) $(250) $5,471
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 610 - - 610
Cash dividends declared on common
stock ($1.63 per share) - - - (274) - - (274)
Cash dividends declared on preferred stock - - - (17) - - (17)
Cash dividends declared by pooled
company prior to merger - - - (102) - - (102)
Issuance of preferred stock 125 - - - - - 125
Common stock issued in connection with:
Acquisition of Northeast Federal Corp. - 6 187 - - - 193
Employee benefit plans - - 53 (26) - 97 124
Conversion of dual convertible preferred
stock to common stock (283) - 427 (156) - 12 -
Treasury stock purchased - - - - - (446) (446)
Treasury stock issued in connection with
the acquisition of NBB Bancorp - - (17) (21) - 234 196
Retirement of treasury stock - - (371) 24 - 347 -
Adjustment to valuation reserve-
securities available for sale - - - - 523 - 523
Conversion of par value to $.01 per share(a) - (242) 242 - - - -
Other items, net - (5) 16 11 (60) - (38)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $399 $3 $3,149 $2,768 $52 $(6) $6,365
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) During 1995 the corporation changed the par value of its common stock from
$1 per share to $.01 per share.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE><CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $610 $849 $817
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 165 161 147
Amortization of mortgage servicing rights
and other intangible assets 295 155 307
Provision for credit losses 101 65 327
Deferred income tax expense (benefit) 73 130 (129)
Cumulative effect of change in method of accounting - - (53)
Securities (gains) losses (32) 1 (295)
Merger and restructuring-related charges 425 185 161
Loss on assets held for sale or accelerated disposition 175 - -
Originations and purchases of mortgages held for resale (13,349) (11,549) (22,556)
Proceeds from sales of mortgages held for resale 11,997 14,326 22,025
(Increase) decrease in accrued receivables, net 118 (98) (183)
(Decrease) increase in accrued liabilities, net (250) (530) 175
Other, net 290 4 120
- ----------------------------------------------------------------------------------------
Net cash flow provided by operating activities 618 3,699 863
- ----------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of securities available for sale (23,307) (24,116) (14,542)
Proceeds from sales of securities available for sale 10,836 26,859 11,887
Proceeds from maturities of securities available for
sale 15,473 1,027 1,628
Purchases of securities held to maturity (746) (2,983) (6,905)
Proceeds from maturities of securities held to maturity 3,462 2,272 2,522
Proceeds from sales of securities held to maturity - - 1,561
Net cash and cash equivalents paid for businesses
acquired (2,816) (56) -
Loans made to customers, nonbanking subsidiaries (1,430) (1,109) (3,413)
Principal collected on loans made to customers,
nonbanking subsidiaries 905 1,097 3,386
Loans purchased from third parties (including FDIC) (396) (817) (607)
Proceeds from sales of loans 205 135 904
Net increase in loans and leases, banking subsidiaries (2,255) (1,958) (1,021)
Putable loans transferred to the FDIC - 76 274
Proceeds from sales of OREO 99 134 245
Acquisition of minority interest in subsidiary (158) - -
Purchases of premises and equipment (136) (266) (259)
Purchases of mortgage servicing rights (331) (377) (266)
- ----------------------------------------------------------------------------------------
Net cash flow used in investing activities (595) (82) (4,606)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase (decrease) in deposits (3,206) 5,077 (2,902)
Net increase (decrease) in short-term borrowings (801) (4,025) 4,931
Proceeds from issuance of long-term debt 3,290 1,385 1,422
Repayments of long-term debt (2,740) (700) (1,214)
Proceeds from issuance of common stock 124 70 523
Proceeds from issuance of preferred stock 125 - -
Redemption and repurchase of common and preferred stock (446) (393) (289)
Cash dividends paid (373) (299) (194)
- ----------------------------------------------------------------------------------------
Net cash flow provided by (used in) financing
activities (4,027) 1,115 2,277
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,004) 4,732 (1,466)
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 8,570 3,838 5,304
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $4,566 $8,570 $3,838
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Fleet Financial Group (Fleet or the
corporation) conform to generally accepted accounting principles and prevailing
practices within the banking industry. The corporation is a diversified
financial services company headquartered in Boston, Massachusetts. The
corporation is organized along four functional lines of business which include:
financial services and national consumer, consumer and investment services,
commercial financial services, and treasury/asset collection/equity capital. The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Certain
prior year amounts have been reclassified to conform to current year
classifications.
Fleet-Shawmut Merger. On November 30, 1995, Shawmut National Corporation
(Shawmut) merged with and into Fleet (the Merger). The Merger was accounted for
as a pooling of interests and, accordingly, the financial information for all
prior periods presented has been restated to present the combined financial
condition and results of operations of both companies as if the Merger had been
in effect for all periods presented. Additional information pertaining to the
Merger is included in Note 2, Mergers and Acquisitions.
The following is a summary of the significant accounting policies:
Basis of Presentation. The consolidated financial statements of Fleet
include the accounts of the corporation and its subsidiaries. All material
intercompany transactions and balances have been eliminated.
The consolidated financial statements of the corporation have been prepared
to give retroactive effect to the Merger.
For purposes of the Consolidated Statements of Cash Flows, the corporation
defines cash and cash equivalents to include cash, due from banks, interest-
bearing deposits, federal funds sold, and securities purchased under agreements
to resell.
Securities. Securities are classified at the time of purchase, based on
management's intention, as securities held to maturity, securities available for
sale, or trading account securities.
Effective December 31, 1993, the corporation adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires that securities available for sale be reported at fair value,
with any net after-tax unrealized gains (losses) reflected as a separate
component of stockholders' equity. Previously, debt securities that were held
for indefinite periods of time were recorded at the lower of amortized cost or
fair value with any net unrealized losses included in earnings; equity
securities were stated at the lower of aggregate cost or fair value with net
unrealized losses reported as a reduction of retained earnings. Securities held
to maturity are those that management has the positive intent and ability to
hold to maturity and are carried at amortized cost.
Securities available for sale, which include marketable equity securities,
are those that management intends to hold for an indefinite period of time,
including securities used as part of the asset/liability management strategy,
and that may be sold in response to changes in interest rates, prepayment risk,
liquidity needs, the desire to increase capital, or other similar factors.
Unrealized losses on an individual security deemed to be other than
temporary are recognized as a realized loss in the accounting period in which
such determination is made. The specific identification method is used to
determine gains and losses on sales of securities.
Trading account securities include securities, principally debt securities,
that are purchased and held primarily for the purpose of selling them in the
near term and are stated at fair value, as determined by quoted market prices.
Gains and losses realized on the sale of trading account securities and
adjustments to fair value are included in trading revenue.
Loans and Leases. Loans are stated at the principal amounts outstanding,
net of unearned income. Loans and leases are placed on nonaccrual status as a
result of past-due status or a judgment by management that, although payments
are current, such action is prudent. Except in the case of most consumer and
residential real estate loans, loans and leases on which payments are past due
90 days or more are placed on nonaccrual status, unless they are well-secured
and in the process of normal collection or renewal. Consumer loans, including
residential real estate, are placed on nonaccrual status at 120 days past due
and generally charged off at 180 days past due. When a loan is placed on
nonaccrual status, all interest previously accrued in the current year, but not
collected, is reversed against interest income. Any interest accrued in prior
years is charged against the reserve for credit losses. Assets can be returned
to accrual status when they become current as to principal and interest or
demonstrate a period of performance under the contractual terms, and, in
management's opinion, are fully collectable.
Foreclosed Property and Repossessed Equipment. Property and equipment
acquired through foreclosure (other real estate owned or OREO) are stated at the
lower of cost or fair value less estimated selling costs. Credit losses arising
at the time of
<PAGE>
foreclosure are charged against the reserve for credit losses. Any additional
writedowns to the carrying value of these assets that may be required are
charged to expense and recorded in a valuation reserve that is maintained on
an asset-by-asset basis.
Reserve for Credit Losses. The corporation continually evaluates its
reserve for credit losses by performing detailed reviews of certain individual
loans and leases in view of the historical net charge-off experience of the
portfolio, evaluations of current and anticipated economic conditions, and other
pertinent factors. Based on these analyses, the reserve for credit losses is
maintained at levels considered adequate by management to provide for loan and
lease losses inherent in these portfolios.
Loans and leases, or portions thereof, deemed uncollectable are charged off
against the reserve, while recoveries of amounts previously charged off are
credited to the reserve. Amounts are charged off once the probability of loss
has been established, giving consideration to such factors as the customer's
financial condition, underlying collateral and guarantees, and general and
industry economic conditions.
Effective January 1, 1995, the corporation adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118.
Under this standard, 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.
Loans that are returned to accrual status are no longer considered to be
impaired. Certain loans are exempt from the provisions of SFAS No. 114,
including large groups of smaller-balance homogenous loans that are collectively
evaluated for impairment, such as consumer and residential mortgage loans.
The 1995 reserve for credit losses related to loans that are identified as
impaired includes impairment reserves, which are based on discounted cash flows
using the loan's effective interest rate, or the fair value of the collateral
for collateral-dependent loans, or the observable market price of the impaired
loan. Loans which were restructured prior to the adoption of SFAS 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
SFAS 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 SFAS 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 take place. Upon adoption of SFAS No.
114, the corporation did not change its method of recognizing interest income on
impaired loans. Cash receipts are generally applied to reduce the unpaid
principal balance.
Mortgages Held for Resale. Mortgages held for resale are recorded at the
lower of aggregate cost or market value. Market value is determined by
outstanding commitments from investors or by current investor yield
requirements.
Mortgage Servicing Rights (MSRs). During 1995, the FASB issued SFAS No. 122
"Accounting for Mortgage Servicing Rights." SFAS No. 122 requires that an entity
recognize, as separate assets, rights to service mortgage loans for others
irrespective of how those servicing rights are acquired, whether purchased or
originated, by allocating the total cost of the loans between the loan and the
servicing rights thereto based on their relative fair values. The corporation
adopted SFAS No. 122 as of April 1, 1995, with application to transactions in
which the corporation acquires MSRs through either purchase or origination of
mortgage loans and sells those loans with servicing rights retained, and to
impairment evaluations of all capitalized MSRs.
SFAS No. 122 requires that capitalized mortgage servicing rights be
assessed for impairment based upon the fair value of those rights. Fair values
are estimated considering market prices for similar MSRs and on the discounted
anticipated future net cash flows considering market consensus loan prepayment
predictions, historical prepayment rates, interest rates, and other economic
factors. For purposes of impairment evaluation and measurement, the corporation
stratifies the MSRs based on predominant risk characteristics of the underlying
loans, including loan type, amortization type (fixed or adjustable), and note
rate. To the extent that the carrying value of MSRs exceeds fair value by
individual stratum, a valuation allowance is established. The allowance may be
adjusted in the future as the value of MSRs increase or decrease. The cost of
MSRs is amortized over the estimated period of net servicing revenues.
Prior to adoption of SFAS No. 122, the corporation capitalized as MSRs only
acquisition costs of bulk servicing purchases and servicing rights acquired
through the purchase of mortgage loans negotiated by others, net of aggregate
gains from the sale of the purchased loans. Prior to SFAS No. 122, if recorded
balances for any disaggregated MSR categories exceeded the undiscounted
anticipated future net cash flows, a current impairment adjustment equal to the
difference between the carrying value and the undiscounted anticipated future
net cash flows was recorded.
Excess Cost over Net Assets Acquired. The excess cost over net assets
acquired (goodwill) is amortized on a straight-line basis over periods of up to
40 years. Goodwill relating to
<PAGE>
banking subsidiaries acquired subsequent to 1981 is amortized over periods
ranging up to 25 years. On a periodic basis, the corporation reviews goodwill
for events or changes in circumstances that may indicate that the carrying
amount of goodwill may not be recoverable.
Other Intangible Assets. The excess of the purchase price over the fair
value of the tangible net assets of certain acquisitions has been allocated to
core deposits (core deposit intangibles) based on valuations, and is amortized
on a straight-line basis over the estimated period of benefit, not to exceed ten
years. On a periodic basis, the corporation reviews its intangible assets for
events or changes in circumstances that may indicate that the carrying amount of
the assets may not be recoverable.
Trading Instruments. Financial instruments (principally foreign exchange
and interest-rate instruments) used for trading purposes are stated at market
value. Realized and unrealized gains and losses are recognized in trading
revenue. Interest revenue arising from trading instruments is included in the
income statement as part of interest income.
Income Taxes. The corporation changed its method of accounting for income
taxes from the deferred method to the liability method, in accordance with SFAS
No. 109, "Accounting for Income Taxes," effective January 1, 1993. This
statement requires deferred tax assets and liabilities to be recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period the change is enacted.
Interest-Rate Risk-Management Activities. The corporation enters into
certain interest-rate instruments, including interest-rate swap, cap and floor
agreements, and futures contracts to manage exposure to interest-rate risk. For
those interest-rate instruments that alter the repricing characteristics of
assets or liabilities, the net differential to be paid or received on the
instruments is treated as an adjustment to the yield on the underlying assets or
liabilities (the accrual method). For those interest-rate instruments entered
into in connection with the securities available for sale portfolio that
synthetically alter the interest-rate characteristics of the securities, the net
differential to be paid or received on the instruments is recorded on the
accrual method and the instruments 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 those
securities.
To qualify for accrual accounting, the interest-rate instrument 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 instrument. The corporation measures initial and
ongoing correlation by statistical analysis of the relative movements of the
interest-rate indices over time. If correlation were to cease, the interest-rate
instrument 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 instrument 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
instrument, accrual accounting is discontinued to the extent that the notional
amount exceeds the balance, and accounting for trading instruments is applied.
Gains and losses on futures contracts and other interest-rate instruments
used to protect the value of assets and liabilities are included in income
unless the futures contract qualified for hedge accounting. To qualify for hedge
accounting, futures contracts must be designated as hedges of specific assets or
liabilities and must reduce the corporation's exposure to interest-rate risk. In
addition, at the inception of the hedge and throughout the hedge period, there
must be high correlation between the futures contracts and the related hedged
assets or liabilities. Gains and losses on futures contracts accounted for as
hedges are deferred and amortized over the expected remaining lives of the
related hedged assets or liabilities as an adjustment of interest income or
interest expense.
Earnings Per Share. Earnings per share is computed by dividing earnings
(after deducting dividends and premiums paid on preferred stock) by the weighted
average number of common shares and common stock equivalents outstanding during
the period, assuming the conversion of the convertible preferred stock. Common
stock equivalents include stock options and rights and the dual convertible
preferred (DCP) stock.
<PAGE>
NOTE 2.
MERGERS AND ACQUISITIONS
As previously disclosed, the merger of Shawmut with and into Fleet was
completed on November 30, 1995, and was accounted for as a pooling of interests.
Under the terms of the Merger, approximately 105 million Fleet common shares
were exchanged for all of the outstanding common shares of Shawmut at an
exchange ratio of 0.8922 shares of Fleet for each share of Shawmut. The
outstanding preferred stock of Shawmut was exchanged for comparable issues of
Fleet preferred stock. The financial information for all prior periods presented
has been restated to present the combined financial condition and results of
operations of both companies as if the Merger had been in effect for all periods
presented.
In connection with the Merger, the corporation has signed definitive
agreements to divest 64 branches to comply with anti-trust concerns. The sales,
which are expected to be completed during the first half of 1996, will consist
of approximately $2.6 billion in deposits and $1.9 billion in loans, including
$1.1 billion in residential mortgages.
On January 27, 1995, the corporation completed its acquisition of NBB
Bancorp (NBB). The corporation issued approximately 6.2 million treasury shares
with an aggregate carrying value of approximately $200 million as well as
approximately $230 million in cash. In addition, Fleet issued 2.5 million
warrants to purchase Fleet common stock to NBB stockholders with an exercise
price of $43.875 per share and a term of six years. The warrants are exercisable
for a five-year period beginning one year after the date of the acquisition. The
transaction was accounted for under the purchase method of accounting. Goodwill
is being amortized on a straight-line basis over 15 years.
On January 31, 1995, the corporation completed its purchase of
substantially all the assets of the Business Finance Division of Barclays
Business Credit, Inc. (Barclays), now known as Fleet Capital, for approximately
$2.6 billion in cash. The transaction was accounted for under the purchase
method of accounting. Goodwill is being amortized on a straight-line basis over
25 years.
The corporation also completed its tender offer to purchase the
approximately 19% publicly held shares of Fleet Mortgage Group (FMG) common
stock for $20.00 in cash per share on February 28, 1995. Goodwill is being
amortized on a straight-line basis over 15 years.
On March 3, 1995, the corporation purchased Plaza Home Mortgage Corporation
(Plaza) which operates a mortgage banking franchise, principally in California,
for approximately $88 million in cash. Goodwill is being amortized on a
straight-line basis over 15 years. This acquisition added approximately $9.2
billion in mortgage servicing and expanded the corporation's mortgage banking
franchise by 40 additional offices.
On June 9, 1995, the corporation completed its acquisition of Northeast
Federal Corp. (Northeast) with assets of $3.3 billion. The corporation issued
approximately 5.8 million common shares with a fair value of approximately $193
million. This acquisition was accounted for under the purchase method of
accounting. 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,
FMG, Northeast, and Barclays transactions that occurred in 1995 as if such
transactions had been consummated on January 1, 1995 and 1994, respectively:
Pro Forma Results
- -----------------------------------------------------------------------
Dollars in millions except per share data
- -----------------------------------------------------------------------
Fleet, NBB, Plaza, FMG, Northeast, and Barclays 1995 1994
- -----------------------------------------------------------------------
Net interest income $3,054 $3,242
Net income available to common stockholders 404 786
Net income per common share 1.52 2.95
- -----------------------------------------------------------------------
Corporation As Reported
Net interest income $3,020 $3,047
Net income available to common stockholders 416 818
Net income per common share 1.57 3.09
- -----------------------------------------------------------------------
On December 19, 1995, Fleet signed a definitive agreement to purchase
NatWest Bank, N.A. (NatWest) for $2.7 billion in cash and up to an additional
$560 million in accordance with an earnout provision. The earnout provision
calls for an annual payment based upon the level of earnings from the NatWest
franchise with a cap of $560 million over an eight-year period. Following the
NatWest merger, Fleet expects to have approximately $90 billion in assets,
reflecting an expected reduction of Fleet's and NatWest's assets. In connection
with the NatWest merger, Fleet intends to substantially restructure its balance
sheet to replace lower-yielding assets, primarily securities, with higher
earning assets acquired from NatWest and to replace higher-cost purchased
funding with lower cost deposits acquired from NatWest. The acquisition of
NatWest will add approximately 300 branches in New York and New Jersey and is
expected to close in the second quarter of 1996, subject to regulatory approval.
<PAGE>
The corporation completed several mergers of banking organizations during
1994. The mergers in the following table were accounted for as poolings of
interests. The mergers of these organizations are reflected in the consolidated
financial statements as though they had been combined with the corporation as of
the beginning of the earliest period presented.
1994 Acquisitions
Added at Common
Completion Acquisition Shares
Dollars and shares in millions Date on Date Issued
- ---------------------------------------------------------------------------
Peoples Bancorp of Worcester, Inc. May 23, 1994 871 7.4
New Dartmouth Bank June 6, 1994 1,724 5.7
Gateway Financial Corporation June 27, 1994 1,259 6.6
Sterling Bancshares Corp. August 15, 1994 1,000 3.6
- ---------------------------------------------------------------------------
During 1994, the corporation acquired two smaller banks with combined total
assets of $332 million, which were accounted for under the purchase method of
accounting. In addition, ten branches with deposits of $427 million, deposits
held by the Resolution Trust Corporation totaling $25 million and the processing
services division of a bankruptcy claims processing company were acquired.
NOTE 3.
SECURITIES
<TABLE><CAPTION>
1995 1994
--------------------------------------- -----------------------------------------
Gross Gross Gross Gross
December 31 Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Dollars in millions Cost Gains Losses Value Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and government agencies $7,891 $12 $14 $7,889 $3,851 $- $184 $3,667
Mortgage-backed securities 8,457 38 25 8,470 8,352 5 459 7,898
Other debt securities 1,621 47 6 1,662 180 - 1 179
- ---------------------------------------------------------------------------------------------------------------------------
Total debt securities 17,969 97 45 18,021 12,383 5 644 11,744
- ---------------------------------------------------------------------------------------------------------------------------
Marketable equity securities 359 37 3 393 360 6 10 356
Other securities 119 - - 119 150 - - 150
- ---------------------------------------------------------------------------------------------------------------------------
Total securities available for sal $18,447 $134 $48 $18,533 $12,893 $11 $654 $12,250
- ---------------------------------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury and government agencie $7 $- $- $7 $1,980 $- $116 $1,864
State and municipal 687 9 1 695 843 5 6 842
Mortgage-backed securities - - - - 4,158 1 235 3,924
Other debt securities 104 - 24 80 1,910 1 89 1,822
- ---------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity $798 $9 $25 $782 $8,891 $7 $446 $8,452
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The securities available for sale portfolio had net unrealized gains
(losses) of $86 million and $(643) million at December 31, 1995 and 1994,
respectively. Accordingly, stockholders' equity has been increased (reduced) by
a valuation reserve of $52 million and $(411) million at December 31, 1995 and
1994, respectively, which represents the after-tax effect of the unrealized
gains (losses). During the fourth quarter of 1995, the corporation reclassified
substantially all of its securities held to maturity to securities available for
sale as the FASB permitted a one-time opportunity for institutions to reassess
the appropriateness of the designations of all securities.
At December 31, 1995, securities available for sale and securities held to
maturity with carrying values of $6.7 billion and $542 million, respectively,
were pledged to secure public deposits, securities sold under agreements to
repurchase, and for other purposes, compared to $2.6 billion and $5.3 billion,
respectively, at December 31, 1994.
Proceeds from sales of debt securities during 1995, 1994, and 1993 were $11
billion, $24 billion, and $11 billion, respectively. Gross gains of $49 million
and gross losses of $48 million were realized on those sales in 1995, gross
gains of $24 million and gross losses of $51 million were realized on those
sales in 1994, and gross gains of $252 million and gross losses of $3 million
were realized on those sales in 1993. Net realized
<PAGE>
gains on sales of marketable equity securities were $31 million, $14 million,
and $45 million in 1995, 1994, and 1993, respectively.
The amortized cost and estimated market value of debt securities held to
maturity and securities available for sale by contractual maturity are shown in
the following table. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Maturities of Debt Securities Available for Sale
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------
December 31, 1995 Within 1 to 5 5 to 10 After 10
Dollars in millions 1 Year Years Years Years Total
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury and government agencies $6,576 $1,315 $- $- $7,891
Mortgage-backed securities - 2,572 337 5,548 8,457
Other debt securities 26 896 66 633 1,621
- -----------------------------------------------------------------------------------------
Total debt securities $6,602 $4,783 $403 $6,181 $17,969
- -----------------------------------------------------------------------------------------
Percent of total debt securities 36.8% 26.6% 2.2% 34.4% 100.0%
Weighted average yield(a) 5.56 5.82 5.99 6.6 5.99
- -----------------------------------------------------------------------------------------
Market value $6,595 $4,796 $408 $6,222 $18,021
- -----------------------------------------------------------------------------------------
</TABLE>
(a) A tax-equivalent adjustment has been included in the calculations of the
yields to reflect this income as if it had been fully taxable. The tax-
equivalent adjustment is based upon the applicable federal and state income
tax rates.
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------
Maturities of Debt Securities Held to Maturity
December 31, 1995 Within 1 to 5 5 to 10 After 10
Dollars in millions 1 Year Years Years Years Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amortized cost:
U.S. Treasury and government agencies $7 $- $- $- $7
State and municipal 462 184 27 14 687
Other debt securities 3 16 3 82 104
- ------------------------------------------------------------------------------------------
Total debt securities $472 $200 $30 $96 $798
- ------------------------------------------------------------------------------------------
Percent of total debt securities 59.2% 25.0% 3.8% 12.0% 100.0%
Weighted average yield(a) 6.70 7.78 9.83 9.08 7.35
- ------------------------------------------------------------------------------------------
Market value $465 $204 $33 $80 $782
- ------------------------------------------------------------------------------------------
</TABLE>
(a) A tax-equivalent adjustment has been included in the calculations of the
yields to reflect this income as if it had been fully taxable. The tax-
equivalent adjustment is based upon the applicable federal and state income
tax rates.
<TABLE><CAPTION>
NOTE 4.
LOANS AND LEASES
- ------------------------------------------------------------------------------------------------------
December 31
Dollars in millions 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans:
Commercial and industrial $23,251 $19,675 $19,031 $18,818 $17,310
Residential real estate 11,475 8,529 7,378 7,444 7,063
Consumer 9,556 10,893 10,229 9,415 9,558
Commercial real estate:
Construction 606 666 637 1,436 1,890
Interim/permanent 4,414 4,789 5,279 5,480 6,315
- ------------------------------------------------------------------------------------------------------
Loans, net of unearned income 49,302 44,552 42,554 42,593 42,136
- ------------------------------------------------------------------------------------------------------
Lease financing:
Lease receivables 2,267 1,765 1,291 1,194 1,698
Estimated residual value 520 212 165 172 190
Unearned income (564) (494) (297) (237) (324)
- ------------------------------------------------------------------------------------------------------
Lease financing, net of unearned income(a) 2,223 1,483 1,159 1,129 1,564
- ------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income $51,525 $46,035 $43,713 $43,722 $43,700
</TABLE>
(a) The corporation's leases consist principally of full-payout, direct
financing leases. For federal income tax purposes, the corporation has the
tax benefit of depreciation on the entire leased unit and interest on the
long-term debt. Deferred taxes arising from leveraged leases totaled $182
million in 1995 and $60 million in 1994. Future minimum lease payments to
be received are $469 million in 1996; $341 million, 1997; $325 million,
1998; $222 million, 1999; $242 million, 2000; $668 million, 2001 and
thereafter.
<PAGE>
At December 31, 1995, the corporation reclassified certain loans totalling
$1,631 million ($1,477 million of consumer, $79 million of commercial real
estate, $46 million of commercial and industrial, and $29 million of
residential) to assets held for sale or accelerated disposition. Such loans are
included in other assets and were adjusted to the lower of cost or estimated
market value.
Total loans and leases at December 31, 1995 include $28 million of loans
subject to loss-sharing arrangements with the Federal Deposit Insurance Corp.
(FDIC), whereby the FDIC generally reimburses Fleet for 80% of net charge-offs
for periods ranging from three to five years from the date of acquisition.
Concentrations of Credit Risk. Although the corporation is engaged in
business nationwide, the lending done by the banking subsidiaries is primarily
concentrated in the northeastern region.
NOTE 5.
RESERVES FOR LOSSES
Reserve for Credit Loss Activity
- --------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- --------------------------------------------------------------------------
Balance at beginning of year $1,496 $1,669 $1,937
Provision charged to income 101 65 327
Loans and leases charged off (418) (377) (729)
Recoveries of loans and leases charged off 116 138 144
Acquisitions/other 26 1 (10)
- --------------------------------------------------------------------------
Balance at end of year $1,321 $1,496 $1,669
- --------------------------------------------------------------------------
Acquisitions/other includes reserves acquired as a result of acquisitions,
offset in part by reserve transfers to the FDIC and reserves related to assets
held for sale or accelerated disposition.
Reserve for OREO Activity
- --------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- --------------------------------------------------------------------------
Balance at beginning of year $50 $45 $ 51
Provision (15) 31 124
Dispositions, net (12) (26) (130)
- --------------------------------------------------------------------------
Balance at end of year $23 $50 $ 45
- --------------------------------------------------------------------------
NOTE 6.
NONPERFORMING ASSETS
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------------
Year Ended December 31
Dollars in millions 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans and leases:
Current or less than 90 days past due $157 $186 $254 $622 $575
Noncurrent 283 480 584 885 1,654
OREO 59 95 200 507 941
- -----------------------------------------------------------------------------------------------
Total NPAs $499 $761 $1,038 $2,014 $3,170
- -----------------------------------------------------------------------------------------------
NPAs as a percent of
outstanding loans,
leases, and OREO 0.97% 1.65% 2.35% 4.53% 7.05%
- -----------------------------------------------------------------------------------------------
Accruing loans and leases
contractually past due
90 days or more $198 $139 $120 $163 $267
- -----------------------------------------------------------------------------------------------
Assets held for sale or
accelerated disposition $317 - - - -
- -----------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the recorded investment in impaired loans was $295
million, substantially all of which were on nonaccrual status. Included in this
amount is $207 million of impaired loans for which the related impairment
reserve is $54 million, and $88 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 year was $428 million. The amount of interest
income recognized on impaired loans during the year ended December 31, 1995 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.
The corporation has no material outstanding commitments to lend additional
funds to customers whose loans have been placed on nonperforming status or the
terms of which have been modified.
The gross interest income that would have been recorded if the
nonperforming loans and leases had been current in accordance with their
original terms and had been outstanding throughout the period (or since
origination if held for part of the period) was $59 million, $66 million, and
$106 million in 1995, 1994, and 1993, respectively. The actual amount of
interest income on those loans included in net income for the period was $26
million, $19 million, and $27 million in 1995, 1994, and 1993, respectively.
<PAGE>
NOTE 7.
MORTGAGE SERVICING RIGHTS
The corporation's MSRs activity for the years ended
December 31, 1995, 1994, and 1993 is as follows:
Mortgage Servicing Rights
- --------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- --------------------------------------------------------------------------
Balance at beginning of year $840 $579 $563
Additions:
Originated 50 - -
Acquired 628 377 266
Servicing sales (52) (26) (3)
Amortization (142) (90) (247)
Impairment reserve (48) - -
- --------------------------------------------------------------------------
Balance at end of year $1,276 $840 $579
- --------------------------------------------------------------------------
During 1995, the corporation recorded impairment charges of $59 million and
credits relating to the impairment reserve of $11 million; therefore, at
December 31, 1995, the corporation's impairment reserve balance pertaining to
MSRs was $48 million. At December 31, 1995, the aggregate fair value of the
corporation's capitalized MSRs was approximately $1.5 billion.
The incremental impact of capitalizing originated mortgage servicing rights
in accordance with SFAS No. 122 resulted in an increase of $50 million in
mortgage production revenues for the year ended December 31, 1995.
NOTE 8.
MERGER- AND RESTRUCTURING-RELATED CHARGES
Merger-related charges of $490 million were recorded in 1995 in connection
with the Merger. The merger-related charges are direct incremental costs
associated with the Merger and are presented in the table below:
Components of Merger-Related Charges
- ----------------------------------------------------
Dollars in millions 1995
- ----------------------------------------------------
Personnel $270
Facilities 115
Data processing 60
Other merger expenses 45
- ----------------------------------------------------
Total $490
- ----------------------------------------------------
Personnel relates primarily to the costs of employee severance, the costs
related to the termination of certain employee benefit plans, and employee
assistance for separated employees. Facilities charges, which are the result of
the consolidation of branch offices as well as back-office operations, consist
of lease-termination costs, writedowns of owned properties, and other
facilities-related costs. Data processing costs consist primarily of the write-
off of duplicate or incompatible systems hardware and software. Other merger
expenses consist primarily of transaction costs, such as professional and other
fees.
All funding for cash expenditures relating to the merger-related charge
have been, and are anticipated to be, paid from the operating activities of the
corporation. The corporation's liquidity has not been, nor is it anticipated to
be, significantly affected by these cash outlays. As a result of the merger, the
corporation expects to incur approximately $35 million of incremental costs that
are supportive of future business operations, which will be expensed as incurred
and not charged against the merger accrual.
The following table presents a summary of activity with respect to merger
accrual:
Merger Accrual
- ----------------------------------------------------
Year ended December 31, 1995
Dollars in millions
- ----------------------------------------------------
Balance at beginning of year $ -
Provision charged against income 490
Cash outlays (65)
Noncash writedowns (90)
- ----------------------------------------------------
Balance at end of year $ 335
- ----------------------------------------------------
Merger-related charges of $101 million were also recorded in 1994 to
reflect the integration of several other acquisitions. The merger-related
charges include: $19 million for personnel charges; $39 million for the closure
of branches and facilities and lease-termination costs; $11 million of
transaction-related costs; and $32 million of other costs representing the sale
of certain assets as well as other merger-related costs. Substantially all of
these costs have been paid as of December 31, 1995.
The corporation recorded restructuring charges of $84 million and $161
million in connection with efficiency improvement programs during 1994 and 1993,
respectively. These programs, which commenced in 1993 and continued into 1995,
were intended to enhance the corporation's competitive position through a
comprehensive review of all its banking, mortgage banking, and consumer finance
activities
<PAGE>
and operations. The charges included only identified direct and incremental
costs associated with these programs. The components of the restructuring
charges for 1994 and 1993 were as follows:
Components of Restructuring Charges
- ----------------------------------------------------
Dollars in millions
- ----------------------------------------------------
Severance $122
Occupancy 71
Other (including project costs) 52
- ----------------------------------------------------
Total restructuring charges $245
- ----------------------------------------------------
All funding for cash expenditures relating to the restructuring plans has
been made from the operating activities of the corporation. The corporation's
liquidity has not been significantly affected by these cash outlays. During 1995
and 1994, $15 million and $20 million, respectively, of incremental costs were
incurred relating to the restructuring plan and were charged against current
period expense as these costs were supportive of future business operations. The
corporation does not anticipate any additional incremental costs related to
these programs.
The following table presents a summary of activity with respect to the
restructuring accrual:
Restructuring Accrual
- --------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- --------------------------------------------------------------------------
Balance at beginning of year $77 $126 $-
Provision charged against income - 84 161
Cash outlays (60) (90) (25)
Noncash writedowns - (43) (10)
- --------------------------------------------------------------------------
Balance at end of year $17 $77 $126
- --------------------------------------------------------------------------
The cash outlays made during 1995 relate primarily to severance costs and
project-related costs. Noncash writedowns relate to vacated facilities and
consist primarily of building and leasehold improvement write-offs. The
corporation expects that substantially all remaining costs will be paid in 1996
and that the restructuring accrual at December 31, 1995, will be adequate.
NOTE 9.
SHORT-TERM BORROWINGS
<TABLE><CAPTION>
- --------------------------------------------------------------------------------------------------------
Securities
Federal Sold Under Other Total
Funds Agreements to Commercial Short-Term Short-Term
Dollars in millions Purchased Repurchase Paper Borrowings Borrowings
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Balance at December 31 $4,461 $2,964 $2,138 $3,006 $12,569
Highest balance at any month-end 4,840 6,944 2,138 4,912 16,557
Average balance for the year 4,451 5,159 1,582 2,853 14,045
Weighted average interest rate as of December 31 5.20% 5.21% 5.86% 5.54% 5.40%
Weighted average interest rate paid for the year 6.02 5.70 6.07 4.98 5.69
- --------------------------------------------------------------------------------------------------------
1994
Balance at December 31 $2,753 $6,170 $835 $2,828 $12,586
Highest balance at any month-end 4,368 10,835 1,199 5,041 18,069
Average balance for the year 3,943 7,769 1,005 2,638 15,355
Weighted average interest rate as of December 31 5.14% 5.69% 5.96% 5.51% 5.55%
Weighted average interest rate paid for the year 4.22 4.05 4.36 3.94 4.07
- --------------------------------------------------------------------------------------------------------
1993
Balance at December 31 $2,151 $7,304 $1,337 $5,584 $16,376
Highest balance at any month-end 2,151 9,122 1,415 5,584 16,376
Average balance for the year 1,632 7,505 1,036 2,634 12,807
Weighted average interest rate as of December 31 3.10% 2.90% 3.38% 3.16% 3.06%
Weighted average interest rate paid for the year 3.08 2.96 3.52 3.04 3.03
- --------------------------------------------------------------------------------------------------------
</TABLE>
Federal funds purchased and securities sold under agreements to repurchase
generally mature within 30 days of the transaction date. Commercial paper and
other short-term borrowings generally mature within 90 days, although commercial
paper may have a term of up to 270 days.
Total credit facilities available were $2.8 billion with $430 million
outstanding at December 31, 1995, compared to $3.2 billion with $500 million
outstanding at December 31, 1994. The amounts outstanding under the lines of
credit relate entirely to FMG at both December 31, 1995 and 1994. During 1995,
the corporation and its subsidiaries paid commitment fees ranging from 0.01% to
0.19% on the lines.
<PAGE>
NOTE 10.
LONG-TERM DEBT
Fleet has an effective universal shelf registration statement with the
Securities and Exchange Commission (SEC), providing for the issuance of common
and preferred stock, senior or subordinated debt securities, and other debt
securities. The total amount of funds available as of December 31, 1995, under
the corporation's shelf registration was $913 million.
The following table presents components of long-term debt for the parent company
and its affiliates:
Long-Term Debt
- ------------------------------------------------------------------------------
December 31 Maturity
Dollars in millions Date 1995 1994
- ------------------------------------------------------------------------------
Senior notes and debentures
Parent company:
5.625% notes 1995 $- $200
8.875% notes 1996 150 150
MTNs 5.875% - 9.33% 1996 - 1998 501 80
7.65% - 8.125% notes 1997 200 200
7.25% notes 1997 - 1999 400 400
6.00% notes 1998 250 -
7.125% notes 2000 250 -
Floating-rate note 2000 50 -
Other 2013 1 1
- ------------------------------------------------------------------------------
Total parent company 1,802 1,031
- ------------------------------------------------------------------------------
Affiliates:
9.80% notes 1995 - 250
5.50% - 5.60% notes 1995 - 225
9.98% notes 1996 70 70
Floating-rate bank notes 1996 840 1,288
7.03% bank notes 1997 50 -
6.125% notes 1997 150 150
Floating-rate notes 1997 350 400
6.50% notes 1999 150 150
MTNs 5.35% - 7.48% 1996 - 2003 394 285
FHLB borrowings 1996 - 2015 629 482
6.50% note 2001 200 -
Other 1996 - 2009 12 16
- ------------------------------------------------------------------------------
Total affiliates 2,845 3,316
- ------------------------------------------------------------------------------
Total senior notes and debentures 4,647 4,347
- ------------------------------------------------------------------------------
Subordinated notes and debentures:(a)
Floating-rate subordinated notes 1997 50 50
Floating-rate subordinated notes 1998 100 100
7.625% - 9.85% subordinated notes 1999 450 450
9.00% - 9.90% subordinated notes 2001 325 325
6.875% subordinated notes 2003 150 150
7.20% subordinated notes 2003 150 150
8.125% subordinated notes 2004 250 250
8.625% subordinated notes 2005 250 -
8.625% subordinated notes 2007 107 107
Other 1997 2 2
- ------------------------------------------------------------------------------
Total subordinated notes and debentures 1,834 1,584
- ------------------------------------------------------------------------------
Total long-term debt $6,481 $5,931
- ------------------------------------------------------------------------------
(a) At December 31, 1995 and 1994, all subordinated debt was at the parent
company, with the exception of $250 million at an affiliate in 1995, and is
included in total risk-based capital.
The $100 million of 7.65% and $400 million of 7.25% notes provide for
single principal payments and are not redeemable prior to maturity. The $150
million of 8.875% and $100 million of 8.125% notes are unsecured obligations
with interest payable semiannually and are not redeemable prior to maturity. The
$250 million of 6.00% and the $250 million of 7.125% notes pay interest
semiannually and are not redeemable prior to maturity. The $50 million floating-
rate note accrues interest based on the three-month London Interbank Offered
Rate (LIBOR) payable quarterly and is not redeemable prior to maturity.
Long-term senior borrowings of affiliates include $394 million of medium-
term notes (MTNs), $150 million of 6.125% notes, $150 million of 6.50% notes,
and $200 million of 6.50% notes issued by FMG, and $70 million of 9.98% notes
issued by Fleet Financial Corp.
The $350 million of floating-rate notes due 1997 were issued by subsidiary
banks and have a rate that floats with LIBOR. The notes are secured by the
banks' qualifying student loan portfolios or collateralized by mortgage-backed
securities (MBS). Of the $840 million floating-rate bank notes due 1996 and
issued by subsidiary banks, $150 million float with the federal funds rate, $235
million float with the prime rate, and $455 million is tied to LIBOR.
The fixed-rate subordinated notes all provide for single principal payments
at maturity. All the floating-rate subordinated notes due 1997 and 1998 are
redeemable at the option of the corporation, in whole or in part, at their
principal amount plus accrued interest. The notes due 1997 were called for
redemption effective February 22, 1996. These notes pay interest based on the
three-month LIBOR and reset quarterly.
Included in the subordinated notes are $150 million of 9.85% notes due June
1, 1999, and $71 million of floating-rate notes due June 1, 1998, that, at the
corporation's option, will either be exchanged for common stock, preferred
stock, or certain other primary capital securities of the corporation having a
market value equal to the principal amount of the notes or will be repaid from
the proceeds of other issuances of such securities. The corporation may,
however, at its option, revoke its obligation to redeem the notes with capital
securities based upon the capital treatment of the notes by its primary
regulator or consent by its primary regulator for such revocation. The holders
of the capital notes are subordinate in rights to depositors and other
creditors.
The aggregate payments required to retire long-term debt are: 1996, $2,058
million; 1997, $1,129 million; 1998, $606 million; 1999, $805 million; 2000,
$507 million; 2001 and thereafter, $1,376 million.
<PAGE>
NOTE 11.
PREFERRED STOCK
- -------------------------------------------------------------------
December 31
Dollars in millions, except per share data 1995 1994
- -------------------------------------------------------------------
9.30% cumulative preferred stock, $250 stated
value, 575,000 shares issued and outstanding
at December 31, 1995 and 1994 $144 $144
9.35% cumulative preferred stock, $250 stated
value, 500,000 shares issued and outstanding
at December 31, 1995 125 -
10.12% Series III perpetual preferred stock,
$1 par, 519,758 shares issued and outstanding
at December 31, 1995 and 1994 50 50
9.375% Series IV perpetual preferred stock,
$1 par, 478,838 shares issued and outstanding
at December 31, 1995 and 1994 46 46
Preferred stock with cumulative and adjustable
dividends, $50 stated value, 688,700 shares
issued and outstanding at December 31, 1995 and 1994 34 34
Dual convertible preferred stock, $200 stated
value, 1,415,000 shares issued and outstanding
at December 31, 1994 - 283
- -------------------------------------------------------------------
Total $399 $557
- -------------------------------------------------------------------
The 9.30% cumulative preferred stock is redeemable at the option of the
corporation on or after October 15, 1997, at $250 per share, plus accrued and
unpaid dividends thereon. The 9.35% cumulative preferred stock is redeemable at
the option of the corporation on or after January 15, 2000, at $250 per share,
plus accrued and unpaid dividends thereon. The Series III perpetual preferred
stock is redeemable at the option of Fleet on or after June 1, 1996, at $105.06
per share, declining each year to $100 per share on or after June 1, 2001, plus
accrued and unpaid dividends thereon. The Series IV perpetual preferred stock is
redeemable at the option of Fleet on or after December 1, 1996, at $100 per
share, plus accrued and unpaid dividends thereon. The preferred stock with
cumulative and adjustable dividends is redeemable at the option of the
corporation at $50 per share. Except in certain circumstances, the holders of
the preferred stock have no voting rights.
On December 31, 1995, the dual convertible preferred stock (DCP) was
exchanged for approximately 16 million shares of Fleet common stock at a
conversion price of $17.65 per common share. The holders of the DCP received an
additional 3.9 million shares as part of the consideration for the exchange.
These additional shares were valued at the closing market price of Fleet common
shares on the day of the conversion and treated as a reduction of retained
earnings and of earnings available to common shareholders. This resulted in a
$.59 reduction to fully diluted earnings per share for 1995. The holders of the
DCP stock also control nontransferable rights to purchase 6,500,000 shares of
common stock at an exercise price of $17.65 per share (the rights). The rights,
which are exercisable immediately, will expire on July 12, 2001, and are not
transferable. Fleet has the option to pay appreciation on the rights in lieu of
delivering the shares upon exercise.
On February 21, 1996, the corporation issued $425 million of preferred
stock.
NOTE 12.
COMMON STOCK
At December 31, 1995, Fleet had 262,721,926 common shares outstanding.
Shares reserved for future issuance in connection with the corporation's stock
plans, the DCP rights, and stock options totaled 26,339,339. During 1995,
shareholders approved an increase in the authorized shares of Fleet common stock
to 600 million. Also see Note 11, Preferred Stock, for further information
pertaining to the exchange of the DCP.
In connection with the acquisition of NBB on January 27, 1995, the
corporation issued warrants to the shareholders of NBB for the purchase of 2.5
million shares of common stock. The warrants have an exercise price of $43.875
per share and are exercisable for a five-year period beginning on January 27,
1996.
Also, in connection with the settlement of certain litigation, the
corporation issued warrants for the purchase of up to 1.2 million shares of
common stock on January 18, 1994. The period for the exercise of the warrants
expired on January 18, 1996.
Fleet's Board of Directors has declared a dividend of one preferred share
purchase right for each outstanding share of Fleet common stock. Under certain
conditions, a right may be exercised to purchase 1/100 of the corporation's
cumulative participating preferred stock at a price of $50, subject to
adjustment. The rights become exercisable if a party acquires 10% or more (in
the case of certain qualified investors, 15% or more) of the issued and
outstanding shares of Fleet common stock, or after the commencement of a tender
or exchange offer for 10% or more of the issued and outstanding shares. When
exercisable under certain conditions, each right would entitle the holder to
receive, upon exercise of a right, that number of shares of common stock having
a market value of two times the exercise price of the right. The rights will
expire in the year 2000 and may be redeemed in whole, but not in part, at a
price of $0.01 per share at any time prior to expiration or the acquisition of
10% of Fleet common stock.
<PAGE>
NOTE 13.
EMPLOYEE BENEFITS
Stock Option Plan. The corporation has a stock option plan, which provides
for the granting of incentive and nonqualified stock options to certain
employees, for the purchase of Fleet common stock at fair market value at the
date of grant. In most cases, options granted under the plan vest over a five-
year period and expire at the end of ten years; otherwise, options granted under
the plan are exercisable after a minimum of one year but within ten years of the
date of grant. Option plans resulted in charges to expense of $3 million in
1995, $5 million in 1994, and $2 million in 1993. At December 31, 1995, 1994,
and 1993, exercisable options totaled 4,191,404; 3,347,706; and 3,183,814,
respectively. The following table shows the activity for the stock option plans:
Stock Options
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
Balance at January 1 10,072,830 8,464,792 6,714,687
Granted 2,288,617 3,827,637 3,051,620
Exercised 3,559,259 1,539,021 898,656
Expired or canceled 685,435 680,578 402,859
Balance at December 31 8,116,753 10,072,830 8,464,792
- ------------------------------------------------------------------------------
Price range-high
Balance at January 1 $37.31 $37.31 $34.75
Granted 42.19 36.94 37.31
Exercised 36.94 32.75 28.44
Expired or canceled 36.94 36.94 34.75
Balance at December 31 42.19 37.31 37.31
- ------------------------------------------------------------------------------
Price range-low
Balance at January 1 $5.19 $5.19 $5.19
Granted 8.15 8.07 11.21
Exercised 6.87 5.19 5.19
Expired or canceled 5.19 5.19 5.19
Balance at December 31 6.87 5.19 5.19
- ------------------------------------------------------------------------------
Restricted Stock Plan. The corporation has a restricted stock plan under
which key employees are awarded shares of the corporation's common stock subject
to certain vesting requirements. With respect to stock granted in 1995,
restrictions lapse, in whole or in part, on the third anniversary of the date of
the agreement awarding such restricted stock only if certain preestablished
performance goals are attained. As of December 31, 1995 and 1994, 224,750 grants
and 323,734 grants were outstanding, respectively, with a weighted average grant
price of $33.40 and $26.38, respectively.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation," which is effective for awards granted in fiscal years beginning
after December 15, 1995. This standard defines a fair value based method of
measuring employee stock options or similar equity instruments. In lieu of
recording the value of such stock options as compensation expense, companies may
provide pro forma disclosures quantifying the difference between compensation
cost included in net income as prescribed by current accounting standards and
the related cost measured by such fair value based method. The corporation will
provide such disclosure in its financial statements after the effective date of
the standard. However, the statement allows a company to continue to measure
compensation cost for such plans under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no
compensation cost is recorded if, at the grant date, the exercise price of the
options is equal to the fair market value of the corporation's common stock. The
corporation has elected to continue to follow the accounting under APB No. 25.
Pension Plans. The corporation maintains noncontributory, defined benefit
pension plans covering substantially all employees. Benefit payments to retired
employees are based upon years of service and a percentage of qualifying
compensation during the final years of employment. The amounts contributed to
the plans are determined annually based upon the amount needed to satisfy the
Employee Retirement Income Security Act (ERISA) funding standards. Assets of the
plans are primarily invested in listed stocks, corporate obligations, and U.S.
Treasury and government agency obligations. During 1994, the mortality table was
revised to the 1983 Group Annuity Mortality Table.
The corporation also maintains supplemental, noncontributory defined
benefit plans covering certain employees whose benefits exceed the Internal
Revenue Service (IRS) limitation under the corporation's qualified defined
benefit plans.
<PAGE>
Funded Status of Plans
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------
December 31 Overfunded Plans Underfunded Plans
Dollars in millions 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligations:
Vested benefits $343 $238 $ 32 $13
Nonvested benefits 36 28 4 1
- -----------------------------------------------------------------------------------------
Accumulated benefit obligations 379 266 36 14
Additional benefits related to
future compensation levels 132 89 25 11
- -----------------------------------------------------------------------------------------
Projected benefit obligations
rendered to date 511 355 61 25
Plan assets at fair value 522 434 1 -
- -----------------------------------------------------------------------------------------
Plan assets in excess of (less
than) projected benefit obligations 11 79 (60) (25)
Unrecognized net transition (asset)
obligation being amortized (11) (10) 11 2
Unrecognized prior service cost being amortized 28 33 8 9
Unrecognized net loss from past experience
different from that assumed 86 35 19 5
Additional amounts recognized due to
minimum level funding - - (13) (5)
- -----------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $114 $137 $(35) $(14)
- -----------------------------------------------------------------------------------------
</TABLE>
Components of Pension Expense
- ------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- ------------------------------------------------------------------------------
Service cost for benefits earned during the period $29 $37 $30
Interest cost on projected benefit obligations 35 31 27
Actual return on plan assets (72) (3) (31)
Net amortization and deferral 39 (32) (2)
- ------------------------------------------------------------------------------
Net pension expense $31 $33 $24
- ------------------------------------------------------------------------------
Staffing reductions and change in control provisions were initiated during
1995 due to the Shawmut merger. These events resulted in a net expense of $39
million associated with the settlement and curtailment of pension plan
distributions, which is included in the accompanying statement of operations for
the year ended December 31, 1995, but is excluded from the previous table
detailing net periodic pension cost.
For December 31, 1995, 1994, and 1993, the assumed discount rates were
7.25%, 8.50%, and 7.25% to 7.50%, respectively. The 1995, 1994, and 1993 rate of
increase in compensation levels used to measure the projected benefit
obligations was 4.5% to 5.0%. The expected long-term rate of return on plan
assets for 1995 was 10.0%, and 8.85% to 10.0% for 1994 and 1993.
The corporation maintains various defined contribution savings plans
covering substantially all employees. The corporation's savings plan expense
was $34 million, $28 million, and $22 million for 1995, 1994, and 1993,
respectively.
Postretirement Healthcare Benefits.
In addition to providing pension benefits, the corporation provides
healthcare cost assistance and life insurance benefits for retired employees.
The cost of providing these benefits was $21 million, $22 million, and $25
million in 1995, 1994, and 1993, respectively.
The following table presents the plan's funded status reconciled with
amounts recognized on the corporation's balance sheet:
Funded Status of Postretirement Plan
- ------------------------------------------------------------------------------
December 31
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------
Accumulated postretirement benefit obligations:
Retirees $124 $115
Fully eligible active plan participants 8 28
Other active plan participants 3 16
- ------------------------------------------------------------------------------
Total accumulated postretirement benefit obligations 135 159
Plan assets at fair value 12 2
- ------------------------------------------------------------------------------
Plan assets (less than) projected benefit obligation (123) (157)
Unrecognized net (gain) loss 1 (14)
Unrecognized transition obligation 79 155
- ------------------------------------------------------------------------------
Accrued postretirement benefit costs $(43) $(16)
- ------------------------------------------------------------------------------
<TABLE><CAPTION>
- ----------------------------------------------------------------------------------------
Components of Postretirement Benefit Costs
- ----------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $1 $3 $2
Interest cost on projected benefit obligations 12 11 14
Net amortization of the transition obligation 9 9 9
Net amortization and deferral of gains and losses (1) (1) -
- ----------------------------------------------------------------------------------------
Net postretirement benefit expense $21 $22 $25
- ----------------------------------------------------------------------------------------
</TABLE>
Shawmut's postretirement plans were impacted during 1995 due to amendments
and change in control provisions related to the merger. These events resulted in
settlement and curtailment charges of $28 million, which are included in the
accompanying statement of operations for the year ended December 31, 1995, but
excluded from the previous table detailing postretirement benefits cost.
Discount rates of 7.25% and 8.50% were used in determining the accumulated
postretirement benefit obligation for the years ended December 31, 1995 and
1994. The rate of return on plan assets was 10.00% for 1995 and 8.85% for 1994.
The healthcare cost trend rate was 10.25% as of December 31, 1995, decreasing
gradually to 4.25% through the year 2001, and level thereafter. The healthcare
cost trend rate assumption has a minimal effect on the amounts reported. For
example, increasing the assumed healthcare cost trend rate by one percentage
point in each year would increase the
<PAGE>
accumulated postretirement benefit obligation as of December 31, 1995 by $1.5
million, and the aggregate of the service cost and interest cost components of
the net periodic postretirement benefit cost for 1995 by approximately $153,000.
NOTE 14.
INCOME TAXES
The corporation changed its method of accounting for income taxes from the
deferred method to the liability method as required by SFAS No. 109, "Accounting
for Income Taxes," effective January 1, 1993. The cumulative effect of this
accounting change was the recognition of a $53.1 million income tax benefit in
the first quarter of 1993.
Deferred income tax assets and liabilities reflect the tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the corporation's deferred tax assets and deferred tax liabilities
as of December 31, 1995 and 1994, are presented in the following table:
Net Deferred Tax Assets
- ------------------------------------------------------------------------------
December 31
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------
Deferred tax assets:
Reserve for credit losses $495 $569
Expenses not currently deductible 326 69
Intangible assets 43 66
Net operating loss carryforward 31 77
Reserve for unrealized losses on securities
available for sale - 245
Other 282 186
- ------------------------------------------------------------------------------
Total gross deferred tax assets 1,177 1,212
Less: valuation reserve 75 104
- ------------------------------------------------------------------------------
Deferred tax assets 1,102 1,108
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing 326 154
Mortgage banking 115 84
Purchase accounting adjustments, net 67 69
Depreciation 63 65
Subsidiary stock transaction 49 49
Reserve for unrealized gains on securities
available for sale 33 -
Employee benefits 30 49
Other 180 132
- ------------------------------------------------------------------------------
Total gross deferred tax liabilities 863 602
- ------------------------------------------------------------------------------
Net deferred tax assets $239 $506
- ------------------------------------------------------------------------------
The realization of the corporation's deferred tax assets is dependent upon
the ability to generate taxable income in future periods, and from the reversal
of existing deferred tax liabilities. The corporation has evaluated the
available evidence supporting the realization of its gross deferred tax assets
of $1.2 billion at both December 31, 1995 and 1994, including the amount and
timing of future taxable income, and determined it is more likely than not the
asset will be realized. Given the nature of state tax laws, the corporation
believes that uncertainty remains concerning the realization of tax benefits in
various state jurisdictions. Therefore, state valuation reserves of $75 million
and $104 million have been established at December 31, 1995 and 1994,
respectively. These benefits may, however, be recorded in the future either as
realized or as it becomes more likely than not, in the corporation's best
judgment, that such tax benefits or portions thereof will be realized.
The deferred tax expense of $13 million and $130 million in 1995 and 1994,
respectively, include a deferred tax benefit of $29 million and $27 million,
respectively, due to a change from the beginning of the respective year's
deferred tax asset valuation reserve, related primarily to state deferred tax
assets. The current and deferred components of income taxes for the years ended
December 31, 1995, 1994, and 1993 are as follows:
Income Tax Expense
- ---------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- ---------------------------------------------------------------------
Current income taxes:
Federal $346 $323 $352
State and local 65 78 107
- ---------------------------------------------------------------------
411 401 459
- ---------------------------------------------------------------------
Deferred income tax expense (benefit):
Federal 11 107 (100)
State and local 2 23 (29)
- ---------------------------------------------------------------------
13 130 (129)
- ---------------------------------------------------------------------
Total:
Federal 357 430 252
State and local 67 101 78
- ---------------------------------------------------------------------
Applicable income taxes $424 $531 $330
- ---------------------------------------------------------------------
The income tax expense for the years ended December 31, 1995, 1994, and
1993, varied from the amount computed by applying the statutory income tax rate
to income before taxes. The reasons for the differences are as follows:
Statutory Rate Analysis
- ------------------------------------------------------------------------------
December 31 1995 1994 1993
- ------------------------------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
Increases (decreases) in taxes resulting from:
State and local income taxes, net
of federal income tax benefit 4.2 4.6 4.7
Goodwill amortization 1.7 0.3 0.5
Merger-related costs 1.4 0.7 -
Change in federal valuation reserve - (0.8) (7.7)
Tax-exempt income (1.8) (1.5) (1.8)
Other, net 0.4 (0.1) (0.6)
- ------------------------------------------------------------------------------
Effective tax rate 40.9% 38.2% 30.1%
- ------------------------------------------------------------------------------
<PAGE>
During 1995, $448 million in state net operating losses expired. The
expiration of these net operating loss carryforwards did not impact the
corporation's consolidated income tax expense as all amounts were fully
reserved. The corporation has state net operating loss carryforwards of
approximately $474 million at December 31, 1995, primarily in one taxing
jurisdiction. These carryforwards will begin to expire in 1996 and continue
through 2010.
NOTE 15.
TRADING ACTIVITIES AND OTHER DERIVATIVE FINANCIAL INSTRUMENTS, AND OFF-BALANCE
SHEET ITEMS
Trading Activities. All of the corporation's trading positions are
currently stated at market value with realized and unrealized gains and losses
reflected in noninterest income. The corporation recognized trading revenue of
$39 million, $32 million, and $35 million for 1995, 1994, and 1993,
respectively. Trading revenue is comprised of gains and losses resulting from
trading positions taken by the corporation in debt securities, foreign exchange
contracts, and interest-rate contracts.
Trading positions in debt securities consist of U.S. federal and state
government and agency securities. The types of interest-rate contracts traded
include interest-rate swaps, caps, floors, and collars as well as futures and
option contracts. Foreign exchange contracts consist primarily of foreign
exchange forwards and foreign currency options and futures contracts.
The following table represents the notional or contractual amount of
Fleet's off-balance sheet trading instruments and related credit exposure.
Notional principal amounts are a measure of the volume of agreements transacted,
but the level of credit risk is significantly less. The amount of credit risk
can be estimated by calculating the cost to replace, on a present value basis
and at current market rates, all profitable contracts outstanding at year end.
Credit risk disclosures relate to accounting losses that would be recognized if
the counterparties completely failed to perform their obligations. To manage its
level of credit risk, the corporation deals with counterparties of good credit
standing, establishes counterparty credit limits, and enters into netting
agreements whenever possible. Gross credit exposure amounts are presented below
and disregard any netting agreements. Interest-rate instrument activities are
subject to the same credit review, analysis, and approval process as those
applied to commercial loans. Netting agreements contain rights of offset that
provide for the net settlement of certain contracts with the same counterparty
in the event of default. In the event of a default by a counterparty, the cost
to the corporation, if any, would be the replacement cost of the contract at the
current market rate.
Trading Instruments with Off-Balance Sheet Risk
- -------------------------------------------------------------------------
Contract or
Notional Credit
Dollars in millions Amount Exposure
December 31 1995 1994 1995 1994
- -------------------------------------------------------------------------
Interest-rate contracts $4,568 $7,067 $45 $50
Foreign exchange contracts 5,341 11,916 153 183
- -------------------------------------------------------------------------
The amounts disclosed below represent the end-of-period fair value of derivative
financial instruments held or issued for trading purposes and the average
aggregate fair values during the year for those instruments:
Trading Instruments
- ------------------------------------------------------------------------------
Fair Value Average
December 31, 1995 (Carrying Fair
Dollars in millions Amount) Value
- ------------------------------------------------------------------------------
Interest-rate contracts:
Assets $34 $31
Liabilities (24) (22)
Foreign exchange contracts:
Assets 153 245
Liabilities (133) (213)
- ------------------------------------------------------------------------------
Interest-Rate Risk-Management Activities. The corporation's principal
objective in holding or issuing derivatives for purposes other than trading is
interest-rate risk-management. The operations of Fleet are subject to a risk of
interest-rate fluctuations to the extent that there is a difference between the
amount of the corporation's interest-earning assets and the amount of interest-
bearing liabilities that mature or reprice in specified periods. The principal
objective of Fleet's asset/liability management activities is the management of
interest-rate risk and liquidity within parameters established by various boards
of directors. To achieve its risk-management objective, the corporation uses a
combination of interest-rate instruments, including interest-rate swaps, caps,
floors, and futures contracts.
<PAGE>
The following table presents the notional amount and fair value of interest-rate
risk-management instruments at December 31, 1995 and 1994:
Interest-Rate Risk-Management Instruments
- --------------------------------------------------------------------------
1995 1994
December 31 Notional Fair Notional Fair
Dollars in millions Amount Value Amount Value
- --------------------------------------------------------------------------
Interest-rate swaps:
Receive-fixed/pay-variable $5,776 $69 $2,873 $(44)
Pay fixed/receive-variable 1,885 (25) 2,084 67
Basis swaps 2,742 (4) 3,605 (1)
Index-amortizing swaps 2,038 1 4,119 (234)
Interest-rate cap agreements 550 6 1,775 43
Interest-rate corridor agreements 206 1 1,031 (5)
Interest-rate collar agreements 10 - 500 (1)
Futures contracts sold - - 6,005 21
- ---------------------------------------------------------------------------
Total $13,207 $48 $21,992 $(154)
- ---------------------------------------------------------------------------
Interest-rate swap agreements involve the exchange of fixed- and variable-
rate interest payments based upon a notional principal amount and maturity date.
Interest-rate basis swaps involve the exchange of floating-rate interest
payments based on indices, such as U.S. Treasury bill and LIBOR. Index-
amortizing interest-rate swaps involve the exchange of fixed- and variable-rate
interest payments based upon a notional principal amount, which amortizes based
on an index, such as six-month LIBOR. Interest-rate cap agreements are similar
to interest-rate swap agreements except that cash interest payments are made or
received only if current interest rates rise above predetermined interest rates.
Similarly, in an interest-rate floor agreement, cash interest payments are made
or received only if current interest rates fall below a predetermined interest
rate. An interest-rate collar consists of a cap and a floor. Interest-rate
corridor agreements consist of a simultaneous purchase and sale of a cap. The
corporation enters into interest-rate swap, cap, floor, and corridor agreements
to manage the impact of fluctuating interest rates on earnings. Futures
contracts are also used by the corporation to manage interest-rate exposure.
These instruments are exchange-traded contracts for the future delivery of
securities, other financial instruments or cash settlement at a specified price
or yield.
The corporation's interest-rate risk-management instruments had an exposure
to credit risk of $197 million at December 31, 1995, versus $87 million at
December 31, 1994. The corporation's credit risk at December 31, 1995, is
mitigated by $11 million of collateral held by Fleet. The credit exposure
represents the cost to replace, on a present value basis and at current market
rates, all profitable contracts outstanding at year end. The increase in the
credit exposure from year to year mainly reflects the increase in market value
of the remaining swaps.
The periodic net settlement of interest-rate risk-management instruments is
recorded as an adjustment to net interest income. These interest-rate risk-
management instruments generated $18 million and $6 million of net interest
expense during 1995 and 1994, respectively. As of December 31, 1995, the
corporation has net deferred income of $28 million relating to terminated
interest-rate contracts, which will be amortized over the remaining life of the
underlying interest-rate contracts of approximately three years.
Mortgage Servicing Rights Prepayment Risk Management. The corporation also
uses interest-rate contracts to manage the prepayment risk associated with the
corporation's mortgage servicing portfolio. The value of the corporation's
mortgage servicing portfolio may be adversely impacted if mortgage interest
rates decline and loan prepayments increase. As a result, the carrying value of
the corporation's MSRs are subject to a great degree of volatility in the event
of unanticipated prepayments or defaults. To mitigate the risk related to
adverse changes in interest rates and the potential resultant impairment to
MSRs, the corporation holds interest-rate contracts (primarily purchased
interest-rate floor contracts and purchased-call option contracts on U.S.
Treasury securities). At December 31, 1995, the corporation had approximately
$6.9 billion in notional value of such contracts. Such contracts are carried at
market value, which was $87.8 million at December 31, 1995, with unrealized and
realized gains and losses included in noninterest income. The corporation
recorded net gains (losses) of $77 million, $(6) million, and $3 million in
1995, 1994, and 1993, respectively.
<PAGE>
Other Financial Instruments
- ------------------------------------------------------------------------------
Contract or Notional
December 31 Amount
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------
Other financial instruments whose
notional or contractual amounts
exceed the amount of potential credit risk:
Commitments to sell loans $2,680 $506
Commitments to originate or purchase loans 1,591 422
Assets sold with recourse 283 378
- ------------------------------------------------------------------------------
Financial instruments whose notional or contractual
amounts represent potential credit risk:
Commitments to extend credit 29,247 27,452
Letters of credit, financial guarantees,
and foreign office guarantees (net of participations) 3,880 3,108
- ------------------------------------------------------------------------------
Commitments to sell loans have off-balance sheet market risk to the extent
that the corporation does not have available loans to fill those commitments,
which would require the corporation to purchase loans in the open market.
Commitments to originate or purchase loans have off-balance sheet market risk to
the extent the corporation does not have matching commitments to sell loans
obtained under such commitments, which could expose the corporation to lower-of-
cost or market valuation adjustments in a rising interest-rate environment.
Commitments to extend credit are agreements to lend to customers in
accordance with contractual provisions. These commitments usually are for
specific periods or contain termination clauses and may require the payment of a
fee. The total amounts of unused commitments do not necessarily represent future
cash requirements in that commitments often expire without being drawn upon.
Commitments to Extend Credit
- ------------------------------------------------------------------------------
December 31
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------
Commercial and industrial loans $18,617 $18,351
Revolving, open-end loans
secured by residential properties
(e.g., home equity lines) 3,124 3,660
Credit card lines 3,838 3,008
Commercial real estate 2,035 1,373
Other unused commitments 1,633 1,060
- ------------------------------------------------------------------------------
Total $29,247 $27,452
- ------------------------------------------------------------------------------
Letters of credit and financial guarantees are agreements whereby the
corporation guarantees the performance of a customer to a third party.
Collateral is required to support letters of credit in accordance with
management's evaluation of the creditworthiness of each customer. The credit
risk assumed in issuing letters of credit is essentially equal to that in other
lending activities. Management does not anticipate any material losses as a
result of these transactions.
NOTE 16.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time based on the
characteristics of the financial instruments and relevant market information.
Where available, quoted market prices are used. In other cases, fair values are
based on estimates using present value or other valuation techniques. These
techniques involve uncertainties and are significantly affected by the
assumptions used and judgments made regarding risk characteristics of various
financial instruments, discount rates, estimates of future cash flows, future
expected loss experience, and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair values. Derived fair
value estimates cannot be substantiated by comparison to independent markets
and, in many cases, could not be realized in an immediate sale of the
instrument. The aggregate fair value amounts presented do not purport to
represent the underlying market value of the corporation. Also, because of
differences in methodologies and assumptions used to estimate fair values,
Fleet's fair values should not be compared to those of other financial
institutions.
The following describes the methods and assumptions used by Fleet in
estimating the fair values.
Securities. Fair values are based primarily on quoted market prices.
Loans. The fair values of fixed-rate and certain variable-rate commercial
and commercial real estate loans and certain consumer loans are estimated by
discounting the contractual cash flows using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality. The
carrying value of certain other variable-rate commercial and commercial real
estate loans approximates fair value due to the short-term and frequent
repricing characteristics of these loans. For certain variable-rate consumer
loans, including home equity lines of credit and credit card receivables, the
carrying amounts approximate fair value. For residential real estate, fair value
is estimated by reference to quoted market prices. For nonperforming loans and
certain loans where the credit quality of the borrower has deteriorated
significantly, fair values are estimated by discounting expected cash flows at a
rate commensurate with the risk associated with the estimated cash flows, based
on recent appraisals of the underlying collateral or by reference to recent loan
sales.
Mortgages Held for Resale. Fair value is estimated using the quoted market
prices for securities backed by similar types of loans and current dealer
commitments to purchase loans.
<PAGE>
Deposits. The fair value of deposits with no stated maturity or a maturity
of less than 90 days is considered to be equal to the carrying amount. The fair
value of time deposits is estimated by discounting contractual cash flows using
interest rates currently offered on the deposit products.
Short-Term Borrowings. The carrying amount reported in the balance sheet
approximates fair value.
Long-Term Debt. The fair value of Fleet's long-term debt is estimated
based on quoted market prices for the issues for which there is a market or by
discounting cash flows based on current rates available to Fleet for similar
types of borrowing arrangements.
Off-Balance Sheet Instruments. Fair values for off-balance sheet
instruments are based on quoted market prices, current settlement values, or
established pricing models using current assumptions.
On-Balance Sheet Financial Instruments
<TABLE><CAPTION>
- --------------------------------------------------------------------------------------------------
1995 1994
December 31 Carrying Fair Carrying Fair
Dollars in millions Value Value Value Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents and accrued interest receivable $5,069 $5,069 $9,162 $9,162
Securities 19,331 19,315 21,141 20,702
Loans(a) 48,009 48,639 43,074 44,857
Mortgages held for resale 2,005 2,005 560 560
Trading account securities 64 64 120 120
Trading instruments 187 187 59 59
Other 1,999 2,006 111 148
Financial liabilities:
Deposits with no stated maturity 35,140 35,140 35,898 35,898
Time deposits 21,982 22,263 19,630 19,304
Short-term borrowings 12,569 12,569 12,586 12,586
Long-term debt 6,481 6,728 5,931 5,855
Trading instruments 157 157 50 50
Other 303 303 253 253
- --------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes net book value of lease financing of $2,195 million and $1,465
million at December 31, 1995 and 1994, respectively.
The fair value of forward commitments to originate or purchase residential
mortgage loans and to sell residential mortgage loans was $20 million and $(17)
million, respectively, based on the value at December 31, 1995. These fair
values consider the difference between current levels of interest rates and
committed rates.
At December 31, 1995, interest-rate risk-management derivative contracts
had a net unrealized gain of $48 million compared to a net unrealized loss of
$(154) million at December 31, 1994. Certain assets, which are not financial
instruments and, accordingly, are not included in the above fair values,
contribute substantial value to the corporation in excess of the related amounts
recognized in the balance sheet. These include the core deposit intangibles and
the related retail banking network, the value of customer relationships
associated with certain types of consumer loans (particularly the credit card
portfolio), lease financing business, and MSRs.
NOTE 17.
COMMITMENTS, CONTINGENCIES,
AND OTHER DISCLOSURES
One of the corporation's banking subsidiaries, which served as indenture
trustee for certain healthcare receivable backed bonds issued by certain special
purpose subsidiaries of Towers Financial Corporation, and another defendant,
have been named in a lawsuit in federal court in Manhattan by purchasers of the
bonds. The suit seeks damages in an undetermined amount equal to the difference
between the current value of the bonds and their face amount of approximately
$200 million, plus interest, as well as punitive damages. The corporation is
vigorously defending the action.
Subsequent to the announcement of the Merger, certain alleged stockholders
of Shawmut filed several purported class action lawsuits against Shawmut, Fleet,
and members of Shawmut's Board of Directors. The complaints all make similar
allegations concerning the Merger. The corporation believes the allegations
contained in these complaints are entirely without merit and intends to contest
them vigorously.
The corporation and its subsidiaries are involved in various other legal
proceedings arising out of, and incidental to, their respective businesses.
Management of the corporation, based on its review with counsel of the
development of these matters to date, does not anticipate that any losses
incurred as a result of these legal proceedings would have a materially adverse
effect on the corporation's financial position.
<PAGE>
Lease Commitments. The corporation has entered into a number of
noncancelable operating lease agreements for premises and equipment. The minimum
annual rental commitments under these leases at December 31, 1995, exclusive of
taxes and other charges, are $126 million in 1996; $111 million, 1997; $96
million, 1998; $80 million, 1999; $66 million, 2000; and $422 million, 2001 and
subsequent years. Total rental expense for 1995, 1994, and 1993, including
cancelable and noncancelable leases, amounted to $162 million, $153 million, and
$157 million, respectively.
Certain leases contain escalation clauses, which correspond with increased
real estate taxes and other operating expenses, and renewal options calling for
increased rents as the leases are renewed. No restrictions are imposed by any
lease agreement regarding the payment of dividends, additional debt financing,
or entering into further lease agreements.
Regulatory Matters. As a bank holding company and a unitary savings and
loan holding company, Fleet is subject to regulation by the Federal Reserve
Board (the Federal Reserve) and the Office of Thrift Supervision (OTS). Banking
subsidiaries are subject to regulation by the Federal Reserve, the Office of the
Comptroller of the Currency (OCC) and OTS, as well as state regulators. Each
subsidiary bank's deposits are insured by the FDIC.
Transaction and Dividend Restrictions. Fleet's banking subsidiaries are
subject to restrictions under federal law that limit the transfer of funds by
the subsidiary banks to Fleet and its nonbanking subsidiaries. Such transfers by
any subsidiary bank to Fleet or any nonbanking subsidiary are limited in amount
to 10% of the bank's capital and surplus.
Various federal and state banking statutes limit the amount of dividends
the subsidiary banks can pay to Fleet without regulatory approval. The payment
of dividends by any subsidiary bank may also be effected by other factors such
as the maintenance of adequate capital for such subsidiary bank. Various
regulators and the boards of directors of the affected institutions continue to
review dividend declarations and capital requirements of Fleet and its
subsidiaries consistent with current earnings, future earning prospects, and
other factors.
Restrictions on Cash and Due from Banks. The corporation's banking
subsidiaries are subject to requirements of the Federal Reserve to maintain
certain reserve balances. At December 31, 1995 and 1994, these reserve balances
were $1,363 million and $1,502 million, respectively.
NOTE 18.
DISCLOSURE FOR STATEMENTS OF CASH FLOWS
<TABLE><CAPTION>
Cash Flow Disclosure
- ----------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of cash paid
during the period for:
Interest $2,995 $2,096 $2,087
Income taxes, net of refund 194 370 454
- ----------------------------------------------------------------------------------------
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to foreclosed property
and repossessed equipment 72 86 186
Reclassification of securities from
securities held to maturity to
available for sale 5,308 - -
Conversion of DCP to common stock 439 - -
Retirement of treasury stock 347 - -
Transfer of assets held for sale or
accelerated disposition 1,725 - -
Adjustment to unrealized gain (loss)
on securities available for sale 463 (649) 238
- ----------------------------------------------------------------------------------------
Assets acquired and liabilities assumed in
business combinations were as follows:
Assets acquired, net of cash and cash
equivalents paid 8,920 347 -
Net cash and cash equivalents paid for
businesses acquired (2,816) (56) -
Liabilities assumed 5,715 291 -
Common stock issued in connection
with businesses acquired 193 - -
Treasury stock issued in connection
with businesses acquired 196 - -
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 19.
<TABLE><CAPTION>
PARENT COMPANY ONLY FINANCIAL STATEMENTS
Statements of Income
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------
Dividends from subsidiaries:
Banking subsidiaries $817 $427 $287
Other subsidiaries 246 37 24
Interest income 153 140 134
Other 67 114 97
- ----------------------------------------------------------------------------------------
Total income 1,283 718 542
- ----------------------------------------------------------------------------------------
Interest expense 296 215 193
Noninterest expense 156 74 195
- ----------------------------------------------------------------------------------------
Total expenses 452 289 388
- ----------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
income of subsidiaries 831 429 154
Applicable income taxes (benefit) (54) 34 (53)
- ----------------------------------------------------------------------------------------
Income before equity in
undistributed income
of subsidiaries 885 395 207
Equity in undistributed income
of subsidiaries (275) 454 557
- ----------------------------------------------------------------------------------------
Income before cumulative effect of
change in method of accounting 610 849 764
Cumulative effect of change in
method of accounting - - 53
- ----------------------------------------------------------------------------------------
Net income $610 $849 $817
- ----------------------------------------------------------------------------------------
</TABLE>
Balance Sheet
- ------------------------------------------------------------------------------
December 31
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------
Assets:
Money market instruments $194 $476
Securities 150 428
Loans receivable from:
Banking subsidiaries 519 116
Other subsidiaries 2,120 1,768
- ------------------------------------------------------------------------------
2,639 1,884
Investment in subsidiaries:
Banking subsidiaries 6,597 5,534
Other subsidiaries 1,005 1,065
- ------------------------------------------------------------------------------
7,602 6,599
- ------------------------------------------------------------------------------
Other 404 386
- ------------------------------------------------------------------------------
Total assets $10,989 $9,773
- ------------------------------------------------------------------------------
Liabilities:
Short-term borrowings $803 $1,207
Accrued liabilities 435 480
Long-term debt 3,386 2,615
- ------------------------------------------------------------------------------
Total liabilities 4,624 4,302
- ------------------------------------------------------------------------------
Stockholders' equity 6,365 5,471
- ------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $10,989 $9,773
- ------------------------------------------------------------------------------
<TABLE><CAPTION>
Statements of Cash Flows
- ----------------------------------------------------------------------------------------
Year ended December 31
Dollars in millions 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $610 $849 $817
Adjustments for noncash items:
Equity in undistributed income of subsidiaries 275 (454) (557)
Depreciation and amortization 18 16 17
Net securities gains (29) (13) (47)
Increase (decrease) in accrued liabilities, net (56) 38 102
Other, net (79) 136 (34)
- ----------------------------------------------------------------------------------------
Net cash flow provided by operating activities 739 572 298
- ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of securities (205) (908) (478)
Proceeds from sales and maturities of securities 543 739 435
Net increase in loans made to affiliates (780) (52) (278)
Capital contributions to subsidiaries (219) (210) (258)
Acquisition of minority interest in subsidiary (158) - -
- ----------------------------------------------------------------------------------------
Net cash flow used in investing activities (819) (431) (579)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings (404) 297 61
Proceeds from issuance of long-term debt 1,014 400 450
Repayments of long-term debt (242) (317) (603)
Proceeds from issuance of common stock 124 70 494
Proceeds from issuance of preferred stock 125 - -
Redemption and repurchase of common
and preferred stock (446) (375) (129)
Cash dividends paid (373) (299) (194)
- ----------------------------------------------------------------------------------------
Net cash flow provided by (used in)
financing activities (202) (224) 79
- ----------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (282) (83) (202)
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 476 559 761
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $194 $476 $559
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
RATE/VOLUME ANALYSIS (Unaudited)
- ------------------------------------------------------------------------------------------------------------
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Due to(a) Increase (Decrease) Due to(a)
Dollars in millions Volume Rate Net Volume Rate Net
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:(b)
Interest-bearing deposits $ 2 $7 $9 $10 $3 $13
Federal funds sold and securities purchased
under agreements to resell 21 3 24 12 (15) (3)
Trading account securities (3) 2 (1) (1) 1 -
Securities available for sale (260) 34 (226) 142 (79) 63
Securities held to maturity (63) 28 (35) 44 (27) 17
Nontaxable securities (2) 10 8 8 (1) 7
Loans and leases(c) 602 403 1,005 71 84 155
Mortgages held for resale 10 15 25 (73) (5) (78)
- ------------------------------------------------------------------------------------------------------------
Total interest-earning assets 307 502 809 213 (39) 174
- ------------------------------------------------------------------------------------------------------------
Interest paid on:
Deposits:
Savings (33) 130 97 (6) (26) (32)
Time 244 215 459 28 9 37
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 211 345 556 22 (17) 5
- ------------------------------------------------------------------------------------------------------------
Short-term borrowings (47) 221 174 87 151 238
Long-term debt 85 29 114 10 (9) 1
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 249 595 844 119 125 244
- ------------------------------------------------------------------------------------------------------------
Net interest differential $58 $(93) $(35) $94 $(164) $(70)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.
(b) A tax-equivalent adjustment has been included in the calculations to
reflect this income as if it had been fully taxable. The tax-equivalent
adjustment is based upon the applicable federal and state income tax rates.
The FTE adjustment included in interest income was $44 million in 1995, $52
million in 1994, and $46 million in 1993.
(c) Includes fee income of $110 million, $108 million, and $119 million
for the years ended December 31, 1995, 1994, and 1993, respectively.
<TABLE><CAPTION>
LOAN AND LEASE MATURITY (Unaudited)
- ----------------------------------------------------------------------------------------
December 31, 1995 Within 1 1 to 5 After 5
Dollars in millions Year Years Years Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $13,684 $5,588 $3,979 $23,251
Residential real estate 6,723 2,723 2,029 11,475
Consumer 6,095 1,902 1,559 9,556
Commercial real estate:
Construction 378 138 90 606
Interim/permanent 2,821 852 741 4,414
Lease financing 1,234 695 294 2,223
- ----------------------------------------------------------------------------------------
Total $30,935 $11,898 $8,692 $51,525
- ----------------------------------------------------------------------------------------
<CAPTION>
INTEREST SENSITIVITY OF LOANS OVER ONE YEAR S (Unaudited)
- ----------------------------------------------------------------------------------------
December 31, 1995 Predetermined Floating
Dollars in millions Interest Rates Interest Rates Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 to 5 years $7,016 $4,882 $11,898
After 5 years 8,360 332 8,692
- ----------------------------------------------------------------------------------------
Total $15,376 $5,214 $20,590
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED-PAID/RATES 1991-1995 (Unaudited)
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Earned/ Average Earned/
Dollars in millions(a) Balance Paid(b) Rate Balance Paid(b) Rate
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits $325 $23 7.08% $292 $14 4.79%
Federal funds sold and securities purchased
under agreements to resell 662 39 5.89 296 15 5.07
Trading account securities 79 4 5.06 99 5 4.95
Securities available for sale 12,779 797 6.24 16,923 1,023 6.05
Securities held to maturity 6,954 412 5.92 7,971 447 5.61
Nontaxable securities 782 59 7.54 816 51 6.25
Loans and leases(c) 51,043 4,619 9.03 44,102 3,614 8.17
Mortgages held for resale 1,459 116 7.96 1,322 91 6.90
Foreclosed property and repossessed equipment 97 - - 166 - -
- -----------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 74,180 6,069 8.17% 71,987 5,260 7.29%
- -----------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 539 - - 533 - -
Reserve for credit losses (1,489) - - (1,600) - -
Other assets 9,497 - - 8,641 - -
- -----------------------------------------------------------------------------------------------------------------------
Total assets $82,727 $6,069 - $79,561 $5,260 -
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Deposits:
Savings $22,987 $592 2.57% $24,803 $495 2.00%
Time 20,133 1,135 5.64 15,310 676 4.41
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 43,120 1,727 4.00 40,113 1,171 2.92
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 14,046 800 5.69 15,355 626 4.07
Long-term debt 6,581 478 7.26 5,383 364 6.76
- -----------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 63,747 3,005 4.71 60,851 2,161 3.55
- -----------------------------------------------------------------------------------------------------------------------
Net interest spread 3,064 3.46% 3,099 3.74%
- -----------------------------------------------------------------------------------------------------------------------
Demand deposits and other noninterest-bearing
timme deposits 10,910 - - 11,227 - -
Other liabilities 1,525 - - 1,701 - -
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 76,182 3,005 - 73,779 2,161 -
- -----------------------------------------------------------------------------------------------------------------------
Dual convertible preferred stock - - - - - -
Stockholders' equity and dual convertible
preferred stock 6,545 - - 5,782 - -
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $82,727 $3,005 - $79,561 $2,161 -
- -----------------------------------------------------------------------------------------------------------------------
Net interest margin 4.12% 4.30%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The data in this table is presented on a taxable-equivalent basis. The tax-
equivalent adjustment is based upon the applicable federal and state income
tax rates.
(b) Includes fee income of $110 million, $108 million, $119 million, $124
million, and $105 million for the years ended December 31, 1995, 1994,
1993, 1992, and 1991, respectively.
(c) Nonperforming loans are included in average balances used to determine
rates.
<PAGE>
<TABLE><CAPTION>
CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED-PAID/RATES 1991-1995 (Unaudited)
- -------------------------------------------------------------------------------------------
1993 1992 1991
Interest Interest Interest
Average Earned/ Average Earned/ Average Earned/
Balance Paid(b) Rate Balance Paid(b) Rate Balance Paid(b) Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$47 $1 2.13% $74 $3 4.05% $178 $ 10 5.41%
570 18 3.16 1,195 34 3.16 2,167 123 5.66
114 5 4.17 113 6 5.31 107 8 7.36
14,140 960 6.79 14,061 1,102 7.84 1,597 121 7.56
7,056 430 6.09 3,846 286 7.44 11,409 1,009 8.84
679 44 6.48 454 24 5.29 949 66 6.91
43,283 3,459 7.99 43,029 3,688 8.57 40,986 3,950 9.64
2,384 169 7.10 1,974 175 8.88 1,447 138 9.51
211 - - 513 - - 468 - -
- -------------------------------------------------------------------------------------------
68,484 5,086 7.43% 65,259 5,318 8.15% 59,308 5,425 9.15%
- -------------------------------------------------------------------------------------------
512 - - 522 - - 523 - -
(1,829) - - (2,063) - - (1,894) - -
8,119 - - 7,915 - - 7,162 - -
- -------------------------------------------------------------------------------------------
$75,286 $5,086 - $71,633 $5,318 - $65,099 $5,425 -
- -------------------------------------------------------------------------------------------
$25,086 $527 2.10% $23,532 $718 3.05% $19,195 $926 4.82%
14,680 639 4.35 18,499 981 5.30 21,672 1,488 6.87
- -------------------------------------------------------------------------------------------
39,766 1,166 2.93 42,031 1,699 4.04 40,867 2,414 5.91
- -------------------------------------------------------------------------------------------
12,807 388 3.03 8,848 306 3.46 6,520 414 6.34
5,039 363 7.20 4,116 332 8.06 3,947 314 7.96
- -------------------------------------------------------------------------------------------
57,612 1,917 3.33 54,995 2,337 4.25 51,334 3,142 6.12
- -------------------------------------------------------------------------------------------
3,169 4.10% 2,981 3.90% 2,283 3.03%
- -------------------------------------------------------------------------------------------
10,854 - - 10,999 - - 9,198 - -
1,509 - - 1,238 - - 837 - -
- -------------------------------------------------------------------------------------------
69,975 1,917 - 67,232 2,337 - 61,369 3,142 -
- -------------------------------------------------------------------------------------------
- - - 283 - - 134 - -
5,311 - - 4,118 - - 3,596 - -
- -------------------------------------------------------------------------------------------
$75,286 $1,917 - $71,633 $2,337 - $65,099 $3,142 -
- -------------------------------------------------------------------------------------------
4.63% 4.57% 3.85%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
QUARTERLY SUMMARIZED FINANCIAL INFORMATION(a) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
By quarter 1995 1994
Dollars in millions,
except per share data 1 2 3 4 Year 1 2 3 4 Year
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $1,448 $1,539 $1,540 $1,498 $6,025 $1,239 $1,285 $1,339 $1,345 $5,208
Interest expense 692 775 777 761 3,005 463 518 580 600 2,161
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 756 764 763 737 3,020 776 767 759 745 3,047
- ------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 20 28 27 26 101 25 12 11 17 65
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for credit losses 736 736 736 711 2,919 751 755 748 728 2,982
Securities available for sale
gains (losses) 1 4 7 20 32 (1) 19 2 (21) (1)
Other noninterest income 402 472 441 503 1,818 390 353 378 435 1,556
- ------------------------------------------------------------------------------------------------------------------------
1,139 1,212 1,184 1,234 4,769 1,140 1,127 1,128 1,142 4,537
Noninterest expense 764 797 746 1,428 3,735 797 890 728 730 3,145
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes 375 415 438 (194) 1,034 343 237 400 412 1,392
Applicable income taxes 149 161 170 (56) 424 128 105 148 150 531
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before
minority interest 226 254 268 (138) 610 215 132 252 262 861
Minority interest - - - - - (2) (3) (3) (4) (12)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) $226 $254 $268 $(138) $610 $213 $129 $249 $258 $849
Earnings (loss) per share $0.82 $0.91 $0.96 $(1.17) $1.57 $0.75 $0.46 $0.91 $0.97 $3.09
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The quarterly summarized financial information has been restated to
reflect the pooling of interests with Shawmut National Corporation.
COMMON STOCK PRICE AND DIVIDEND INFORMATION(a) (Unaudited)
<TABLE><CAPTION>
- -----------------------------------------------------------------------------------------------------------------
By quarter 1995 1994
1 2 3 4 Year 1 2 3 4 Year
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock Price
High 34 5/8 38 3/8 39 1/8 43 43 38 41 3/8 40 1/2 37 7/8 41 3/8
Low 30 7/8 32 1/8 35 38 1/8 30 7/8 31 3/4 34 3/8 34 7/8 29 7/8 29 7/8
- -----------------------------------------------------------------------------------------------------------------
Dividends declared .40 .40 .40 .43 1.63 .30 .35 .35 .40 1.40
Dividends paid .40 .40 .40 .40 1.60 .30 .30 .35 .35 1.30
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fleet's (FLT) common stock is listed on the New York Stock Exchange (NYSE).
The table above sets forth, for the periods indicated, the range of high
and low sale prices per share of Fleet's common stock on the composite tape
and dividends declared and paid per share.
