<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _________ TO __________
COMMISSION FILE NUMBER 1-6366
FLEET FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
RHODE ISLAND 05-0341324
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(Address of principal executive office) (Zip Code)
(617) 346-4000
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
_____ _____
The number of shares of common stock of the Registrant outstanding as of October
31, 1997 was 250,218,766.
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<PAGE>
FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Three Months Ended September 30, 1997 and 1996 3
Nine Months Ended September 30, 1997 and 1996 4
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996 5
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 1997 and 1996 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 7
Condensed Notes to Consolidated Financial Statements 8
PART I. ITEM 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 23
SIGNATURES 24
EXHIBITS 25
2
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans and leases $ 1,331 $ 1,349
Interest on securities 145 190
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Total interest income 1,476 1,539
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Interest expense:
Deposits 410 467
Short-term borrowings 68 57
Long-term debt 82 91
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Total interest expense 560 615
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Net interest income 916 924
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Provision for credit losses 85 65
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Net interest income after provision for credit losses 831 859
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Noninterest income:
Service charges, fees and commissions 159 153
Investment services revenue 104 93
Mortgage banking revenue, net 66 96
Venture capital revenue 29 41
Student loan servicing fees 24 23
Securities gains 4 --
Other 128 99
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Total noninterest income 514 505
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Noninterest expense:
Employee compensation and benefits 384 425
Occupancy 70 74
Equipment 70 71
Intangible asset amortization 41 40
Marketing 31 26
Legal and other professional 20 34
Other 175 191
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Total noninterest expense 791 861
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Income before income taxes 554 503
Applicable income taxes 225 208
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Net income $ 329 $ 295
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Net income applicable to common shares $ 313 $ 273
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Fully diluted weighted average common shares outstanding 260,002,510 268,812,396
Fully diluted earnings per share $ 1.20 $ 1.02
Dividends declared $ .45 $ .43
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</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
3
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans and leases $ 3,925 $ 3,776
Interest on securities 440 577
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Total interest income 4,365 4,353
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Interest expense:
Deposits 1,233 1,299
Short-term borrowings 163 251
Long-term debt 253 300
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Total interest expense 1,649 1,850
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Net interest income 2,716 2,503
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Provision for credit losses 233 148
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Net interest income after provision for credit losses 2,483 2,355
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Noninterest income:
Service charges, fees and commissions 475 391
Investment services revenue 310 274
Mortgage banking revenue, net 260 264
Student loan servicing fees 76 67
Venture capital revenue 57 94
Securities gains 22 38
Net gains on sales of business units 175 --
Gain from branch divestiture -- 92
Other 355 264
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Total noninterest income 1,730 1,484
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Noninterest expense:
Employee compensation and benefits 1,215 1,184
Occupancy 212 210
Equipment 207 196
Intangible asset amortization 120 96
Legal and other professional 82 92
Marketing 69 72
Other 679 566
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Total noninterest expense 2,584 2,416
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Income before income taxes 1,629 1,423
Applicable income taxes 661 587
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Net income $ 968 $ 836
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Net income applicable to common shares $ 919 $ 783
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Fully diluted weighted average common shares outstanding 264,022,822 269,259,878
Fully diluted earnings per share $ 3.48 $ 2.91
Dividends declared $ 1.35 $ 1.29
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</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
4
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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SEPTEMBER 30, DECEMBER 31,
DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS 1997 1996
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<S> <C> <C>
Assets
Cash, due from banks and interest-bearing deposits $ 5,192 $ 7,243
Federal funds sold and securities purchased under agreements to resell 1,371 1,772
Securities available for sale 7,511 7,503
Securities held to maturity (market value: $1,264 and $1,172) 1,259 1,177
Loans and leases 59,264 58,844
Reserve for credit losses (1,432) (1,488)
Net loans and leases 57,832 57,356
Mortgage servicing rights 1,800 1,566
Mortgages held for resale 1,396 1,560
Premises and equipment 1,252 1,347
Intangible assets 1,704 1,699
Other assets 4,258 4,295
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Total assets $ 83,575 $ 85,518
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Liabilities
Deposits:
Demand $ 15,821 $ 17,903
Regular savings, NOW, money market 27,569 27,976
Time 19,517 21,192
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Total deposits 62,907 67,071
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Federal funds purchased and securities sold under agreements to repurchase 2,575 2,871
Other short-term borrowings 3,949 756
Accrued expenses and other liabilities 2,498 2,291
Long-term debt 4,459 5,114
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Total liabilities 76,388 78,103
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Stockholders' Equity
Preferred stock 835 953
Common stock (shares issued: 263,239,019 in 1997 and 263,395,054 in 1996; shares
outstanding: 249,872,588 in 1997 and 261,992,124 in 1996) 3 3
Common surplus 3,112 3,145
Retained earnings 3,919 3,342
Net unrealized gain on securities available for sale 71 31
Treasury stock, at cost (13,366,431 shares in 1997 and 1,402,930 shares in 1996) (753) (59)
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Total stockholders' equity 7,187 7,415
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Total liabilities and stockholders' equity $ 83,575 $ 85,518
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</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
5
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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NET
UNREALIZED
COMMON GAIN(LOSS)
NINE MONTHS ENDED SEPTEMBER 30 STOCK AT ON SECURITIES
DOLLARS IN MILLIONS, PREFERRED $.01 COMMON RETAINED AVAILABLE TREASURY
EXCEPT SHARE AMOUNTS STOCK PAR SURPLUS EARNINGS FOR SALE STOCK TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996
- -----
Balance at December 31, 1995 $ 399 $3 $3,149 $2,768 $52 $(6) $6,365
Net income 836 836
Cash dividends declared on commonstock
($1.29 per share) (339) (339)
Cash dividends declared on preferred
stock (51) (51)
Issuance of preferred stock, net
of issuance cost 650 (15) 635
Redemption of preferred stock (50) (3) (53)
Common stock issued in connection with:
Employee benefit and stock
option plans 36 (21) 28 43
Warrants 15 15
Adjustment of valuation reserve for
securities available for sale (69) (69)
Treasury stock purchased (69) (69)
Other, net 2 (43) (4) -- (45)
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Balance at September 30, 1996 $1,001 $3 $3,142 $3,186 $(17) $(47) $7,268
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1997
- -----
Balance at December 31, 1996 $ 953 $3 $3,145 $3,342 $ 31 $(59) $7,415
Net income 968 968
Cash dividends declared on commonstock
($1.35 per share) (343) (343)
Cash dividends declared on preferred
stock (49) (49)
Redemption of preferred stock (34) (34)
Common stock issued in connection with
employee benefit and stock
option plans (31) 1 94 64
Treasury stock purchased (788) (788)
Adjustment of valuation reserve for
securities available for sale 40 40
Exchange of Series V preferred stock
for trust preferred securities (84) (84)
Other, net (2) (2)
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Balance at September 30, 1997 $835 $3 $3,112 $3,919 $71 $(753) $7,187
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</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
6
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30
DOLLARS IN MILLIONS 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 968 $ 836
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 158 144
Amortization of mortgage servicing rights and other intangible assets 299 235
Provision for credit losses 233 148
Deferred income tax expense 225 202
Securities gains (22) (38)
Gain from branch divestitures -- (92)
Net gain on sale of business units (175) --
Originations and purchases of mortgages held for resale (11,406) (14,621)
Proceeds from sales of mortgages held for resale 11,134 15,891
Increase in accrued receivables, net (59) (448)
Increase (decrease) in accrued liabilities, net 228 (176)
Other, net (391) 799
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Net cash flow provided by operating activities 1,192 2,880
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Cash Flows from Investing Activities
Purchases of securities available for sale (2,140) (5,210)
Proceeds from maturities of securities available for sale 660 3,870
Proceeds from sales of securities available for sale 1,618 13,037
Purchases of securities held to maturity (1,240) (1,093)
Proceeds from maturities of securities held to maturity 1,123 672
Loans made to customers, nonbanking subsidiaries (1,660) (1,125)
Principal collected on loans made to customers, nonbanking subsidiaries 989 746
Proceeds from the sale of subsidiary -- 1,344
Net (increase) decrease in loans and leases, banking subsidiaries (2,320) 857
Net cash and cash equivalents received for businesses acquired -- 2,386
Net cash received from divestiture of loans -- 1,773
Net cash received from sale of business units 2,719 --
Purchases of premises and equipment (115) (113)
Purchases of mortgage servicing rights (204) (171)
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Net cash flow (used) provided by investing activities (570) 16,973
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Cash Flows from Financing Activities
Net decrease in deposits (4,164) (5,659)
Divestiture of deposits -- (2,349)
Net increase (decrease) in short-term borrowings 2,897 (8,614)
Proceeds from issuance of long-term debt 189 446
Repayments of long-term debt (844) (2,048)
Proceeds from the issuance of common stock 64 58
Proceeds from the issuance of preferred stock -- 635
Redemption and repurchase of common and preferred stock (822) (122)
Cash dividends paid (394) (367)
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Net cash flow used by financing activities (3,074) (18,020)
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Net (decrease) increase in cash and cash equivalents (2,452) 1,833
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Cash and cash equivalents at beginning of the period 9,015 4,566
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Cash and cash equivalents at end of the period $ 6,563 $ 6,399
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</TABLE>
See accompanying condensed notes to consolidated financial statements
7
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1. FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein has been
prepared in conformity with the accounting principles and practices in Fleet
Financial Group, Inc.'s (Fleet, FFG, or corporation) consolidated financial
statements included in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission (SEC) for the year ended December 31,
1996. The accompanying interim consolidated financial statements contained
herein are unaudited. However, in the opinion of the corporation, all
adjustments consisting of normal recurring items necessary for a fair
statement of the operating results for the periods shown have been made. The
results of operations for the nine months ended September 30, 1997 may not be
indicative of operating results for the year ending December 31, 1997.
Certain prior period amounts have been reclassified to conform to current
classifications.
NOTE 2. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
On January 1, 1997, the corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities."
This statement requires that, after a transfer of financial assets, an
entity recognize the financial and servicing assets it controls and the
liabilities it has incurred, and derecognize financial assets when control
has been surrendered. The adoption of this statement has not had a material
impact on the corporation or its results of operations.
NOTE 3. ACQUISITIONS
During the third quarter of 1997, the corporation entered into definitive
agreements to acquire Quick & Reilly, the third largest national discount
brokerage firm, and Columbia Management Company, an institutional asset
management firm with approximately $22 billion of assets under management.
The Columbia acquisition is expected to close either late in the fourth
quarter of 1997 or early in the first quarter of 1998 under the purchase
method of accounting. The Quick & Reilly acquisition is expected to close
during the first quarter of 1998 under the pooling of interests method of
accounting.
During the fourth quarter of 1997, the corporation entered into a
definitive agreement to acquire the credit card operations of Advanta
Corporation. The Advanta acquisition will provide approximately $11.5 billion
of managed credit card receivables and is expected to close during the first
quarter of 1998 under the purchase method of accounting.
NOTE 4. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
Cash-Flow Disclosure
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended September 30
Dollars in millions 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosure for cash paid
during the period for:
Interest expense $1,744 $1,808
Income taxes, net of refunds 184 255
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Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to foreclosed property
and repossessed equipment 23 15
Securitization of residential loans -- 1,998
Exchange of Series V preferred stock
for trust preferred securities 84 --
Adjustment to unrealized gain (loss) on
securities available for sale 40 (69)
Retirement of common stock -- 34
- ------------------------------------------------------------------------------
Assets acquired and liabilities assumed in
business combinations were as follows:
Assets acquired, net of cash and cash
equivalents received -- 17,848
Net cash and cash equivalents received -- 2,386
Liabilities assumed -- 20,234
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Divestitures:
Assets sold 2,552 1,773
Net cash received/(paid) for divestitures 2,719 (484)
Liabilities sold 24 2,349
- ------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three months Nine months
Dollars in millions, ended Sept. 30 ended Sept. 30
except per share data 1997 1996 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings
Net income $ 329 $ 295 $ 968 $ 836
Net interest income (FTE)(a) 926 934 2,744 2,529
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Per Common Share
Fully diluted earnings $ 1.20 $ 1.02 $ 3.48 $ 2.91
Cash dividends declared .45 .43 1.35 1.29
Book value 25.42 23.90 25.42 23.90
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Operation Ratios
Return on average Assets 1.60 % 1.35 % 1.58 % 1.36 %
Return on common Equity 19.89 17.83 19.65 17.34
Efficiency ratio 54.9 59.9 56.5 60.2
Equity to assets (period-end) 8.60 8.34 8.60 8.34
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At September 30
Total assets $83,575 $87,194 $83,575 $87,194
Stockholders' equity 7,187 7,268 7,187 7,268
Nonperforming Assets(b) 479 759 479 759
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</TABLE>
(a) The FTE adjustment included in net interest income was $10 million and
$10 million for the three months ended and $28 million and $26 million
for the nine months ended September 30, 1997 and 1996, respectively.
(b) Nonperforming assets and related ratios at September 30, 1997 and 1996 do
not include $172 million and $287 million, respectively, of nonperforming
assets classified as held for sale or accelerated disposition.
Fleet reported net income of $329 million, or $1.20 per fully diluted
share, for the quarter ended September 30, 1997, compared to $295 million, or
$1.02 per fully diluted share, in the third quarter of 1996, an increase of
18%. Return on average assets (ROA) and return on common equity (ROE)
improved to 1.60% and 19.89%, respectively, for the third quarter of 1997,
from 1.35% and 17.83%, respectively, for the third quarter of 1996. Net
income for the first nine months of 1997 was $968 million, an increase of
$132 million from the first nine months of 1996. Earnings per share were $3.48
for the first nine months compared with $2.91 earned in the first nine months
of 1996. ROA and ROE for the first nine months of 1997 were 1.58% and 19.65%,
respectively, compared with 1.36% and 17.34%, respectively, for the first
nine months of 1996.
During the third quarter of 1997, the corporation entered into
definitive agreements to acquire Quick & Reilly, the third largest national
discount brokerage firm, and Columbia Management Company, an institutional
asset management firm with approximately $22 billion of assets under
management. The Columbia acquisition is expected to close either late in the
fourth quarter of 1997 or early in the first quarter of 1998 under the
purchase method of accounting, while the Quick & Reilly acquisition is
expected to close during the first quarter of 1998 under the pooling of
interests method of accounting.
During the fourth quarter of 1997, the corporation entered into a
definitive agreement to acquire the credit card operations of Advanta
Corporation. The Advanta acquisition will provide approximately $11.5
billion of managed credit card receivables and is expected to close during
the first quarter of 1998 under the purchase method of accounting.
The corporation has experienced growth in its core revenue categories,
including investment services revenue and service charges, fees and
commissions over the prior year's third quarter. Continuing declining levels
of expenses are primarily attributable to the successful integration of the
NatWest ("NatWest") and Shawmut acquisitions which positively impacted the
third quarter.
During the quarter, the corporation repurchased 1.4 million shares of
common stock, bringing the 1997 shares repurchased to 13.3 million. As part
of the acquisition of Quick & Reilly, the Board of Directors rescinded its
prior authority granted in January of 1997 to repurchase up to 20 million
shares of its common stock effective immediately prior to completion of the
acquisition. In the event that the acquisition is not completed, the
authority to repurchase such shares will remain in full force and effect.
INCOME STATEMENT ANALYSIS
Net Interest Income
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Three months Nine months
FTE Basis ended Sept. 30 ended Sept. 30
Dollars in millions 1997 1996 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $1,476 $1,539 $4,365 $4,353
Tax-equivalent adjustment 10 10 28 26
Interest expense 560 615 1,649 1,850
- ------------------------------------------------------------------------------------
Net interest income $926 $ 934 $2,744 $2,529
- ------------------------------------------------------------------------------------
</TABLE>
Net interest income on a fully taxable equivalent basis totaled $926
million for the quarter ended September 30, 1997, compared to $934 million
for the same period in 1996. Net interest income was negatively impacted by
$9 million compared to the third quarter of 1996 relating to the sales of
both Option One, the corporation's nonconforming mortgage banking subsidiary,
and the corporation's indirect auto lending business. The sale of Option One
was completed in the second quarter of 1997 and the sale of the indirect auto
business was completed in the third quarter of 1997. Excluding the impact of
these divested businesses, net interest income increased slightly compared to
the third quarter of 1996.
9
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Net Interest Margin and Interest-Rate Spread
- ----------------------------------------------
Three months ended Sept. 30 1997 1996
- -----------------------------------------------------------------------------
FTE Basis Average Average
Dollars in millions Balance Rate Balance Rate
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $ 8,690 6.78% $11,838 6.58%
Loans and leases 58,087 8.72 59,536 8.66
Mortgages held for sale 1,222 7.47 1,676 8.16
Other 2,434 6.58 1,247 7.65
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Total interest-earning
assets 70,433 8.38 74,297 8.30
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Deposits 47,020 3.46 50,759 3.66
Short-term borrowings 5,315 5.03 4,512 5.04
Long-term debt 4,487 7.42 5,063 7.18
- -----------------------------------------------------------------------------
Interest-bearing
liabilities 56,822 3.91 60,334 4.06
- -----------------------------------------------------------------------------
Interest-rate spread 4.47 4.24
Interest-free sources
of funds 13,611 13,963
- -----------------------------------------------------------------------------
Total sources of funds $70,433 3.15% $74,297 3.29%
- -----------------------------------------------------------------------------
Net interest margin 5.23% 5.01%
- -----------------------------------------------------------------------------
</TABLE>
The corporation's net interest margin for the third quarter of 1997 was
5.23%, an increase of 22 basis points from the third quarter of 1996. The
increase in net interest margin is primarily attributable to an increase in
the yield on loans and securities and a corresponding decrease in the cost of
deposits.
When compared with the third quarter of 1996, excluding $2,170 million
of indirect auto loans that were sold in the third quarter, average loans and
leases increased $721 million to $58.1 billion for the third quarter of 1997
due to loan growth in the commercial, leasing and residential portfolios.
Other average interest earning assets increased $1.2 billion from the
third quarter of 1996 to $2.4 billion in the third quarter of 1997 primarily
resulting from the reclassification of the aforementioned indirect auto loans.
Average interest-bearing deposits decreased $3.7 billion to $47 billion
in the third quarter of 1997 compared to the third quarter of 1996. The net
interest rate paid on average deposits declined to 3.46% for the third
quarter of 1997 compared to 3.66% for the same period of 1996. The decrease
in the cost of deposits reflects a more advantageous mix of deposits, as lower
cost savings deposits currently represent a higher percentage of total
interest-bearing deposits compared to the third quarter of 1996.
The $803 million increase in average short-term borrowings is
attributable to an increase in treasury, tax and loan borrowings as the
corporation utilized this favorably priced funding vehicle to replace deposit
outflows, principally retail time deposits.
The $576 million decrease in average long-term debt and 24 basis point
increase in the funding rate was due to scheduled maturities of lower-rate
instruments and the issuance of higher-rate instruments, which includes the
trust preferred securities issued by the corporation's trust subsidiary.
The contribution to the net interest margin of interest-free sources of
funds during the third quarter of 1997 remained consistent with the third
quarter of 1996 at 76 basis points and 77 basis points, respectively.
<TABLE>
<CAPTION>
Noninterest Income
- -----------------------------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
Dollars in millions 1997 1996 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges, fees and Commissions $159 $153 $ 475 $ 391
Investment services revenue 104 93 310 274
Mortgage banking revenues, net 66 96 260 264
Venture capital revenue 29 41 57 94
Student loan servicing fees 24 23 76 67
Securities gains 4 -- 22 38
Gain from branch divestitures -- -- -- 92
Other noninterest income 128 99 355 264
- -----------------------------------------------------------------------------
Total noninterest income before net gains
on sales of business units 514 505 1,555 1,484
Net gains on sales of business units -- -- 175 --
- -----------------------------------------------------------------------------
Total noninterest income $514 $505 $1,730 $1,484
- -----------------------------------------------------------------------------
</TABLE>
Total noninterest income for the third quarter of 1997 totaled $514
million compared to $505 million for the same period of 1996. Excluding the
$21 million related to divested businesses in the third quarter of 1996,
noninterest income increased by $30 million, or 6%, over the third quarter of
1996. Increases were noted in several core revenue categories including
investment services revenue and service charges, fees and commissions, as
well as increases in corporate finance fees.
<TABLE>
<CAPTION>
Service Charges, Fees and Commissions
- -----------------------------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
Dollars in millions 1997 1996 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash management fees $ 51 $ 48 $ 152 $ 132
Service charges on deposits 33 34 99 80
Return check charges 30 32 97 78
Electronic banking fees 28 21 69 51
Other 17 18 58 50
- -----------------------------------------------------------------------------
Total service charges, fees and commissions $159 $153 $ 475 $ 391
- -----------------------------------------------------------------------------
</TABLE>
10
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Service charges, fees and commissions totaled $159 million for the third
quarter of 1997 as increases were realized in cash management fees, as well
as electronic banking fees due to the adoption of convenience charges in
certain markets.
<TABLE>
<CAPTION>
Mortgage Banking Revenue, Net
- ------------------------------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
Dollars in millions 1997 1996 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loan servicing revenue $112 $98 $337 $283
Mortgage production revenue 18 34 92 102
Gains on sales of mortgage servicing -- 14 10 18
Mortgage servicing rights amortization (64) (50) (179) (139)
- ------------------------------------------------------------------------------
Total mortgage banking revenue, net $ 66 $96 $260 $264
- ------------------------------------------------------------------------------
</TABLE>
Net mortgage banking revenue of $66 million in the third quarter of 1997
decreased $30 million from the same period of 1996. The principal cause of
the decrease was the sale of Option One during the second quarter of 1997
which contributed $13 million of mortgage banking revenue, principally
mortgage production revenue, during the third quarter of 1996. Additionally,
there were no gains on the sales of mortgage servicing during the third
quarter of 1997, while $14 million of gains were realized in the third
quarter of 1996. Loan servicing revenue represents fees received for
servicing residential mortgage loans. The $14 million, or 14%, increase in
loan servicing revenue is attributable to the corporation receiving a higher
servicing spread on mortgage servicing acquired primarily in 1997.
Mortgage servicing rights (MSR) amortization increased $14 million to
$64 million for the third quarter of 1997 as compared to $50 million for the
same period of 1996. The level of amortization increased due to a slight
increase in prepayments resulting from a decline in mortgage interest rates,
coupled with a higher level of amortization of recently purchased mortgage
servicing rights with a higher servicing spread. At September 30, 1997, the
carrying value and fair value of the corporation's MSRs were $1.8 billion and
$2.0 billion, respectively.
<TABLE>
<CAPTION>
Investment Services Revenue
- ------------------------------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
Dollars in millions 1997 1996 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private clients group $52 $44 $149 $133
Retirement plan services 16 13 47 43
Retail investments 16 12 47 34
Not-for-profit institutional
services 12 10 35 30
Corporate trust -- 4 7 12
Other 8 10 25 22
- ------------------------------------------------------------------------------
Total investment services revenue $104 $93 $310 $274
- ------------------------------------------------------------------------------
</TABLE>
Investment services revenue increased 12% in the third quarter of 1997
to $104 million compared to $93 million in the third quarter of 1996. The
increase was due to continued strong sales of mutual funds and annuity
products and an increase in the overall amount and value of assets under
management and administration resulting from a strong equity market. Assets
under management increased from $45 billion at September 30, 1996 to $55
billion at September 30, 1997. The increase in revenue was partially offset
by the sale of the corporate trust unit during the second quarter of 1997
which generated $4 million of revenue during the third quarter of 1996.
Student loan servicing fees remained consistent with the prior year
period at AFSA Data Corporation (AFSA), the corporation's student loan
servicing subsidiary. AFSA services 5.1 million accounts nationwide and is
the largest third-party student loan servicer in the United States, with over
$30 billion in loans serviced.
Venture capital revenue decreased $12 million to $29 million for the
quarter ended September 30, 1997 when compared to the same quarter of 1996.
The investments of Fleet Private Equity, the corporation's venture capital
business, did not experience the same level of appreciation when compared with
the third quarter of 1996. The corporation's ability to continue to
experience increases in the value of these investments depends on a variety
of factors, including the condition of the economy and equity markets. Thus,
the likelihood of such gains in the future cannot be predicted.
11
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other noninterest income increased $29 million to $128 million due
primarily to higher corporate finance fees and trading and foreign exchange
gains. Corporate finance fees of $21 million have grown nearly seven times
from the third quarter of 1996 level as a result of serving in an advisory
capacity in the restructuring, recapitalization and private placements in a
number of transactions.
<TABLE>
<CAPTION>
Noninterest Expense
- -------------------------------------------------------------------------------------------
Three months Nine months
ended Sept. 30 ended Sept. 30
Dollars in millions 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee compensation and benefits $384 $425 $1,215 $1,184
Occupancy 70 74 212 210
Equipment 70 71 207 196
Intangible asset amortization 41 40 120 96
Marketing 31 26 69 72
Legal and other professional 20 34 82 92
Telephone 19 21 58 60
Printing and mailing 18 21 55 54
Other 138 149 566 452
- -------------------------------------------------------------------------------------------
Total noninterest expense $791 $861 $2,584 $2,416
- -------------------------------------------------------------------------------------------
</TABLE>
Total noninterest expense for the third quarter of 1997 totaled $791
million compared to $861 million for the same period of 1996. The decrease of
$70 million over the third quarter of 1996 was due primarily to expense
reductions in nearly all categories resulting from the integrations of
NatWest and Shawmut, as well as the impact of divested businesses. As a
result of declining levels of noninterest expense from cost containment
initiatives and revenue growth, the corporation's efficiency ratio improved
from 59.9% to 54.9% from the third quarter of 1996 to the third quarter of
1997.
Employee compensation and benefits decreased $41 million compared with
the third quarter of 1996 level due to a decline of over 5,000 full-time
equivalent employees over the period.
Legal and other professional fees declined $14 million to $20 million in
the third quarter of 1997 from $34 million in the third quarter of 1996 as
the third quarter of 1996 included a high level of professional fees related
to the acquisition of NatWest.
Marketing expense increased $5 million over the prior year quarter due
to increased marketing initiatives as the corporation initiated a new
corporate branding campaign in the metropolitan New York area.
Intangible asset amortization remained consistent in the third quarter of
1997 when compared to the third quarter of 1996. Additional goodwill of
approximately $117 million was recorded in the third quarter of 1997 related
to the NatWest acquisition. The contingent earnout provision stipulates that
additional payments be made annually based upon the attainment of specified
earnings levels from the NatWest franchise, not to exceed $560 million during
an eight-year period beginning in 1997.
During the quarter, the corporation incurred $3 million of expenses
relating to Year 2000 projects as the corporation continues the process of
updating its computer application systems in preparation for Year 2000. The
corporation will continue to incur charges related to this project over the
next several years.
In connection with the NatWest acquisition, the corporation recorded a
restructuring liability of $250 million during the second quarter of 1996.
This liability was supplemented with an additional $22 million severance
reserve during the second quarter of 1997, resulting from the refinement of
previous estimates. The following table presents a summary of activity with
respect to the corporation's merger-related charges pertaining to NatWest, as
well as the Shawmut related restructuring liability for the nine months ended
September 30, 1997.
<TABLE>
<CAPTION>
Merger and Restructuring-Related Liabilities
- -------------------------------------------------------------------------------------------
Nine Months Ended
September 30, 1997
Dollars in millions Shawmut NatWest Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $158 $ 89 $247
Cash outlays (112) (59) (171)
Severance charge -- 22 22
- -------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ 46 $ 52 $ 98
- -------------------------------------------------------------------------------------------
</TABLE>
The cash outlays made during the first nine months of 1997 relate primarily
to severance costs. The corporation's liquidity has not been significantly
affected by these cash outlays and future cash outlays are not anticipated to
significantly impact the corporation's liquidity. During the first nine
months of 1997, $9 million of incremental costs have been incurred relating
to the NatWest acquisition and have been expensed. It is anticipated that
approximately $2 million of additional incremental costs will be incurred in
1997.
Income Taxes
For the third quarter of 1997, the corporation recognized income tax
expense of $225 million, an effective tax rate of 40.6%. Tax expense for the
same period of 1996 was $208 million, an effective tax rate of 41.3%
12
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Lines of Business
The financial performance of the corporation is monitored by an internal
profitability system, which provides line of business results and key
performance measures. The corporation is managed along the following business
lines: Consumer Banking, Commercial Financial Services, Investment Services,
Financial Services, Mortgage Banking/Venture Capital, Treasury and All Other.
Management accounting policies are in place for assigning expenses that
are not directly incurred by lines of business, such as overhead, operations
and technology expense. Additionally, equity, loan loss provision and loan
loss reserves are assigned on an economic basis. The corporation has developed
a risk adjusted methodology that quantifies risk types within business units
and assigns capital accordingly. Within business units, assets and
liabilities are match-funded utilizing similar maturity, liquidity and
repricing information. Management accounting concepts and organizational
hierarchies are periodically refined and results may be restated to reflect
changes in methodology and organizational structure. Results by lines of
business are presented below.
<TABLE>
<CAPTION>
Selected Financial Highlights by Lines of Business
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Mortgage
Consumer Financial Investment Financial Bkg/Venture
Dollars in millions Banking Services Services Services Capital Treasury All Other Total
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net Interest Income (FTE) $ 484 $ 311 $ 26 $ 69 $ 6 $ 30 $ 0 $ 926
Noninterest Income 127 99 108 58 105 17 0 514
Noninterest Expense 342 172 84 65 67 15 46 791
Net Income 138 106 28 16 27 20 (6) 329
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Average Loans and Leases $10,424 $35,110 $2,064 $2,731 $ 200 $6,563 $995 $58,087
Average Deposits 42,740 10,532 2,070 98 1,928 5,059 68 62,495
ROE 35% 19% 51% 28% 17% 29% N/M 20%
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended Sept. 30, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Net Interest Income (FTE) $ 488 $ 306 $ 29 $ 59 $ 25 $ 39 $ (12) $ 934
Noninterest Income 107 81 97 67 127 7 19 505
Noninterest Expense 386 186 87 84 73 19 26 861
Net Income 99 85 21 3 48 15 24 295
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Average Loans and Leases $11,368 $32,842 $1,814 $3,067 $ 138 $ 7,129 $3,178 $59,536
Average Deposits 47,576 9,879 2,353 129 1,878 4,951 927 67,693
ROE 23% 20% 41% 5% 26% 18% N/M 18%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer Banking
Consumer Banking includes businesses engaged in branch banking, small
business lending and insurance services. Earnings for the third quarter of
1997 were $138 million compared to $99 million a year ago, driven primarily by
increased noninterest income and reduced operating expenses. Lower net
interest income primarily reflects the impact of deposit divestiture and
migration to alternate investment products. Noninterest income increased $20
million year over year, driven in part by higher service charges on deposits
due to pricing. The decline in noninterest expense of 11% is attributed to
savings from the consolidation and integration of the former NatWest
franchise and divested branches from the Shawmut merger.
Commercial Financial Services
Commercial Financing Services provides a full range of credit and
banking services to its corporate, middle market, real estate, municipal and
leasing customers. This group earned $106 million in the third quarter of
1997, an increase of $21 million compared to the same quarter in 1996.
Growth in loans and deposits of 7% contributed to a $5 million improvement in
net interest income and was driven by growth in commercial lending, corporate
finance and leasing business units. Noninterest income also improved compared
to 1996 due to cross-selling of corporate finance, cash management and
foreign exchange services. Decreasing operational costs are the result of
expense management combined with lower back office expenses associated with
consolidation cost savings.
13
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investment Services
Investment Services provides asset management services to institutional
and wealthy market clients, retail mutual fund and annuity sales, and
brokerage services. Investment Services net income increased $7 million
compared to the third quarter of 1996 on the strength of increased revenues.
Higher investment fees resulted from the continued strong growth in assets
under management, which have increased by $10 billion to $55 billion at
September 30, 1997. Additionally, higher revenues in the Retail Investments
unit reflected growth in the sales of mutual fund and annuity products.
Improved earnings were also influenced by lower noninterest expenses, as
lower support unit costs offset volume driven increases.
Financial Services
Financial Services includes student loan processing, alternative
delivery banking and credit card. Financial Services earned $16 million in
the third quarter of 1997 compared to $3 million in the same quarter of 1996,
principally due to higher revenues in credit card services and alternative
delivery banking, which more than offset the loss of earnings attributable to
Option One which was sold in the second quarter of 1997. Excluding Option
One, earnings improved $17 million over the third quarter of 1996. Compared
to the same period last year, net interest income improved by $10 million
which was attributable to increased credit card fees and selected portfolio
repricing. Lower noninterest income was driven by mortgage banking revenues
at Option One in 1996. Excluding Option One, noninterest income improved due
to volume related increases in debit card activity and the expansion of
Fleet's ATM network with the addition of 165 ATM sites since September 1996.
Mortgage Banking/Venture Capital
This unit earned $27 million in the third quarter of 1997, down from
$48 million a year ago. The decline is attributable to lower levels of both
venture capital gains and mortgage banking income. Strong prior period
venture capital earnings resulted from gains due to the sale of investments,
and increased valuations of equity investments. The likelihood of such gains
is subject to market conditions and is normally expected to vary. Fleet's
mortgage banking business earned $10 million in the third quarter of 1997,
compared to $24 million in 1996. Lower earnings were mainly due to lower
loan production volumes and 1996 results including a gain on sale of servicing
rights.
Treasury
Treasury is responsible for managing the corporation's securities and
residential mortgage portfolios, trading operations, asset-liability
management function and wholesale funding needs. The Treasury unit earned $20
million in the third quarter of 1997 compared to $15 million in the third
quarter of 1996. Improved earnings resulted from higher noninterest income
and lower operating expenses offsetting lower net interest income. The
decreased net interest income resulted from selected balance sheet downsizing
attributable to the NatWest acquisition. Increased noninterest income
resulted from strong customer-driven foreign exchange revenue and securities
gains. Lower operating expenses were a result of decreased support unit costs
related to lower balance sheet volumes.
All Other
This unit includes allocated support units, the management accounting
control units and discontinued operations. Lower earnings in 1997 are
primarily the result of increased loan loss provision and lower earnings from
sold businesses.
14
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
Total assets decreased from $85.5 billion at December 31, 1996 to $83.6
billion at September 30, 1997 due primarily to lower levels of cash and
short-term investments, which were utilized to fund anticipated demand and
time deposit runoff, long-term debt maturities and common share repurchases.
<TABLE>
<CAPTION>
Securities
- --------------------------------------------------------------------------------------------------------------------------------
September 30, 1997 June 30, 1997 December 31, 1996
---------------------- ----------------------- ----------------------
Amortized Market Amortized Market Amortized Market
Dollars in millions Cost Value Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
US Treasury and government agencies $ 645 $ 650 $ 675 $ 675 $1,077 $1,083
Mortgage-backed securities 6,239 6,326 6,477 6,503 5,987 6,006
Other debt securities 106 107 82 80 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total debt securities 6,990 7,083 7,234 7,258 7,064 7,089
- --------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities 195 215 208 225 229 255
Other securities 212 213 182 182 159 159
- --------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale 7,397 7,511 7,624 7,665 7,452 7,503
- --------------------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 1,259 1,264 1,039 1,044 1,177 1,172
- --------------------------------------------------------------------------------------------------------------------------------
Total securities $8,656 $8,775 $8,663 $8,709 $8,629 $8,675
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost of securities available for sale remained consistent
at $7.4 billion at September 30, 1997 compared to December 31, 1996. The
valuation adjustment on securities available for sale increased $63 million
to an unrealized gain position of $114 million at September 30, 1997, due to
a more favorable interest rate environment.
<TABLE>
<CAPTION>
Loans and Leases
- -------------------------------------------------------------------------
Sept. 30, June 30, Dec. 31,
Dollars in millions 1997 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and industrial $31,088 $30,772 $29,278
Lease financing 3,064 2,858 2,611
Commercial real estate:
Construction 867 1,046 1,074
Interim/permanent 4,847 5,059 5,379
Residential real estate 9,377 8,168 8,048
Consumer 10,021 10,283 12,454
- -------------------------------------------------------------------------
Total loans and leases $59,264 $58,186 $58,844
- -------------------------------------------------------------------------
</TABLE>
Total loans and leases, excluding the sale of the $2.2 billion indirect
auto lending portfolio, increased $2.6 billion, or 6.1% on an annualized
basis, from December 31, 1996 to $59.3 billion at September 30, 1997,
resulting primarily from loan growth in the commercial and industrial, lease
financing and residential portfolios. Excluding the indirect auto lending
portfolio, commercial and industrial (C&I) loans increased $2.5 billion from
December 31, 1996 to September 30, 1997, primarily due to growth in corporate
finance, middle-market lending and national banking.
Commercial real estate (CRE) decreased $739 million from December 31,
1996 to September 30, 1997 due to the increased structuring and syndication
of several loans in the first nine months of 1997, coupled with normal
pay-downs.
Outstanding residential real estate loans secured by one- to four-family
residences increased $1.4 billion to $9.4 billion at September 30, 1997
compared to $8.0 billion at December 31, 1996. This growth is the result of
the corporation's efforts to steadily build the residential real estate
portfolio with quality interest-earning assets.
<TABLE>
<CAPTION>
Consumer Loans
- -------------------------------------------------------------------------
Sept. 30, June 30, Dec. 31,
Dollars in millions 1997 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Home equity $ 4,948 $ 5,070 $ 5,072
Credit card 2,683 2,823 3,227
Student loans 1,198 1,174 1,255
Installment/Other 1,192 1,216 2,900
- -------------------------------------------------------------------------
Total $10,021 $10,283 $12,454
- -------------------------------------------------------------------------
</TABLE>
Consumer loans, excluding the sale of the $1.5 billion indirect auto
lending portfolio, decreased $1 billion from December 31, 1996. The decrease
is primarily the result of a $544 million decline in credit card loans due to
balance pay-offs as the contractual repricing to higher rates resulted in
customer attrition.
15
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Nonperforming Assets(a)
- ---------------------------------------------------------------------------
Dollars in millions C&I CRE Consumer Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonperforming loans and
leases:
Current or less than 90
days past due $153 $ 48 $ 2 $203
Noncurrent 143 51 58 252
OREO 3 3 18 24
- --------------------------------------------------------------------------
Total NPAs
September 30, 1997 $299 $102 $ 78 $479
- --------------------------------------------------------------------------
Total NPAs
June 30, 1997 $320 $127 $ 84 $531
- --------------------------------------------------------------------------
Total NPAs
December 31, 1996 $351 $166 $206 $723
- --------------------------------------------------------------------------
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($236 million,
$252 million and $247 million at September 30, 1997, June 30, 1997, and
December 31, 1996, respectively). Included in the 90 days past due and
still accruing interest were $177 million, $174 million, and $192 million
of consumer loans at September 30, 1997, June 30, 1997, and December 31,
1996, respectively).
</TABLE>
Nonperforming assets (NPAs) decreased $52 million from June 30, 1997 to
$479 million at September 30, 1997. NPAs at September 30, 1997, as a
percentage of total loans, leases and OREO and as a percentage of total
assets were 0.81% and 0.57%, respectively, compared to 0.91% and 0.64%,
respectively, at June 30, 1997. The improvement was due primarily to
declining levels of nonperforming assets in all loan and OREO portfolios as a
result of the successful resolution of certain commercial and industrial and
commercial real estate loans, as well as $17 million transfer to assets held
for disposition.
<TABLE>
<CAPTION>
Activity in Nonperforming Assets
- --------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 3rd Qtr.
Dollars in millions 1997 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $531 $704 $745
Additions 111 203 275
Reductions:
Payments/interest applied (80) (144) (104)
Returned to accrual (14) (22) (55)
Charge-offs/writedowns (37) (41) (80)
Sales/other (15) (38) (22)
NPAs reclassified as held for
accelerated disposition (17) (131) --
- -------------------------------------------------------------------------
Total reductions (163) (376) (261)
- -------------------------------------------------------------------------
Balance at end of period $479 $531 $759
- -------------------------------------------------------------------------
</TABLE>
Nonperforming assets and related ratios do not include NPAs classified as
held for sale or accelerated disposition as disclosed by loan category in the
following table.
<TABLE>
<CAPTION>
Nonperforming Assets Held for Sale or Accelerated Dispositions
- -------------------------------------------------------------------------
Dollars in millions C&I CRE Consumer Total
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans and
leases: $32 $ 36 $ 92 $160
OREO -- 5 7 12
- -------------------------------------------------------------------------
September 30, 1997 $32 $ 41 $ 99 $172
- -------------------------------------------------------------------------
June 30, 1997 $93 $ 52 $104 $249
- -------------------------------------------------------------------------
December 31, 1996 $93 $147 $ 25 $265
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Reserve for Credit Loss Activity
- -------------------------------------------------------------------------
Nine months ended September 30,
Dollars in millions 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $1,488 $1,321
Provision charged against income 233 148
Loans and leases charged off (386) (335)
Recoveries of loans and leases charged off 101 89
- -------------------------------------------------------------------------
Net charge-off (285) (246)
Other (4) 325
- -------------------------------------------------------------------------
Balance at end of period $1,432 $1,548
- -------------------------------------------------------------------------
Ratios of net charge-offs to average loans
and leases 0.66% 0.60%
- -------------------------------------------------------------------------
Ratios of reserve for credit losses to
period-end loans and leases 2.42 2.58
- -------------------------------------------------------------------------
Ratio of reserve for credit losses to
period-end NPAs 299 204
- -------------------------------------------------------------------------
Ratio of reserve for credit losses to period-
end non-performing loans and leases 315 218
- -------------------------------------------------------------------------
</TABLE>
Fleet's reserve for credit losses decreased from $1,548 million at September
30, 1996 to $1,432 million at September 30, 1997. The overall decline in the
reserve for credit losses from the third quarter of 1996 is a result of
higher levels of net charge-offs. The provision for credit losses for the
first nine months of 1997 was $233 million, $85 million higher than the prior
year's first nine months. The increase is a result of increased net charge-offs,
principally in the credit card portfolio.
16
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Funding Sources
- -------------------------------------------------------------------
Sept. 30, June 30, Dec. 31,
Dollars in millions 1997 1997 1996
- -------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand $15,821 $16,471 $17,903
Regular savings, NOW,
money market 27,569 27,641 27,976
Time:
Domestic 16,103 16,421 18,583
Foreign 3,414 2,696 2,609
- -------------------------------------------------------------------
Total deposits 62,907 63,229 67,071
- -------------------------------------------------------------------
Short-term borrowed funds:
Federal funds purchased 316 1,440 488
Securities sold under agree-
ments to repurchase 2,260 2,392 2,382
Commercial paper 778 694 676
Other 3,170 1,260 81
- -------------------------------------------------------------------
Total short-term borrowed
funds 6,524 5,786 3,627
- -------------------------------------------------------------------
Long-term debt 4,459 4,550 5,114
- -------------------------------------------------------------------
Total $73,890 $73,565 $75,812
- -------------------------------------------------------------------
</TABLE>
Total deposits decreased $4.2 billion to $62.9 billion at September 30,
1997 when compared to December 31, 1996 due primarily to demand and time
deposit runoff. Demand deposits decreased $2.1 billion as a result of
seasonal increases in year-end balances and anticipated deposit runoff. Time
deposits decreased $1.7 billion due to decreases in retail certificates of
deposit and individual retirement accounts resulting from the corporation's
efforts to maintain a competitive cost structure, combined with the continued
migration of interest bearing accounts to higher yielding investment products.
In comparison to June 30, 1997, total deposits have decreased $322
million, or less than 1%. A $650 million decline in demand deposits, has been
partially offset by a $400 million increase in time deposits.
The $2.9 billion increase in short-term borrowings since December 31,
1996 is principally due to increasing levels of treasury, tax and loan
borrowings as the corporation utilized this favorably priced funding vehicle
to replace time and demand deposit outflows.
Long-term debt decreased $655 million to $4.5 billion at September 30,
1997 when compared to December 31, 1996 due to $819 million in scheduled
maturities, partially offset by $84 million of trust preferred securities issued
in exchange for Series V preferred stock.
ASSET-LIABILITY MANAGEMENT
The goal of asset-liability management is to ensure that liquidity,
capital and market risk are prudently managed. Asset-liability management is
governed by policies reviewed and approved annually by the corporation's
Board of Directors (Board). The Board delegates responsibility for
asset-liability management to the corporate Asset-Liability Management
Committee (ALCO). ALCO sets strategic directives that guide the day-to-day
asset-liability management activities of the corporation. ALCO also reviews
and approves all major funding, capital and market risk-management programs.
Interest-Rate Risk
Interest-rate risk is the sensitivity of income to variations in
interest rates over both short-term and long-term time horizons. The primary
goal of interest-rate risk management is to control this risk within limits
approved by the Board and narrower guidelines approved by ALCO. These limits
and guidelines reflect the corporation's tolerance for interest-rate risk.
The corporation attempts to control interest-rate risk by identifying
exposures, quantifying and hedging them. The corporation quantifies its
interest-rate risk exposures using sophisticated simulation and valuation
models, as well as simpler gap analyses. The corporation manages its
interest-rate exposures using a combination of on- and off-balance sheet
instruments, primarily fixed-rate portfolio securities, interest-rate swaps
and options.
The corporation uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a relatively short (i.e.,
greater than 2 year) time horizon. Simulation analysis involves projecting
future interest income and expense from the corporation's assets,
liabilities, and off-balance sheet positions under various scenarios.
The corporation's limits on interest-rate risk specify that if interest
rates were to shift immediately up or down 200 basis points, estimated net
interest income for the next 12 months should decline by less than 7.5%. The
following table reflects the corporation's estimated exposure, as a
percentage of estimated net interest income for the next 12 months, assuming
an immediate shift in interest rates:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Rate Change Estimated Exposure as a % of
(Basis Points) Net Interest Income
- -------------------------------------------------------------------
<S> <C>
+200 2.6%
-200 (3.6%)
- -------------------------------------------------------------------
</TABLE>
17
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The corporation uses valuation analysis to provide insight into the
exposure of earnings and equity to changes in interest rates over a
relatively long (i.e., greater than 2 year) time horizon. Valuation analysis
involves projecting future cash flows from the corporation's assets,
liabilities and off-balance sheet positions and then discounting such cash
flows at appropriate interest rates. The corporation's economic value of
equity is the estimated net present value of its assets, liabilities and
off-balance sheet positions. The interest sensitivity of economic value of
equity is a measure of the sensitivity of long-term earnings.
The corporation's limits on interest-rate risk specify that if interest
rates were to shift immediately up or down 200 basis points, the estimated
economic value of equity should decline by less than 10%. The following table
reflects the corporation's estimated exposure as a percentage of estimated
economic value of equity assuming an immediate shift in interest rates:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Rate Change Estimated Exposure as a
(Basis Points) % of Economic Value
- -------------------------------------------------------------------------
<S> <C>
+200 (1.2)%
-200 (7.6)%
- -------------------------------------------------------------------------
</TABLE>
Interest-rate gap analysis provides a static view of the maturity and
repricing characteristics of the on- and off-balance sheet positions. The
interest-rate gap analysis is prepared by scheduling all assets, liabilities
and off-balance sheet positions according to scheduled repricing or maturity.
Interest-rate gap analysis can be viewed as a short-hand complement to
simulation and valuation analysis.
The corporation's limits on interest-rate risk specify that the
cumulative one-year gap should be less than 10% of total assets. As of
September 30, 1997, the estimated exposure was 2.9% asset-sensitive.
INTEREST-RATE GAP ANALYSIS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Repricing Within
- -----------------------------------------------------------------------------------------------------------------------
September 30, 1997 3 months 4 to 12 12 to 24 2 to 5 After 5
Dollars in millions by repricing date or less months months years Years Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total assets $48,028 $8,166 $5,248 $8,997 $13,136 $83,575
Total liabilities and stockholders' equity (33,600) (13,220) (9,719) (6,809) (20,227) (83,575)
Net off-balance sheet (8,741) 1,824 2,980 3,442 495
- ----------------------------------------------------------------------------------------------------------------------
Periodic gap 5,687 (3,230) (1,491) 5,630 (6,596) --
Cumulative gap 5,687 2,457 966 6,596 -- --
- ----------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets
at September 30, 1997 6.8% 2.9% 1.2% 7.9%
- ----------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets
at June 30, 1997 6.0% (0.2)% 0.5% 6.9%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The most significant factors affecting the interest rate risk position
in the third quarter were a shift in the mix of earning assets, which became
more sensitive to interest rate changes, and an increase in longer term
deposit balances. In its management of these and other factors influencing
the current environment, the corporation has attempted to maintain a
moderately asset sensitive position.
18
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Risk-Management Instrument Analysis
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted Average
Assets/ Average Rate
September 30, 1997 Notional Liabilities Maturity Fair -------------------
Dollars in millions Value Hedged (Years) Value Receive Pay
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps:
Receive fixed/pay variable $6,665 Variable rate loans
626 Fixed rate deposits
850 Escrow deposits
595 Long-term debt
175 Short-term borrowings
-------
8,911 2.6 $(3) 7.20% 6.96%
- ----------------------------------------------------------------------------------------------------------------
Basis swaps 2,729 Deposits
30 Long-term debt
-------
2,759 1.5 -- 5.80 5.69
- ----------------------------------------------------------------------------------------------------------------
Interest-rate floors-purchased 24,022 Mortgage servicing rights 3.7 88 --(a) --(a)
Interest-rate caps-purchased 4,309 Mortgage servicing rights 3.1 14 --(a) --(a)
Interest-rate caps-sold 4,309 Mortgage servicing rights 3.1 (50) --(a) --(a)
Call options-purchased 90 Mortgage servicing rights 0.3 1 -- --
- ----------------------------------------------------------------------------------------------------------------
Total risk-management instruments $44,400 3.2 $50 6.87% 6.66%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The mortgage-banking risk-management interest-rate floors-purchased,
caps-purchased and caps-sold have weighted average strike rates of
5.38%, 7.69%, and 6.41%, respectively.
Fleet uses derivative instruments primarily to manage interest-rate risk
associated with interest-earning assets and interest-bearing liabilities, as
well as prepayment risk associated with the corporation's mortgage servicing
portfolio, within management guidelines designed to limit risk to the
corporation's earnings. At September 30, 1997, derivative instruments
totaling $44.4 billion (notional amount) were being used for interest-rate
and mortgage-banking risk-management purposes.
At September 30, 1997, the corporation had net deferred income of $23.8
million relating to terminated interest-rate swaps, which is being amortized
over the remaining life of the underlying interest-rate contracts of
approximately 5 years.
Risk management instruments are used to protect net interest margin,
which would otherwise be interest rate sensitive due to the generally faster
repricing of assets than liabilities.
To mitigate the earnings risk of declining short-term interest rates,
the corporation uses interest rate swaps. In these swaps, the corporation
normally receives a fixed rate but pays a floating rate, such as LIBOR or
Prime. These instruments are therefore structured to enhance net interest
margin when interest rates decline, mitigating the margin pressure due to the
faster repricing of loans than deposits.
Risk-management instruments are also used to protect the value of the
corporation's mortgage banking assets, particularly MSRs, which are very
interest-rate sensitive due to the mortgage borrower's option to prepay the
mortgage loan.
To mitigate the prepayment risk of declining long-term interest rates,
higher than expected mortgage prepayments and a potential impairment of MSRs,
the corporation mainly uses combinations of purchased interest-rate floors
together with purchased and sold interest-rate caps with strike rates tied to
yields on the 3-, 5- and 10-year "constant maturity" Treasury notes.
Combinations of these instruments result in a net purchased option position.
At September 30, 1997, the corporation had approximately $24.0 billion of
purchased interest-rate floor agreements outstanding in combination with $4.3
billion of purchased and sold interest-rate cap agreements. The corporation
also buys and sells call option contracts on long-term U.S. Treasury
securities. These instruments, when combined, are structured such that they
gain value as interest rates decline, mitigating the impairment of MSRs.
These risk-management instruments are designated as hedges. Changes in
the value are recorded as adjustments to the carrying value of the MSRs. At
September 30, 1997, net hedge gains of $15.0 million have been deferred and
recorded as adjustments to the carrying value of MSRs. Deferred hedge gains
include $32.1 million of realized hedge losses related to the termination of
certain risk management instruments. Amounts paid for interest-rate contracts
are amortized over the life of the contracts and are included as a component
of MSR amortization. At September 30, 1997, the carrying value and fair value
of the corporation's MSRs were $1.8 billion and $2.0 billion, respectively.
19
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risk-Management Instrument Activity
The risk-management instrument activity for the nine months ended
September 30, 1997 is summarized in the following table (all amounts are
notional amounts):
<TABLE>
<CAPTION>
Risk-Management Instrument Activity
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-Rate Swaps Interest-Rate Options
----------------------------------- ---------------------------------------------------------
Call Call
Nine months ended Receive- Pay- Index- Floors Caps Caps Options Options
Dollars in millions Fixed Fixed Basis Amortizing Other Purchased Purchased Sold Purchased Sold Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Balance at December 31,
1996 $11,055 $ 4 $3,823 $ 11 $112 $15,911 $2,515 $2,515 $1,276 $225 $37,447
Additions 125 -- -- -- -- 8,111 2,441 2,441 1,385 -- 14,503
Maturities (2,269) -- -- (11) (112) -- -- -- (1,235) -- (3,627)
Terminations -- (4) (1,064) -- -- -- (647) (647) (1,336) (225) (3,923)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30,
1997 $ 8,911 $ -- $2,759 $ -- $ -- $24,022 $4,309 $4,309 $ 90 $ -- $44,400
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first nine months of 1997 there was a net increase of
approximately $7.0 billion of risk-management instruments as the corporation
expanded its hedge program for mortgage servicing rights in anticipation that
a lower-rate environment would cause increased prepayments.
The maturities of the risk-management instruments are shown in the
following table:
<TABLE>
<CAPTION>
Maturities of the Risk-Management Instruments
- ----------------------------------------------------------------------------------------------------------------------------------
September 30, 1997
Dollars in millions Within 1 Year 1 to 2 Years 2 to 3 Years 3 to 4 Years 4 to 5 Years After 5 Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Interest rate swaps
Receive-fixed $1,710 $2,975 $1,996 $ 285 $1,150 $ 795 $ 8,911
Basis 30 2,729 -- -- -- -- 2,759
Interest-rate floors-
purchased -- 450 8,677 2,395 12,000 500 24,022
Interest-rate caps-
purchased -- 225 1,633 1,783 668 -- 4,309
Interest-rate caps-sold -- 225 1,633 1,783 668 -- 4,309
Call options-purchased 90 -- -- -- -- -- 90
- ----------------------------------------------------------------------------------------------------------------------------------
Total risk-management
instruments $1,830 $6,604 $13,939 $6,246 $14,486 $1,295 $ 44,400
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Liquidity Risk
Liquidity risk-management's objective is to assure the ability of the
corporation and its subsidiaries to meet their financial obligations. These
obligations are the withdrawal of deposits on demand or at their contractual
maturity, the repayment of borrowings as they mature and the ability to fund
new and existing loan commitments and to take advantage of business
opportunities. Liquidity is composed of the maintenance of a strong base of
core customer funds, maturing short-term assets, the ability to sell
marketable securities, committed lines of credit and access to capital
markets. Increasingly, liquidity is enhanced through the securitization of
consumer asset receivables. Liquidity at Fleet is measured and monitored
daily, allowing management to better understand and react to balance sheet
trends. ALCO is responsible for implementing the Board's policies and
guidelines governing liquidity.
The strength of Fleet's liquidity position is a result of its base of
core customer deposits. These core deposits are supplemented by wholesale
funding sources in the national and international capital markets, as well as
from direct customer contacts. Wholesale funding sources include large
certificates of deposit, foreign branch deposits, federal funds,
collateralized borrowings and a $4 billion bank note program.
20
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At September 30, 1997 and December 31, 1996, the corporation had a
commercial paper outstanding of $778 million and $676 million, respectively.
The corporation has a backup line of credit to ensure that funding is not
interrupted if commercial paper is not available. The total amount of funds
available under this agreement was $1 billion at September 30, 1997, with no
outstanding balance under this line of credit. Fleet has shelf registration
statements that provide for the issuance of common and preferred stock,
senior or subordinated debt securities and other securities with total
amounts of funds available of approximately $833.4 million at September 30,
1997. On October 6, 1997, the corporation filed a $2 billion universal shelf
registration statement, which became effective on October 24, 1997 giving a
combined availability of $2.8 billion.
CAPITAL
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Sept. 30, June 30, Sept. 30,
Dollars in millions 1997 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-adjusted assets $81,499 $80,334 $80,036
Tier 1 risk-based capital
(4% minimum) 7.13% 7.21% 7.06%
Total risk-based capital
(8% minimum) 10.79 10.80 10.82
Leverage ratio
(4% minimum) 7.24 7.19 7.19
Common equity-to-assets 7.60 7.41 8.34
Total equity-to-assets 8.60 8.42 6.48
Tangible common equity-
to-assets 5.68 5.59 5.30
Tangible total equity-to-
assets 6.70 6.61 6.48
- ------------------------------------------------------------------------------
</TABLE>
At September 30, 1997, the corporation exceeded all regulatory required
minimum capital ratios as Fleet's Tier 1 and Total risk based capital ratios
were 7.13 percent and 10.79 percent, respectively, compared with 7.21 percent
and 10.80 percent, respectively, at June 30, 1997. The leverage ratio, a
measure of Tier 1 capital to average quarterly assets, was 7.24 percent at
September 30, 1997 compared with 7.19 percent at June 30, 1997.
RECENT ACCOUNTING DEVELOPMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share,"
which will be effective for financial statements for both interim and annual
periods ending December 31, 1997. Primary EPS will be replaced with basic EPS
and fully diluted EPS will be replaced with diluted EPS. Primary EPS includes
the dilutive effect of common stock equivalents; basic EPS will exclude all
common stock equivalents. Diluted EPS is very similar to fully diluted EPS.
The statement also requires a reconciliation of basic EPS to diluted EPS.
For the quarter ended September 30, 1997, basic and diluted EPS, as
calculated under the new statement, are $1.25 and $1.20, respectively,
compared to the reported EPS of $1.20 for both fully diluted and primary
earnings per share.
Also in February, 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which will be effective for 1997
financial statements. The corporation's disclosures currently comply with the
provisions of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and displaying
comprehensive income, which is defined as all changes to equity except
investments by and distributions to shareholders. Net income is a component
of comprehensive income, with all other components referred to in the
aggregate as other comprehensive income. This statement is effective for 1998
financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes
standards for reporting information about operating segments. An operating
segment is defined as a component of a business for which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and evaluate performance.
This statement requires a company to disclose certain income statement
and balance sheet information by operating segment, as well as provide a
reconciliation of operating segment information to the company's consolidated
balances. This statement is effective for 1998 annual financial statements.
21
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q contains statements relating to future
results of the corporation (including certain projections and business
trends) that are considered "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and
uncertainties, including but not limited to changes in political and economic
conditions, interest rate fluctuations, competitive product and pricing
pressures within the corporation's market, equity and bond market
fluctuations, personal and corporate customers' bankruptcies, inflation,
acquisitions and integrations of acquired businesses, as well as other risks
and uncertainties detailed from time to time in the filings of the
corporation with the Securities and Exchange Commission.
22
<PAGE>
PART II. OTHER INFORMATION
PART II. ITEM 6.
(a) Exhibit Index Exhibit Number
Exhibit
Number
- -------
4* Instruments defining the rights of security holders, including
Debentures
11 Statement re: computation of per share earnings
12 Statement re: computation of ratios
27 Financial data schedule
* Registrant has no instruments defining the rights of holders of equity or
debt securities where the amount of securities authorized thereunder exceeds
10% of the total assets of the registrant and its subsidiaries on a
consolidated basis. Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
** Management contract, or compensatory plan or arrangement.
(b) Two Form 8-K's were filed during the period from July 1, 1997 to the
date of the filing of this report.
- Current Report on Form 8-K dated July 16, 1997 announcing second
quarter earnings.
- Current Report on Form 8-K dated October 15, 1997 announcing third
quarter earnings.
23
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fleet Financial Group, Inc.
---------------------------
(Registrant)
/s/ Eugene M. McQuade
------------------------
Eugene M. McQuade
Vice Chairman
Chief Financial Officer
/s/ Robert C. Lamb, Jr.
-------------------------
Robert C. Lamb, Jr.
Controller
Chief Accounting Officer
DATE: November 14, 1997
24
<PAGE>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding.......................... 250,085,204 250,085,204 262,603,407 262,603,407
Additional shares due to:
Stock options.................................... 4,322,096 4,328,283 1,946,598 2,287,079
Warrants......................................... 5,589,023 5,589,023 3,799,826 3,921,910
------------- ------------- ------------- -------------
Total equivalent shares............................. 259,996,323 260,002,510 268,349,831 268,812,396
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share
Net income.......................................... $ 329,219 $ 329,219 $ 294,942 $ 294,942
Less: Preferred stock dividends..................... 15,974 15,974 18,977 18,977
Premium paid on redemption of Series III
preferred stock.............................. -- -- 2,630 2,630
------------- ------------- ------------- -------------
Adjusted net income................................. $ 313,245 $ 313,245 $ 273,335 $ 273,335
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total equivalent shares............................. 259,996,323 260,002,510 268,349,831 268,812,396
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share on net income.................... $ 1.20 $ 1.20 $ 1.02 $ 1.02
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<PAGE>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding.......................... 253,978,291 253,978,291 262,767,969 262,767,969
Additional shares due to:
Stock options.................................... 3,982,989 4,470,706 2,118,316 2,569,999
Warrants......................................... 5,333,810 5,573,825 3,769,752 3,921,910
------------- ------------- ------------- -------------
Total equivalent shares............................. 263,295,090 264,022,822 268,656,037 269,259,878
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share
Net income.......................................... $ 968,086 $ 968,086 $ 836,471 $ 836,471
Less: Preferred stock dividends..................... 49,148 49,148 50,829 50,829
Premium paid on redemption of Series III
preferred stock............................. -- -- 2,630 2,630
------------- ------------- ------------- -------------
Adjusted net income................................. $ 918,938 $ 918,938 $ 783,012 $ 783,012
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total equivalent shares............................. 263,295,090 264,022,822 268,656,037 269,259,878
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share on net income.................... $ 3.49 $ 3.48 $ 2.91 $ 2.91
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<PAGE>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS
EXCLUDING INTEREST ON DEPOSITS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31
SEPTEMBER 30 SEPTEMBER 30 -------------------------------------------------------------------
1997 1997 1996 1995 1994 1993 1992
---------- ------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes,
extraordinary credit and
cumulative effect of
change in method
of accounting............. $ 554,333 $ 1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed
funds.............. 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent........ 11,842 36,386 52,264 49,921 50,597 52,254 49,197
(b) Preferred dividends... 26,897 82,686 117,676 62,064 48,859 60,365 65,658
---------- ------------ ------------ ------------ ------------ ------------ ------------
(c) Adjusted earnings..... $ 743,729 $ 2,163,959 $ 2,785,594 $ 2,424,339 $ 2,469,490 $ 1,958,829 $ 1,370,654
---------- ------------ ------------ ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges and preferred
dividends................ $ 189,396 $ 535,259 $ 854,996 $ 1,390,583 $ 1,089,851 $ 864,373 $ 753,285
---------- ------------ ------------ ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/fixed
charges.................. 3.93x 4.04x 3.26x 1.74x 2.27x 2.27x 1.82x
---------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
INCLUDING INTEREST ON DEPOSITS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31
SEPTEMBER 30 SEPTEMBER 30 ------------------------------------------------------
1997 1997 1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes, extra-ordinary
credit and cumulative
effect of change in
method of accounting...$ 554,333 $1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed
funds.......... 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent..... 11,842 36,386 52,264 49,921 50,597 52,254 49,197
(3) Interest on
deposits....... 409,844 1,233,258 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804
(b) Preferred
dividends.......... 26,897 82,686 117,676 62,064 48,859 60,365 65,658
------------- ------------ ------------ ------------ ------------ ------------ ------------
(c) Adjusted earnings.... $ 1,153,573 $3,397,217 $ 4,539,317 $ 4,150,742 $ 3,640,022 $ 3,123,875 $ 3,069,458
------------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges and
preferred dividends..... $ 599,240 $1,768,517 $ 2,608,719 $ 3,116,986 $ 2,260,383 $ 2,029,419 $ 2,452,089
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/ fixed
charges................ 1.93x 1.92x 1.74x 1.33x 1.61x 1.54x 1.25x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------ ------------ --------------------------------------------------------------------
1997 1997 1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes, extraordinary
credit and cumulative
effect of change in
method of
accounting.......... $ 554,333 $1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed
funds.......... 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent.... 11,842 36,386 52,264 49,921 50,597 52,254 49,197
------------- ------------ ------------ ------------ ------------ ------------ ------------
(b) Adjusted earnings. $ 716,832 $2,081,273 $ 2,667,918 $ 2,362,275 $ 2,420,631 $ 1,898,464 $ 1,304,996
------------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges........... $ 162,499 $ 452,573 $ 737,320 $ 1,328,519 $ 1,040,992 $ 804,008 $ 687,627
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/fixed
charges............... 4.41x 4.60x 3.62x 1.78x 2.33x 2.36x 1.90x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
INCLUDING INTEREST ON DEPOSITS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------- ------------ --------------------------------------------------------------------
1997 1997 1996 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income
taxes, extraordinary
credit and cumulative
effect of change in
method of
accounting.......... $ 554,333 $1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed
funds........... 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent..... 11,842 36,386 52,264 49,921 50,597 52,254 49,197
(3) Interest on
deposits........ 409,844 1,233,258 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804
(b) Adjusted earnings.. $ 1,126,676 $3,314,531 $ 4,421,641 $ 4,088,678 $ 3,591,163 $ 3,063,510 $ 3,003,800
------------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges............ $ 572,343 $1,685,831 $ 2,491,043 $ 3,054,922 $ 2,211,524 $ 1,969,054 $ 2,386,431
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/fixed
charges................ 1.97x 1.97x 1.78x 1.34x 1.62x 1.56x 1.26x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,042
<INT-BEARING-DEPOSITS> 150
<FED-FUNDS-SOLD> 1,371
<TRADING-ASSETS> 51
<INVESTMENTS-HELD-FOR-SALE> 7,511
<INVESTMENTS-CARRYING> 1,259
<INVESTMENTS-MARKET> 1,264
<LOANS> 59,264
<ALLOWANCE> (1,432)
<TOTAL-ASSETS> 83,575
<DEPOSITS> 62,907
<SHORT-TERM> 6,524
<LIABILITIES-OTHER> 2,498
<LONG-TERM> 4,459
0
835
<COMMON> 3,115
<OTHER-SE> 3,237
<TOTAL-LIABILITIES-AND-EQUITY> 83,575
<INTEREST-LOAN> 3,925
<INTEREST-INVEST> 440
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,365
<INTEREST-DEPOSIT> 1,233
<INTEREST-EXPENSE> 1,649
<INTEREST-INCOME-NET> 2,716
<LOAN-LOSSES> 233
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 2,584
<INCOME-PRETAX> 1,629
<INCOME-PRE-EXTRAORDINARY> 1,629
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 968
<EPS-PRIMARY> 3.49
<EPS-DILUTED> 3.48
<YIELD-ACTUAL> 5.21
<LOANS-NON> 455
<LOANS-PAST> 236
<LOANS-TROUBLED> 26
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,488
<CHARGE-OFFS> 386
<RECOVERIES> 101
<ALLOWANCE-CLOSE> 1,432
<ALLOWANCE-DOMESTIC> 1,432
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 272
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,332
<INT-BEARING-DEPOSITS> 35
<FED-FUNDS-SOLD> 32
<TRADING-ASSETS> 74
<INVESTMENTS-HELD-FOR-SALE> 10,456
<INVESTMENTS-CARRYING> 1,277
<INVESTMENTS-MARKET> 1,269
<LOANS> 60,086
<ALLOWANCE> 1,548
<TOTAL-ASSETS> 87,194
<DEPOSITS> 67,551
<SHORT-TERM> 5,117
<LIABILITIES-OTHER> 2,333
<LONG-TERM> 4,923
0
1,001
<COMMON> 3,145
<OTHER-SE> 3,122
<TOTAL-LIABILITIES-AND-EQUITY> 7,268
<INTEREST-LOAN> 3,776
<INTEREST-INVEST> 577
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,353
<INTEREST-DEPOSIT> 1,299
<INTEREST-EXPENSE> 1,850
<INTEREST-INCOME-NET> 2,503
<LOAN-LOSSES> 148
<SECURITIES-GAINS> 38
<EXPENSE-OTHER> 2,416
<INCOME-PRETAX> 1,423
<INCOME-PRE-EXTRAORDINARY> 836
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 836
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.91
<YIELD-ACTUAL> 4.75
<LOANS-NON> 710
<LOANS-PAST> 215
<LOANS-TROUBLED> 39
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,321
<CHARGE-OFFS> 335
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 1,548
<ALLOWANCE-DOMESTIC> 1,548
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 243
</TABLE>
