<PAGE>
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 June 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
incorporation or organization) Identification No.)
One Federal Street 02110
Boston, Massachusetts (Zip Code)
(Address of principal executive office)
(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 July
31, 1997 was 249,990,168.
<PAGE>
FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996 3
Six Months Ended June 30, 1997 and 1996 4
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996 5
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1997 and 1996 6
Consolidated Statements of Cash Flows
Six Months Ended June 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 10
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 June 30
Dollars in millions, except per share amounts 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans and leases $1,307 $1,283
Interest on securities 144 194
- -------------------------------------------------------------------------------------------------
Total interest income 1,451 1,477
- -------------------------------------------------------------------------------------------------
Interest expense:
Deposits 407 429
Short-term borrowings 54 89
Long-term debt 83 104
- -------------------------------------------------------------------------------------------------
Total interest expense 544 622
- -------------------------------------------------------------------------------------------------
Net interest income 907 855
- -------------------------------------------------------------------------------------------------
Provision for credit losses 83 48
- -------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 824 807
- -------------------------------------------------------------------------------------------------
Noninterest income:
Service charges, fees and commissions 159 130
Investment services revenue 103 93
Mortgage banking revenue, net 91 85
Student loan servicing fees 26 22
Venture capital revenue 10 26
Securities gains 4 20
Net gains on sales of business units 175 --
Gain from branch divestitures -- 32
Other 121 93
- -------------------------------------------------------------------------------------------------
Total noninterest income 689 501
- -------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 406 411
Occupancy 67 75
Equipment 67 68
Intangible asset amortization 39 30
Legal and other professional 25 35
Marketing 20 24
Telephone 19 23
Other 309 171
- -------------------------------------------------------------------------------------------------
Total noninterest expense 952 837
- -------------------------------------------------------------------------------------------------
Income before income taxes 561 471
Applicable income taxes 233 193
- -------------------------------------------------------------------------------------------------
Net income $ 328 $ 278
- -------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 312 $ 258
- -------------------------------------------------------------------------------------------------
Fully diluted weighted average common shares outstanding 263,090,137 269,463,179
Fully diluted earnings per share $ 1.19 $.96
Dividends declared $ .45 $.43
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
3
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
For the six months ended June 30
Dollars in millions, except per share amounts 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans and leases $2,594 $2,427
Interest on securities 295 387
- -------------------------------------------------------------------------------------------------
Total interest income 2,889 2,814
- -------------------------------------------------------------------------------------------------
Interest expense:
Deposits 823 831
Short-term borrowings 95 196
Long-term debt 171 208
- -------------------------------------------------------------------------------------------------
Total interest expense 1,089 1,235
- -------------------------------------------------------------------------------------------------
Net interest income 1,800 1,579
- -------------------------------------------------------------------------------------------------
Provision for credit losses 148 84
- -------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,652 1,495
- -------------------------------------------------------------------------------------------------
Noninterest income:
Service charges, fees and commissions 316 238
Investment services revenue 206 181
Mortgage banking revenue, net 194 167
Student loan servicing fees 52 44
Venture capital revenue 28 53
Securities gains 18 38
Net gains on sales of business units 175 --
Gain from branch divestitures -- 92
Other 226 166
- -------------------------------------------------------------------------------------------------
Total noninterest income 1,215 979
- -------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 831 758
Occupancy 141 136
Equipment 137 125
Intangible asset amortization 79 56
Legal and other professional 53 58
Telephone 39 39
Marketing 38 45
Other 475 336
- -------------------------------------------------------------------------------------------------
Total noninterest expense 1,793 1,553
- -------------------------------------------------------------------------------------------------
Income before income taxes 1,074 921
Applicable income taxes 435 379
- -------------------------------------------------------------------------------------------------
Net income $ 639 $ 542
- -------------------------------------------------------------------------------------------------
Net income applicable to common shares $ 606 $ 510
- -------------------------------------------------------------------------------------------------
Fully diluted weighted average common shares outstanding 265,773,053 269,275,176
Fully diluted earnings per share $ 2.28 $ 1.89
Dividends declared $ .90 $ .86
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
4
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
June 30, December 31,
Dollars in millions, except share amounts 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash, due from banks and interest-bearing deposits $ 5,837 $ 7,243
Federal funds sold and securities purchased under agreements to
resell 220 1,772
Securities available for sale 7,665 7,503
Securities held to maturity (market value: $1,044 and $1,172) 1,039 1,177
Loans and leases 58,186 58,844
Reserve for credit losses (1,443) (1,488)
- ----------------------------------------------------------------------------------------------
Net loans and leases 56,743 57,356
- ----------------------------------------------------------------------------------------------
Mortgage servicing rights 1,841 1,566
Mortgages held for resale 1,000 1,560
Premises and equipment 1,254 1,347
Intangible assets 1,609 1,699
Indirect auto loans held for sale 2,170 --
Other assets 4,023 4,295
- ----------------------------------------------------------------------------------------------
Total assets $ 83,401 $ 85,518
- ----------------------------------------------------------------------------------------------
Liabilities
Deposits:
Demand $ 16,471 $ 17,903
Regular savings, NOW, money market 27,641 27,976
Time 19,117 21,192
- ----------------------------------------------------------------------------------------------
Total deposits 63,229 67,071
- ----------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to
repurchase 3,832 2,871
Other short-term borrowings 1,954 756
Accrued expenses and other liabilities 2,818 2,291
Long-term debt 4,550 5,114
- ----------------------------------------------------------------------------------------------
Total liabilities 76,383 78,103
- ----------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock 835 953
Common stock (shares issued: 263,240,419 in 1997 and 263,395,054 in
1996; shares outstanding: 250,988,418 in 1997 and 261,992,124 in
1996) 3 3
Common surplus 3,116 3,145
Retained earnings 3,721 3,342
Net unrealized gain on securities available for sale 25 31
Treasury stock, at cost (12,252,001 shares in 1997 and 1,402,930
shares in 1996) (682) (59)
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 7,018 7,415
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 83,401 $ 85,518
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
5
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Common Gain(Loss)
Six months ended June 30 Stock at on Securities
Dollars in millions, except share Preferred $.01 Common Retained Available Treasury
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 542 542
Cash dividends declared on common
stock ($0.86 per share) (226) (226)
Cash dividends declared on preferred
stock (32) (32)
Issuance of preferred stock 600 (15) 585
Common stock issued in connection
with:
Employee benefit and stock option
plans 36 (21) 16 31
Warrants 15 15
Adjustment of valuation reserve for
securities available for sale (96) (96)
Other, net 4 (43) (8) (10) (57)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $ 1,003 $ 3 $ 3,142 $ 3,023 $ (44) $ -- $ 7,127
- -----------------------------------------------------------------------------------------------------------------------------------
1997
- ----
Balance at December 31, 1996 $ 953 $ 3 $ 3,145 $ 3,342 $ 31 $ (59) $ 7,415
Net income 639 639
Cash dividends declared on common
stock ($0.90 per share) (229) (229)
Cash dividends declared on preferred
stock (33) (33)
Redemption of preferred stock (34) (34)
Common stock issued in connection
with:
Employee benefit and stock option
plans (27) 2 70 45
Treasury stock purchased (693) (693)
Adjustment of valuation reserve for
securities available for sale (6) (6)
Exchange of Series V preferred stock
for trust preferred securities (84) (84)
Other, net (2) (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ 835 $ 3 $ 3,116 $ 3,721 $ 25 $ (682) $ 7,018
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements.
6
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Six months ended June 30
Dollars in millions 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 639 $ 542
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 106 90
Amortization of mortgage servicing rights and other intangible assets 195 145
Provision for credit losses 148 84
Deferred income tax expense 156 122
Securities gains (18) (38)
Gain from branch divestitures -- (92)
Net gain on sale of business units (175) --
Originations and purchases of mortgages held for resale (7,568) (10,367)
Proceeds from sales of mortgages held for resale 7,691 11,332
Increase in accrued receivables, net (164) (127)
Increase in accrued liabilities, net 553 7
Other, net (163) 931
- -------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 1,400 2,629
- -------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of securities available for sale (1,790) (4,960)
Proceeds from maturities of securities available for sale 421 3,597
Proceeds from sales of securities available for sale 1,256 13,037
Purchases of securities held to maturity (560) (622)
Proceeds from maturities of securities held to maturity 759 504
Loans made to customers, nonbanking subsidiaries (1,171) (773)
Principal collected on loans made to customers, nonbanking subsidiaries 703 497
Net (increase) decrease in loans and leases, banking subsidiaries (1,317) 1,865
Net cash and cash equivalents received for businesses acquired -- 2,386
Net cash paid from divestiture of assets and liabilities -- (484)
Net cash received from sale of business units 748 --
Purchases of premises and equipment (75) (62)
Purchases of mortgage servicing rights (135) (146)
- -------------------------------------------------------------------------------------------------
Net cash flow (used) provided by investing activities (1,161) 14,839
- -------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Net decrease in deposits (3,842) (5,066)
Net increase (decrease) in short-term borrowings 2,159 (9,094)
Proceeds from issuance of long-term debt 97 446
Repayments of long-term debt (661) (1,669)
Proceeds from the issuance of common stock 45 46
Proceeds from the issuance of preferred stock -- 585
Repurchase and redemption of common stock and preferred stock (727) --
Cash dividends paid (268) (234)
- -------------------------------------------------------------------------------------------------
Net cash flow used by financing activities (3,197) (14,986)
- -------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,958) 2,482
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of the period 9,015 4,566
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the period $ 6,057 $ 7,048
- -------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Consolidated Financial Statements
7
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six months ended June 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. SALES OF BUSINESS UNITS
During the second quarter, the corporation recorded net gains totaling $175
million (pre-tax) on the sale of Option One, its nonconforming mortgage banking
subsidiary, the sale of its Corporate Trust division and the pending sale of its
Indirect Auto Lending portfolio, which the corporation entered into a definitive
agreement to sell during the second quarter.
NOTE 3. 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. In December
1996, the Financial Accounting Standards Board (FASB) issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of SFAS Statement No.
125," which delays for one year the effective date of the provisions of SFAS
Statement No. 125 relating to repurchase agreements, dollar-roll, securities
lending and similar transactions. The adoption of these statements has not had a
material impact on the corporation or its results of operations.
NOTE 4. DISCLOSURE OF DERIVATIVE
FINANCIAL INSTRUMENTS AND OTHER FINANCIAL INSTRUMENTS
In January 1997, the Securities and Exchange Commission amended regulations
to supplement existing disclosure requirements about a registrant's accounting
policies for certain derivative instruments. These regulations also require
quantitative and qualitative disclosure pertaining to market risk inherent in
derivative financial instruments and other financial instruments.
The accounting policy requirements are effective for the current quarter.
However, if a registrant's 1996 Form 10-K complies with the new disclosure
requirements and the registrant's policies have not changed, no additional
disclosures are required in the current quarter. The corporation's accounting
policy disclosures in the 1996 Form 10-K meet the new requirements and, since
there have been no changes to these policies, no additional accounting policy
disclosures are provided herein.
The quantitative and qualitative disclosures about market risk are
required to be included in Fleet's 1997 Form 10-K.
8
<PAGE>
NOTE 5. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
Cash-Flow Disclosure
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Six months ended June 30
Dollars in millions 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosure for cash paid during the period for:
Interest expense $ 1,199 $ 1,179
Income taxes, net of refunds 121 164
- --------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing and financing activities:
Transfer of loans to foreclosed property and repossessed equipment 19 12
Securitization of residential loans -- 1,998
Reclassification of indirect auto loans to held for sale 2,170 --
Exchange of Series V preferred stock for trust preferred securities 84 --
Adjustment to unrealized loss on securities available for sale (6) (96)
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
- --------------------------------------------------------------------------------------------------
Divestitures:
Assets sold 541 1,773
Net cash received/(paid) for divestitures 748 (484)
Liabilities sold 24 2,349
- --------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERALL PERSPECTIVE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three months Six months
Dollars in millions, ended June 30 ended June 30
except per share data 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings
Net income $ 328 $ 278 $ 639 $ 542
Net interest income (FTE) (a) 916 863 1,818 1,595
- ----------------------------------------------------------------------------------------------------
Per Common Share
Fully diluted earnings $ 1.19 $ .96 $ 2.28 $ 1.89
Cash dividends declared .45 .43 .90 .86
Book value 24.64 23.25 24.64 23.25
- ----------------------------------------------------------------------------------------------------
Operating Ratios
Return on average assets 1.61% 1.32% 1.56% 1.36%
Return on common equity 20.24 17.20 19.52 17.09
Efficiency ratio 55.8 61.4 57.3 60.4
Equity to assets (period-end) 8.42 8.12 8.42 8.12
- ----------------------------------------------------------------------------------------------------
At June 30
Total assets $ 83,401 $ 87,728 $ 83,401 $ 87,728
Stockholders' equity 7,018 7,127 7,018 7,127
Nonperforming assets(b) 531 745 531 745
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) The FTE adjustment included in net interest income was $9 and $8 million for
the three months ended and $18 and $16 million for the six months ended June
30, 1997 and 1996, respectively.
(b) Nonperforming assets and related ratios at June 30, 1997 and 1996 do not
include $249 and $365 million, respectively, of nonperforming assets
classified as held for sale or accelerated disposition.
Fleet reported net income of $328 million, or $1.19 per fully diluted share,
for the quarter ended June 30, 1997, compared to $278 million, or $.96 per fully
diluted share, in the second quarter of 1996, an increase of 24%. Return on
average assets (ROA) and return on common equity (ROE) improved to 1.61% and
20.24%, respectively, for the second quarter of 1997, from 1.32% and 17.20%,
respectively, for the second quarter of 1996. Net income for the first six
months of 1997 was $639 million, an increase of $97 million from the first half
of 1996. Earnings per share were $2.28 for the first six months compared with
$1.89 earned in the first half of 1996. ROA and ROE for the first six months of
1997 were 1.56% and 19.52%, respectively, compared with 1.36% and 17.09%,
respectively, for the first half of 1996.
The improved results reflect the inclusion of NatWest Bank (NatWest) for
the entire period in 1997 compared to two months in 1996 and the culmination
of the Shawmut National Corporation (Shawmut) acquisition. The corporation
has experienced growth in its core revenue categories, including service
charges, fees and commissions, mortgage banking revenue, investment services
revenue and student loan servicing. Expense savings attributable to the
integration of the NatWest and Shawmut acquisitions also positively impacted
the second quarter. During the quarter, the corporation repurchased 5.0
million shares of common stock, bringing the 1997 shares repurchased to 11.9
million.
The second quarter of 1997 results include net gains totaling $175
million (pre-tax) on the sales of Option One, its nonconforming mortgage
banking subsidiary, and its Corporate Trust division and the pending sale of
its Indirect Auto Lending portfolio. Also, included in the second quarter
were $155 million of charges in the other noninterest expense category
pertaining primarily to the impairment of certain technology investments,
severance costs, and the settlement of a lawsuit, which are explained in more
detail on page 15.
10
<PAGE>
INCOME STATEMENT ANALYSIS
Net Interest Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Three Months Six Months
FTE Basis ended June 30 ended June 30
Dollars in millions 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 1,451 $ 1,477 $ 2,889 $ 2,814
Tax-equivalent adjustment 9 8 18 16
Interest expense 544 622 1,089 1,235
- --------------------------------------------------------------------------------------------------------
Net interest income $ 916 $ 863 $ 1,818 $ 1,595
- --------------------------------------------------------------------------------------------------------
</TABLE>
Net interest income on a fully taxable equivalent basis totaled $916
million for the quarter ended June 30, 1997, compared to $863 million for the
same period in 1996. The $53 million increase was principally related to a
full quarter of operations of the NatWest franchise, increased loan fee
amortization, and an increasing net interest margin due to a restructured
balance sheet.
Net Interest Margin and Interest-Rate Spread
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended June 30 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
FTE Basis Average Average
Dollars in millions Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $ 8,327 6.72% $11,481 6.32%
Loans and leases 59,027 8.67 55,935 8.58
Mortgages held for sale 1,444 7.91 2,190 7.79
Other 1,182 4.81 3,242 8.20
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 69,980 8.37 72,848 8.18
- ----------------------------------------------------------------------------------------------------------------------------
Deposits 47,616 3.43 47,414 3.65
Short-term borrowings 4,357 4.84 6,941 5.10
Long-term debt 4,611 7.33 5,871 7.10
- ----------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities 56,584 3.86 60,226 4.15
- ----------------------------------------------------------------------------------------------------------------------------
Interest-rate spread 4.51 4.03
Interest-free sources of funds 13,396 12,622
- ----------------------------------------------------------------------------------------------------------------------------
Total sources of funds $ 69,980 3.12% $72,848 3.42%
- ----------------------------------------------------------------------------------------------------------------------------
Net interest margin 5.25% 4.76%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net interest margin for the second quarter of 1997 was 5.25%, an
increase of almost 50 basis points from the second quarter of 1996. The increase
in net interest margin is primarily attributable to a more favorable mix of
interest-earning assets and interest-bearing liabilities as lower-yielding
average securities decreased $3.2 billion and higher-cost average short-term
borrowings decreased $2.6 billion coupled with increased loan fee amortization.
The securities were replaced by more favorable yielding loans.
Average loans and leases increased $3.1 billion to $59.0 billion for the
second quarter of 1997 when compared with the second quarter of 1996, due to
loan growth and the acquisition of NatWest on May 1, 1996. Average loans and
leases as a percentage of interest-earning assets has increased to 84.4% in the
second quarter of 1997 from 76.8% during the second quarter of 1996.
Other average interest earning assets decreased $2.1 billion from the second
quarter of 1996 to $1.2 billion. The second quarter of 1996 included all of the
Fleet Finance earning assets, which were sold during
11
<PAGE>
the third quarter of 1996, coupled with a lower level of money market
instruments during the second quarter of 1997.
Average interest-bearing deposits remained consistent at $47.6 billion in
the second quarter of 1997 compared to the second quarter of 1996. The net
interest rate paid on average deposits decreased to 3.43% for the second quarter
of 1997 compared to 3.65% for the same period of 1996. The decrease in cost of
deposits reflects a more advantageous mix of deposits, as well as an effort to
maintain lower cost, yet competitive deposit pricing.
The $2.6 billion decrease in average short-term borrowings is attributable
to the use of proceeds from the sales of securities to pay down short-term
borrowings. Also, the acquisition of NatWest enabled the corporation to replace
short-term borrowings with lower-cost core deposits.
The $1.3 billion decrease in long-term debt and 23 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 second quarter of 1997 remained consistent with the second
quarter of 1996 at 74 basis points and 73 basis points, respectively.
Noninterest Income
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges, fees and commissions $ 159 $ 130 $ 316 $ 238
Investment services revenue 103 93 206 181
Mortgage banking revenue, net 91 85 194 167
Student loan servicing fees 26 22 52 44
Venture capital revenue 10 26 28 53
Securities gains 4 20 18 38
Gain from branch divestitures -- 32 -- 92
Other noninterest income 121 93 226 166
- -------------------------------------------------------------------------------------------------------------
Total noninterest income before net gains on sales of business
units 514 501 1,040 979
Net gains on sales of business units 175 -- 175 --
- -------------------------------------------------------------------------------------------------------------
Total noninterest income $ 689 $ 501 $ 1,215 $ 979
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Total noninterest income, excluding $175 million of net gains on sales of
business units, for the second quarter of 1997 totaled $514 million compared to
$501 million for the same period of 1996. Excluding the $32 million gain from
branch divestitures in the second quarter of 1996, noninterest income increased
by $45 million, or 10%, over the second quarter of 1996. Increases were noted in
nearly all core revenue categories.
<TABLE>
<CAPTION>
Service Charges, Fees and Commissions
- ------------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash management fees $ 51 $ 45 $102 $ 84
Service charges on deposits 34 23 66 46
Return check charges 32 27 67 45
Electronic banking fees 22 18 41 30
Other 20 17 40 33
- ------------------------------------------------------------------------------------------------------------------------------
Total service charges, fees and commissions $159 $130 $316 $238
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Service charges, fees and commissions totaled $159 million for the second
quarter of 1997 compared to $130 million for the second quarter of 1996, an
increase of 22%. Notable increases were realized in all components, partially as
a result of the NatWest acquisition, as well as overall growth from various fee
enhancement programs.
Mortgage Banking Revenue, Net
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
-------------------- --------------------
Dollars in millions 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loan servicing revenue $ 114 $ 97 $ 225 $ 190
Mortgage production revenue 35 36 75 62
Gains on sales of mortgage servicing -- -- 10 4
Mortgage servicing rights amortization (58) (48) (116) (89)
- --------------------------------------------------------------------------------------------------------------
Total mortgage banking revenue, net $ 91 $ 85 $ 194 $ 167
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Net mortgage banking revenue of $91 million in the second quarter of 1997
increased $6 million over the $85 million recorded in the same period of 1996.
Loan servicing revenue represents fees received for servicing residential
mortgage loans. The $17 million, or 18%, increase in loan servicing revenue is
attributable to the corporation receiving a higher servicing spread as well as
the $3 billion growth in the servicing portfolio from $118 billion at June 30,
1996 to $121 billion at June 30, 1997. As previously discussed, the corporation
sold Option One during the second quarter of 1997 which contributed $20 million
of mortgage banking revenue, principally mortgage production revenue, during the
second quarter of 1997 compared to $10 million in the second quarter of 1996.
Mortgage servicing rights (MSR) amortization increased $10 million to $58
million for the second quarter of 1997 as compared to $48 million for the same
period of 1996. The level of amortization increased due to the growth in the
servicing portfolio as well as amortization of purchased servicing rights with a
higher servicing spread. At June 30, 1997, the carrying value and fair value of
the corporation's MSRs were $1.8 billion and $2.0 billion, respectively.
Investment Services Revenue
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Private clients group $ 49 $45 $ 97 $ 89
Retirement plan services 15 15 31 30
Retail investments 15 13 32 22
Not-for-profit institutional services 12 10 23 20
Corporate trust 4 4 7 8
Other 8 6 16 12
- -----------------------------------------------------------------------------------------------------------------
Total investment services revenue $103 $93 $206 $181
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
Investment services revenue increased 11% in the second quarter of 1997 to
$103 million compared to the second quarter of 1996. The increase was due to
continued strong sales of mutual funds and annuity products and an increase in
the overall value of assets under management and administration due to growth
and a strong equity market. Assets under management increased from $45 billion
at June 30, 1996 to $52 billion at June 30, 1997. As previously discussed, the
corporation sold its Corporate Trust unit during the second quarter of 1997
which generated $4 million and $7 million of revenue during the second quarter
and first half of 1997, respectively.
The $4 million increase in student loan servicing fees from 1996 to 1997 is
attributable to increased levels of servicing and originations over the prior
year period at AFSA Data Corporation (AFSA), the corporation's student loan
servicing subsidiary. AFSA services 4.8 million accounts nationwide and is the
largest third-party student loan servicer in the United States, with over $28
billion in loans serviced.
Venture capital revenue decreased $16 million to $10 million for the quarter
ended June 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 second 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 state
of the economy and equity markets. Thus, the likelihood of such gains in the
future cannot be predicted.
Other noninterest income increased $28 million to $121 million due primarily
to higher corporate finance fees, trading and foreign exchange gains and lease
income.
During the second quarter, the corporation recorded net gains totaling
$175 million (pre-tax) on the sales of certain business units, as previously
discussed. The estimated reduction to the corporation's net income resulting
from these sales is approximately 2.5%.
14
<PAGE>
As a condition to the regulatory approval of the Shawmut merger, the
corporation divested certain branches, loans and deposits. The corporation
realized $32 million of gains from these divestitures during the second quarter
of 1996.
Noninterest Expense
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee compensation and benefits $406 $411 $ 831 $ 758
Occupancy 67 75 141 136
Equipment 67 68 137 125
Intangible asset amortization 39 30 79 56
Legal and other professional 25 35 53 58
Marketing 20 24 38 45
Telephone 19 23 39 39
Printing and mailing 18 17 37 34
Other 291 154 438 302
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense $952 $837 $1,793 $1,553
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Total noninterest expense for the second quarter of 1997 totaled $952
million compared to $837 million for the same period of 1996. The increase of
$115 million over the second quarter of 1996 was due primarily to certain
charges taken in this quarter relating to the impairment of an asset and
additional severance costs, offset in part by expense reductions in nearly
all categories resulting from the effective integrations of NatWest and
Shawmut.
Employee compensation and benefits remained consistent with the June 30,
1996 level. Occupancy expense decreased $8 million from the second quarter of
1996 due primarily to ongoing successful integration from the Shawmut and
NatWest mergers, as well as branch divestitures during the second quarter of
1996.
Legal and other professional fees declined $10 million to $25 million in the
second quarter of 1997 from $35 million in the second quarter of 1996 as the
second quarter of 1996 included a high level of professional fees related to the
NatWest acquisition.
Intangible asset amortization increased to $39 million in the second
quarter of 1997 from $30 million in the second quarter of 1996 as a direct
result of the NatWest acquisition. Additional goodwill related to the NatWest
acquisition may be recognized in future periods based on an earnout
calculation. 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 third quarter of 1997, the
corporation, pursuant to the earnout contingency, anticipates it will record
additional goodwill of approximately $120 million to be amortized over
fourteen years.
Other noninterest expense increased $137 million from the second quarter
of 1996. The second quarter of 1997 results include a $41 million impairment
charge to write-down a front-end loan origination system. This charge
resulted from a refocusing of Fleet Mortgage Group's retail production
strategy, which involved closing approximately 60% of its non-bank based
origination offices. These events triggered an impairment review of the
investment in the system, the benefits of which depend on increased
efficiencies in the origination offices. The impairment charge was recorded
to write-down the system to its fair value which was estimated based on the
functionality of the system and the remaining benefits to be realized from
its implementation. In addition, $40 million of severance costs were recorded
in connection with
15
<PAGE>
various operational restructuring initiatives and the NatWest acquisition. In
connection with the settlement of a Shawmut lawsuit, the corporation recorded
an approximate $20 million charge during this quarter. The corporation has
also recorded approximately $3 million of expenses relating to Year 2000
projects, while the total Year 2000 costs are anticipated to be approximately
$50 million to $60 million and will be recognized as incurred over the next
30 months.
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 this quarter, as mentioned in the preceeding paragraph, 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, in addition to the Shawmut related restructuring liability for the six
months ended June 30, 1997.
Merger and Restructuring-Related Liabilities
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, 1997
Dollars in millions Shawmut NatWest Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 158 $ 89 $ 247
Cash outlays (110) (45) (155)
Severance charge -- 22 22
- ---------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ 48 $ 66 $ 114
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The cash outlays made during the first six 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 six 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 $3
million of additional incremental costs will be incurred in 1997.
Income Taxes
For the second quarter of 1997, the corporation recognized income tax
expense of $233 million, an effective tax rate of 41.5%. Tax expense for the
same period of 1996 was $193 million, an effective tax rate of 40.9%. The second
quarter of 1997 had a higher effective rate due to the aforementioned sales of
business units.
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, Fee-Based Businesses, 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.
16
<PAGE>
Selected Financial Highlights by Lines of Business
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial
Consumer Financial Investment Financial Fee-Based
Dollars in millions Banking Services Services Services Businesses Treasury All Other Total
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net Interest Income (FTE) $ 509 $ 294 $ 28 $ 68 $ 6 $ 35 $ (24) $ 916
Noninterest Income 131 95 104 76 89 12 182 689
Noninterest Expense 357 184 84 78 70 15 164 952
Net Income 142 87 27 17 16 20 19 328
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Average Loans and Leases $12,862 $34,057 $2,016 $2,928 $ 168 $5,973 $1,023 $59,027
Average Deposits 43,990 11,123 2,281 153 1,711 4,114 405 63,777
ROE 30% 15% 48% 25% 10% 35% NM 20%
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Income Statement Data
Net Interest Income (FTE) $ 454 $ 277 $ 27 $ 47 $ 27 $ 47 $ (16) $ 863
Noninterest Income 91 77 97 59 104 8 65 501
Noninterest Expense 369 187 84 77 87 20 13 837
Net Income 85 67 22 1 28 19 56 278
- ---------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Average Loans and Leases $12,633 $30,317 $1,633 $2,363 $ 110 $8,184 $ 695 $55,935
Average Deposits 43,363 9,917 2,329 106 1,291 4,973 653 62,632
ROE 22% 17% 49% 1% 13% 22% N/M 17%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer Banking
Consumer Banking includes businesses engaged in branch banking, small
business lending and insurance services. Earnings for the second quarter of 1997
were $142 million compared to $85 million a year ago. Improvements in net
interest income reflect growth in deposit and loan balances, mainly the result
of the acquisition of NatWest, as well as a lower cost of deposits. Noninterest
income increased $40 million year over year, due to the full quarter impact of
NatWest resulting in higher service charges on deposits, as well as the impact
of improved pricing. The decline in noninterest expense of $12 million 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 Financial Services provides a full range of credit and banking
services to its corporate, middle market, real estate, municipal and leasing
customers. This group earned $87 million in the second quarter of 1997, an
increase of $20 million compared to the same quarter in 1996. Growth in loans
and deposits of 12% contributed to a $17 million improvement in net interest
income and was driven by the full quarter impact of NatWest coupled with growth
in commercial lending, corporate finance and leasing business units. Noninterest
income also improved compared to 1996 due to higher corporate finance fees, cash
management revenues and government banking fees. Decreasing operational costs
are the result of expense management combined with lower back office expenses
associated with consolidation cost savings.
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 $5 million compared to the
second 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 $7 billion to $52 billion at June 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
in direct expenses.
17
<PAGE>
Financial Services
Financial Services includes student loan processing, technology banking,
credit card and Option One. Financial services earned $17 million in the second
quarter of 1997 compared to $1 million in the same quarter of 1996, principally
due to higher revenues across most businesses. Compared to the same period last
year, net interest income improved by $21 million attributable to increased
credit card balances and selected portfolio repricing. Improved noninterest
income was driven by higher loan sales at Option One, volume related increases
in debit card activity and student loan processing as the number of loans
serviced increased from 4 million loans in June of 1996 to over 4.8 million
loans serviced in June 1997. During the second quarter of 1997, the corporation
sold Option One.
Fee-Based Businesses
This unit includes mortgage banking and the venture capital subsidiary.
Fee-Based Businesses earned $16 million in the second quarter of 1997, down from
$28 million a year ago. The decline is primarily attributable to a decline in
venture capital gains, down $16 million versus the same quarter last year as
Fleet Private Equity did not experience the same level of appreciation when
compared to the second quarter of 1996. Fleet's mortgage banking business earned
$12 million in the second quarter of 1997, exclusive of the previously mentioned
impairment charges, compared to $14 million in 1996. Lower earnings were mainly
due to lower loan production volumes.
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 second quarter of 1997 compared to $19 million in the second quarter of
1996. Improved earnings resulted from higher noninterest income and lower
operating expenses. Increased noninterest income resulted from improved foreign
exchange revenue and modest securities gains. Lower net interest income resulted
from selected balance sheet downsizing triggered by the NatWest acquisition.
All Other
This unit includes the management accounting control units and certain
transactions not allocable to specific business units. Second quarter earnings
were $19 million compared to $56 million recorded in the same period a year ago.
The decrease in earnings is attributed to branch divestiture gains of $32
million recorded in the second quarter of 1996. The second quarter of 1997 also
includes the impact of net gains totaling $175 million related to the sale of
certain business units and certain charges previously discussed.
BALANCE SHEET ANALYSIS
Total assets decreased from $85.5 billion at December 31, 1996 to $83.4
billion at June 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.
18
<PAGE>
Securities
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
June 30, 1997 March 31, 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 $ 675 $ 675 $ 1,058 $ 1,053 $ 1,077 $ 1,083
Mortgage-backed securities 6,477 6,503 6,022 5,961 5,987 6,006
Other debt securities 82 80 31 31 -- --
- ----------------------------------------------------------------------------------------------------------------------
Total debt securities 7,234 7,258 7,111 7,045 7,064 7,089
- ----------------------------------------------------------------------------------------------------------------------
Marketable equity securities 208 225 201 213 229 255
Other securities 182 182 207 207 159 159
- ----------------------------------------------------------------------------------------------------------------------
Total securities available for sale 7,624 7,665 7,519 7,465 7,452 7,503
- ----------------------------------------------------------------------------------------------------------------------
Total securities held to maturity 1,039 1,044 1,092 1,095 1,177 1,172
- ----------------------------------------------------------------------------------------------------------------------
Total securities $ 8,663 $ 8,709 $ 8,611 $ 8,560 $ 8,629 $ 8,675
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost of securities available for sale increased slightly to
$7.6 billion at June 30, 1997 compared to December 31, 1996. The valuation
reserve on securities available for sale declined slightly to an unrealized gain
position of $41 million at June 30, 1997 from an unrealized gain position of $51
million at December 31, 1996.
Loans and Leases
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31,
Dollars in millions 1997 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and industrial $ 30,772 $ 30,267 $ 29,278
Lease financing 2,858 2,602 2,611
Commercial real estate:
Construction 1,046 1,023 1,074
Interim/permanent 5,059 5,126 5,379
Residential real estate 8,168 7,921 8,048
Consumer 10,283 12,115 12,454
- ---------------------------------------------------------------------------------------------------
Total loans and leases $ 58,186(a) $59,054 $ 58,844
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes $2.2 billion of indirect auto loans ($1.5 billion consumer and $.7
billion commercial) which have been reclassified to indirect auto loans
held for sale due to the pending sale of this business unit.
Excluding the aforementioned pending sale of the $2.2 billion indirect auto
lending portfolio, total loans and leases increased $1.5 billion, or 5% on an
annualized basis, from December 31, 1996 to $58.2 billion at June 30, 1997 due
primarily to loan growth in the commercial and industrial and lease financing
portfolios. Excluding the indirect auto reclassification, commercial and
industrial (C&I) loans increased $2.2 billion, or 15% on an annualized basis,
from December 31, 1996 to June 30, 1997 resulting from growth in corporate
finance, middle-market lending and national banking. Commercial real estate
(CRE), primarily interim/permanent loans, decreased $348 million from December
31, 1996 to June 30, 1997 due to the increased structuring and syndication of
several loans in the first six months of 1997 coupled with expected pay-downs.
19
<PAGE>
Outstanding residential real estate loans secured by one- to four-family
residences increased $120 million to $8.2 billion at June 30, 1997 compared to
$8.0 billion at December 31, 1996.
Consumer Loans
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31,
Dollars in millions 1997 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Home equity $ 5,070 $ 4,997 $ 5,072
Credit card 2,823 3,050 3,227
Student loans 1,174 1,301 1,255
Installment/Other 1,216(a) 2,767 2,900
- ---------------------------------------------------------------------------------------------------
Total $ 10,283 $ 12,115 $ 12,454
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes $1.5 billion of indirect auto loans which have been reclassified to
indirect auto loans held for sale due to the pending sale of this business
unit.
Consumer loans of $10.3 billion at June 30, 1997 decreased $2.2 billion when
compared to a portfolio of $12.5 billion at December 31, 1996. The decrease from
December 31, 1996 is principally attributed to the corporation's previously
announced sale of its indirect auto lending operation, a business unit which had
approximately $1.5 billion in consumer loans. In addition, credit card loans
decreased $404 million due to a high level of balance pay-offs and the
corporation's efforts to manage down the portfolio in 1997.
Nonperforming Assets(a)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
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 $ 174 $ 59 $ 4 $ 237
Noncurrent 142 62 57 261
OREO 4 6 23 33
- -------------------------------------------------------------------------------------------------------------
Total NPAs
June 30, 1997 $ 320 $ 127 $ 84 $ 531
- -------------------------------------------------------------------------------------------------------------
Total NPAs
March 31, 1997 $ 344 $ 164 $ 196 $ 704
- -------------------------------------------------------------------------------------------------------------
Total NPAs
December 31, 1996 $ 351 $ 166 $ 206 $ 723
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($252 million,
$226 million and $247 million at June 30, 1997, March 31, 1997, and
December 31, 1996, respectively). Included in the 90 days past due and still
accruing interest were $174 million, $186 million and $192 million of
consumer loans at June 30, 1997, March 31, 1997, and December 31, 1996,
respectively).
Nonperforming assets (NPAs) decreased $173 million from March 31, 1997 to
$531 million at June 30, 1997. NPAs at June 30, 1997, as a percentage of total
loans, leases and OREO and as a percentage of total assets were .91% and .64%,
respectively, compared to 1.19% and .86%, respectively, at March 31, 1997. The
significant improvement was due primarily to declining levels of nonperforming
assets in all loan portfolios as a result of a $131 million transfer to assets
held for disposition, the successful resolution of certain commercial real
estate loans and the continuing reduction of nonperforming consumer loans.
20
<PAGE>
Activity in Nonperforming Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 2nd Qtr.
Dollars in millions 1997 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 704 $ 723 $ 553
Additions 203 172 221
NatWest acquisition -- -- 165
Reductions:
Payments/interest applied (144) (98) (98)
Returned to accrual (22) (15) (19)
Charge-offs/writedowns (41) (53) (57)
Sales/other (38) (25) (20)
NPAs reclassified as held for accelerated disposition (131) -- --
- ----------------------------------------------------------------------------------------------------------
Total reductions (376) (191) (194)
- ----------------------------------------------------------------------------------------------------------
Balance at end of period $ 531 $ 704 $ 745
- ----------------------------------------------------------------------------------------------------------
</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.
Nonperforming Assets Held for Sale or Accelerated
Disposition
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Dollars in millions C&I CRE Consumer Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans and leases $ 93 $ 52 $ 96 $ 241
OREO -- -- 8 8
- ----------------------------------------------------------------------------------------------------------------
June 30, 1997 $ 93 $ 52 $ 104 $ 249
- ----------------------------------------------------------------------------------------------------------------
March 31, 1997 $ 87 $ 142 $ 24 $ 253
- ----------------------------------------------------------------------------------------------------------------
December 31, 1996 $ 93 $ 147 $ 25 $ 265
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Reserve for Credit Loss Activity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Six months ended June 30
Dollars in millions 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 1,488 $ 1,321
Provision charged against income 148 84
Loans and leases charged off (262) (190)
Recoveries of loans and leases charged off 70 55
- --------------------------------------------------------------------------------------------------
Net charge-offs (192) (135)
Other (1) 327
- --------------------------------------------------------------------------------------------------
Balance at end of period $ 1,443 $ 1,597
- --------------------------------------------------------------------------------------------------
Ratios of net charge-offs to average loans and leases .65% .51%
- --------------------------------------------------------------------------------------------------
Ratios of reserve for credit losses to period-end loans and leases 2.48% 2.70%
- --------------------------------------------------------------------------------------------------
Ratio of reserve for credit losses to period-end NPAs 272% 214%
- --------------------------------------------------------------------------------------------------
Ratio of reserve for credit losses to period-end non-performing loans and
leases 290% 231%
- --------------------------------------------------------------------------------------------------
</TABLE>
Fleet's reserve for credit losses decreased from $1,597 million at June 30,
1996 to $1,443 million at June 30, 1997. The first six months of 1997 provision
for credit losses was $148 million, $64 million higher than the prior year's
first six months. The increase is due to a higher provision being recorded as a
result of increased net charge-offs, primarily in the credit card portfolio.
21
<PAGE>
Funding Sources
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31,
Dollars in millions 1997 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposits:
Demand $ 16,471 $ 16,089 $ 17,903
Regular savings, NOW, money market 27,641 27,738 27,976
Time:
Domestic 16,421 17,545 18,583
Foreign 2,696 2,767 2,609
- ---------------------------------------------------------------------------------------------------
Total deposits 63,229 64,139 67,071
- ---------------------------------------------------------------------------------------------------
Short-term borrowed funds:
Federal funds purchased 1,440 588 488
Securities sold under agreements to repurchase 2,392 2,176 2,382
Commercial paper 694 660 676
Other 1,260 155 81
- ---------------------------------------------------------------------------------------------------
Total short-term borrowed funds 5,786 3,579 3,627
- ---------------------------------------------------------------------------------------------------
Long-term debt 4,550 4,617 5,114
- ---------------------------------------------------------------------------------------------------
Total $ 73,565 $ 72,335 $ 75,812
- ---------------------------------------------------------------------------------------------------
</TABLE>
Total deposits decreased $3.8 billion to $63.2 billion at June 30, 1997 when
compared to December 31, 1996 due primarily to deposit runoff. Demand deposits
decreased $1.4 billion as a result of seasonal increases in year-end balances.
Time deposits decreased $2.1 billion due to decreases in retail certificates of
deposit and individual retirement accounts resulting from the corporation's
efforts to maintain a low cost, yet competitive cost of deposits.
In comparison to March 31, 1997, total deposits have decreased $910 million,
or less than 2%. A $1.1 billion decline in domestic time deposits, which have
been impacted by the corporation's pricing decisions, has been offset by a $382
million increase in low-cost demand deposits.
Long-term debt decreased $564 million to $4.6 billion at June 30, 1997 when
compared to December 31, 1996 due to $646 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
22
<PAGE>
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'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 %
(Basis Points) of Net Interest Income
- -------------------------------------------
<S> <C>
+200 0.4%
- -200 (1.2)
- -------------------------------------------
</TABLE>
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., >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 Net Interest Income
- -------------------------------------------
<S> <C>
+200 (3.1)%
- -200 (5.3)
- -------------------------------------------
</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 June 30, 1997, the
estimated exposure was 0.2% liability-sensitive.
Interest-Rate Gap Analysis
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Repriced Within
- --------------------------------------------------------------------------------------------------------------
June 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 $ 46,882 $ 7,977 $ 5,625 $ 9,393 $ 13,524 $ 83,401
Total liabilities and stockholders' equity (32,701) (14,290) (8,952) (7,505) (19,953) (83,401)
Net off-balance sheet (9,181) 1,135 3,900 3,481 665
- --------------------------------------------------------------------------------------------------------------
Periodic gap 5,000 (5,178) 573 5,369 (5,764)
Cumulative gap 5,000 (178) 395 5,764 --
- --------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets
at June 30, 1997 6.0% (0.2)% 0.5% 6.9%
Cumulative gap as a percent of total assets
at March 31, 1997 6.9% 0.7% 2.5% 8.3%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The most significant factors affecting the interest rate risk position in
the second quarter were the additions of fixed rate residential mortgage
securities and loans, as well as the repurchase of common stock. In its
management of these and other factors influencing the current environment, the
corporation has attempted to maintain a moderately asset sensitive position.
Risk-Management Instrument Analysis
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Average
Weighted
Assets/ Average Rate
June 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 $ 7,415 Variable rate loans
736 Fixed rate deposits
850 Escrow deposits
465 Long-term debt
175 Short-term borrowings
---------
9,641 2.4 $ (61) 7.09% 6.65%
- ---------------------------------------------------------------------------------------------------------------------------
Basis swaps 2,729 Deposits
30 Long-term debt
---------
2,759 1.7 -- 5.82 5.72
- ---------------------------------------------------------------------------------------------------------------------------
Interest-rate
floors-purchased 23,522 Mortgage servicing rights 3.8 40 -- (a) -- (a)
Interest-rate caps-purchased 4,309 Mortgage servicing rights 3.4 29 -- (a) -- (a)
Interest-rate caps-sold 4,309 Mortgage servicing rights 3.4 (90) -- (a) -- (a)
Call options-purchased 625 Mortgage servicing rights 0.3 1 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total risk-management
instruments $ 45,165 3.3 $ (81) 6.81% 6.44%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The mortgage-banking risk-management interest-rate floors-purchased,
caps-purchased and caps-sold have weighted average strike rates of 5.24%,
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 June 30, 1997, derivative instruments totaling $45.2
billion (notional amount) were being used for interest-rate and mortgage-banking
risk-management purposes.
At June 30, 1997, the corporation had net deferred income of $21.4 million
relating to terminated interest-rate swaps, which is being amortized over the
remaining life of the underlying interest-rate contracts of approximately 2.5
years.
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.
24
<PAGE>
To mitigate the prepayment risk of declining long-term interest rates,
higher than expected mortgage prepayments and a potential impairment of MSRs,
the corporation 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 June 30, 1997, the
corporation had approximately $23.5 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 June 30,
1997, net hedge losses of $67.7 million have been deferred and recorded as
adjustments to the carrying value of MSRs. Deferred hedge losses include $40.7
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 June 30, 1997, the carrying value and fair value of the
corporation's MSRs were $1.8 billion and $2.0 billion, respectively.
25
<PAGE>
Risk-Management Instrument Activity
The risk-management instrument activity for the six months ended June 30,
1997 is summarized in the following table (all amounts are notional amounts):
Risk-Management Instrument Activity
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Interest-Rate Swaps
--------------------------------------
Six months ended Receive- Pay- Index-
Dollars in millions Fixed Fixed Basis Amortizing
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notional amounts:
Balance at December 31, 1996 $11,055 $ 4 $ 3,823 $ 11
Additions 125 -- -- --
Maturities (1,539) -- -- (11)
Terminations -- (4) (1,064) --
- ----------------------------------------------------------------------
Balance at June 30, 1997 $ 9,641 $-- $ 2,759 $ --
- ----------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Interest-Rate Options
----------------------------------------------------------
Call Call
Six months ended Floors Caps Caps Options Options
Dollars in millions Other Purchased Purchased Sold Purchased Sold Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Balance at December 31, 1996 $112 $15,911 $2,515 $2,515 $ 1,276 $ 225 $37,447
Additions -- 7,611 2,441 2,441 1,385 -- 14,003
Maturities (112 ) -- -- -- (700) -- (2,362)
Terminations -- -- (647) (647) (1,336) (225) (3,923)
- -----------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ -- $23,522 $4,309 $4,309 $ 625 $ -- $45,165
- -----------------------------------------------------------------------------------------------------
</TABLE>
During the first half of 1997 there was a net increase of approximately $7.7
billion of risk-management instruments as the corporation expanded its hedge
program for mortgage servicing rights in anticipation of a lower-rate
environment causing increase prepayments.
The maturities of the risk-management instruments are shown in the following
table:
Maturities of the Risk-Management Instruments
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
June 30, 1997 1 to 2 2 to 3 3 to 4 4 to 5 After 5
Dollars in millions Within 1 Year Years Years Years Years Years Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Notional amounts:
Interest rate swaps
Receive-fixed $ 1,595 $ 3,900 $ 1,846 $ 460 $ 1,175 $ 665 $ 9,641
Basis 30 2,729 -- -- -- -- 2,759
Interest-rate floors-
purchased -- -- 3,977 7,345 11,700 500 23,522
Interest-rate caps-
purchased -- -- 1,505 2,136 668 -- 4,309
Interest-rate caps-sold -- -- 1,505 2,136 668 -- 4,309
Call options-purchased 625 -- -- -- -- -- 625
- -------------------------------------------------------------------------------------------------------------------
Total risk-management
instruments $ 2,250 $ 6,629 $ 8,833 $ 12,077 $ 14,211 $ 1,165 $ 45,165
- -------------------------------------------------------------------------------------------------------------------
</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
26
<PAGE>
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.
At June 30, 1997 and December 31, 1996, the corporation had commercial paper
outstanding of $694 million and $676 million, respectively. The corporation has
backup lines of credit to ensure that funding is not interrupted if commercial
paper is not available. The total amounts of funds available under these
agreements was $1.0 billion at June 30, 1997, with no outstanding balance under
these lines 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 $963.4 million at June 30, 1997.
CAPITAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
June 30, March 31, June 30,
Dollars in millions 1997 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-adjusted assets $ 80,334 $ 77,970 $ 80,351
Tier 1 risk-based capital
(4% minimum) 7.21% 7.54% 6.85%
Total risk-based capital
(8% minimum) 10.80 11.26 10.60
Leverage ratio
(4% minimum) 7.19 7.22 6.59
Common equity-to-assets 7.41 7.62 6.98
Total equity-to-assets 8.42 8.69 8.12
Tangible common equity-to-assets 5.59 5.70 5.06
Tangible total equity-to-assets 6.61 6.79 6.22
- ------------------------------------------------------------------------------------------------
</TABLE>
At June 30, 1997, the corporation exceeded all regulatory required minimum
capital ratios as Fleet's Tier 1 and Total risk based capital ratios were 7.21
percent and 10.80 percent, respectively, compared with 7.54 percent and 11.26
percent, respectively, at March 31, 1997. The leverage ratio, a measure of Tier
1 capital to average quarterly assets, was 7.19 percent at June 30, 1997
compared with 7.22 percent at March 31, 1997. The corporation's ratios decreased
when compared to December 31, 1996 due to the repurchase of 11.9 million common
shares during the first half of 1997. These shares were repurchased as part of
the corporation's capital management program announced in January, 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 June 30, 1997, basic and diluted EPS, as calculated
under the new statement, are $1.23 and $1.19, respectively, compared to the
reported EPS of $1.19 for both fully diluted and primary earnings per share.
27
<PAGE>
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.
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.
28
<PAGE>
PART II. OTHER INFORMATION
PART II. ITEM 1. LEGAL PROCEEDINGS
One of the corporation's banking subsidiaries, which served as indenture
trustee for certain health care receivable-backed bonds issued by certain
special-purpose subsidiaries of Towers Financial Corporation and another
defendant, was named in a lawsuit in federal court in Manhattan by purchasers of
the bonds. Fleet agreed to settle this action for $30 million which was
confirmed by the court on May 28, 1997. Of this amount, $10 million was paid by
Fleet's insurance carrier, $3.4 million was paid from receivables previously
collected and placed in escrow for such purpose and $16.6 million was paid by
the corporation on July 14, 1997. As a result of this settlement, Fleet was
released of all liability on these claims.
PART II. ITEM 6.
(a) Exhibit Index
<TABLE>
<CAPTION>
Page of
Exhibit this
Number Report
------- -----------
<S> <C> <C>
4 Instruments defining the right of security holders, including debentures *
10(a)** Form of Change of Control Agreement (incorporated by reference to form
of Change of Control Agreement included in Exhibit 10(a) of Registrant's
Form 10-K Annual Report for the fiscal year ended December 31, 1995);
Schedule of Persons who have entered into such contracts.
10(b)** Letter Agreement dated April 16, 1997 between Registrant and Gunnar S.
Overstrom, Jr. amending Employment Agreement and Change of Control
Agreement, each dated February 20, 1995.
10(c)** Amendment One to Supplemental Executive Retirement Plan.
11 Statement re-computation of per share earnings
12 Statement re-computation of ratios
27 Financial data schedule
</TABLE>
* Registrant has no instruments defining the rights of holders of equity or
debt securities where the amount of securities authorized thereunder exceeds
10% of the total assets of the registrant and its subsidiaries on a
consolidated basis. Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
** Management contract, or compensatory plan or arrangement.
(b) Two Form 8-K's were filed during the period from April 1, 1997 to the
date of the filing of this report.
-- Current Report on Form 8-K dated April 16, 1997 announcing first
quarter earnings.
-- Current Report on Form 8-K dated July 16, 1997 announcing second
quarter earnings.
29
<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: August 14, 1997
30
<PAGE>
EXHIBIT 10(a)
FLEET FINANCIAL GROUP, INC.
Schedule of Persons who have entered into Change of Control Contracts
A. BENEFIT - 3X BASE PLUS BONUS:
David L. Eyles
Robert J. Higgins
Eugene M. McQuade
Terrence Murray
William C. Mutterperl
Thomas O'Neill
John B. Robinson
H. Jay Sarles
M. Anne Szostak
Michael R. Zucchini
BENEFIT - 2X BASE PLUS BONUS:
Anne Finucane
Peter C. Fitts
Richard Higginbotham
Anne M. Slattery
Robert B. Hedges
Brian T. Moynihan
Douglas L. Jacobs
Robert C. Lamb, Jr.
Hayden D. Watson
Timothy J. Conway
<PAGE>
April 16, 1997
Mr. Gunnar S. Overstrom
One Squirrel Hill Road
West Hartford, CT 06107
Dear Gunnar:
Under the terms of your Employment Agreement by and between Fleet Financial
Group, Inc. ("Fleet" or the "Corporation") and yourself, dated as of February
20, 1995 (the "Employment Agreement"), you are entitled to terminate your
employment with Fleet at any time for Good Reason and to receive certain
benefits, as described in Section 9 of your Employment Agreement. As defined in
your Employment Agreement, "Good Reason" means any reason other than death,
Disability or termination by Fleet for Cause. The Board of Directors of Fleet
believes it is in the best interest of the Corporation and its shareholders to
have you continue as a member of Fleet's senior management team, but does not
wish to disadvantage you by denying you the full benefits to which you would be
entitled if you were to terminate your employment with Fleet sooner. Therefore,
in order to induce you to remain in Fleet's employ, Fleet has agreed to amend
your Employment Agreement, as described in this letter agreement. Terms used in
this letter agreement and not otherwise defined shall have the meaning set forth
in your Employment Agreement.
1. In lieu of the benefits you might otherwise be entitled to receive
under Section 9(b)(ii) and Section 9(b)(iii)(B) (with respect to your
split-dollar benefit only) of your Employment Agreement, the
Corporation will credit to an account (the "Deferral Account") on the
books of the Corporation an amount equal to the benefits you would be
entitled to receive under those sections of your Employment Agreement
if your Date of Termination had occurred on April 16, 1997 (the
"Calculation Date"). Such benefits are set forth on ATTACHMENT A to
this letter agreement (the "Deferral Amount"). Commencing as of the
Calculation Date and ending on your actual Date of Termination, Fleet
will credit your Deferral Account balance (which shall include the
Deferral Amount and all amounts of interest previously credited
pursuant to this Agreement) with interest monthly at a rate per annum
equal to the Prime Rate, with each change in said rate to be effective
on the effective date of each change in the Prime Rate. The Prime
Rate shall mean the rate which Fleet National Bank announces from time
to time as its prime lending rate, as in effect from time to time.
<PAGE>
Mr. Gunnar S. Overstrom
April 16, 1997
Page 2
The Deferral Amount, together with interest thereon, shall be payable
to you (or your beneficiary, in the event of your death) in a cash
lump sum within five (5) days following your actual Date of
Termination (or such later date(s) as you may elect pursuant to
Section 9(b)(ii) of your Employment Agreement), provided, however,
that under no circumstances shall you be entitled to any Gross-Up
Payment with respect to the interest earned and paid on your Deferral
Amount. Payment to you of the Deferral Amount, together with interest
as provided above, shall constitute full satisfaction of Fleet's
obligation to you under Section 9(b)(ii) and Section 9(b)(iii)(B)
(with respect to your split-dollar benefit only) of your Employment
Agreement.
2. Fleet's Chairman and Chief Executive Officer will recommend to the
Human Resources and Planning Committee that your annual bonus for 1997
(payable in February 1998) be at least equal to your 1996 annual bonus
($800,000), subject to the following conditions: such amount shall be
(A) within the limits set forth in the Named Executive Officer Bonus
Plan for persons other than the Chief Executive Officer, and (B) not
greater than the highest annual bonus awarded to the Chief Operating
Officer and any of the other Vice Chairmen for 1997. If your actual
Date of Termination occurs prior to December 31, 1997, you shall be
entitled to a pro rata portion of your annual bonus for 1997 based on
the months of service completed in 1997 (with each partial month of
service treated as a full month for purposes of this letter
agreement), which annual bonus shall be calculated based on the
formula described above, and shall be payable in February 1998. For
purposes of calculating your SERP benefit under Section 9(b)(iii)(B)
of your Employment Agreement, the bonus component of your compensation
for the three additional years of service under the SERP will be
calculated using the greater of (Y) $800,000, which was the amount of
your annual bonus for 1996 and (Z) the annual bonus payable to you for
the calendar year immediately preceding your termination of
employment.
3. Section 8 of your Severance Agreement by and between Fleet and
yourself, dated as of February 20, 1995 (the "Severance Agreement"),
provides that subsequent to a change in control and during the term of
your Severance Agreement, the provisions of the Severance Agreement
shall supersede and substitute for those provisions of your Employment
Agreement relating to your entitlement to benefits in connection with
any
<PAGE>
Mr. Gunnar S. Overstrom
April 16, 1997
Page 3
termination of your employment. Notwithstanding this Section 8, you
shall be entitled to the benefits described in your Employment
Agreement, as amended by this letter agreement, even if your actual
Date of Termination occurs after a change in control of the
Corporation (as defined in your Severance Agreement), and any benefits
payable to you under your Severance Agreement shall be reduced (but
not below zero) by an amount equal to the benefits paid to you
pursuant to your Employment Agreement, as amended.
This letter agreement, when counter-signed by you, shall constitute an
amendment to your Employment Agreement, and to Section 8 of your Severance
Agreement. Except as so amended, your Employment Agreement and your Severance
Agreement shall remain in full force and effect. Nothing in this letter
agreement shall be construed to be a commitment or guarantee of future
employment with Fleet. If the above reflects your understanding, please sign a
copy of this letter in the space provided below and return it to me.
Very truly yours,
/s/ Terrence Murray
Terrence Murray
AGREED:
/s/Gunnar S. Overstrom
- ----------------------------------
Gunnar S. Overstrom
<PAGE>
ATTACHMENT A
BENEFITS PROVIDED AS OF
APRIL 16, 1997
AMOUNT
------
Lump Sum Payment
((Base Salary + Bonus) x 3) $3,975,000
(($525,000 + $800,000) x 3)
Lump Sum Payment
(Highest PEP Award x 3) $1,391,057
(((14,250 + 297 dividend equivalents) x $31.875) x 3)
Split Dollar Insurance (lump sum value) $2,004,895
TOTAL $7,370,952
Pending: Determination of applicable excise tax, accompanying tax gross up and
federal and state tax liability. Tax liability payable as of payment date (not
deferral date).
<PAGE>
AMENDMENT ONE
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(1996 RESTATEMENT)
Sections 5.1, 5.2 and 5.3 are amended effective January 1, 1997 to read as
follows:
5.1 AMOUNT OF BENEFITS. The amount of the benefit payable under the Plan
to a Participant will be equal to (a) minus (b), but not less than zero,
where
(a) is the amount of the benefit the Participant would have been
entitled to receive under the Basic Plan in the form of a "Single Life
Annuity" commencing on his "Annuity Starting Date: if (i) the term
"Compensation" under the Basic Plan included bonus awards to which the
Participant is entitled under the Corporate Executive Incentive Plan or
other incentive award program, (ii) the limitations of sections 401(a)(17)
and 415 of the Code (and provisions of the Basic Plan applying those
limitations) did not exist, and (iii) the Participant were treated under
the Basic Plan as a "Participant" who is not a "Cash Balance Participant";
and
(b) is the sum of (i) the benefit payable to the Participant under
the Basic Plan and (ii) the benefit payable to the Participant under the
Fleet Financial Group, Inc. Retirement Income Assurance Plan, as in effect
from time to time; provided that the amounts determined in (i) and (ii)
shall be expressed in the form of a "Single Life Annuity" commencing on the
Participant's "Annuity Starting Date" (with such quoted terms having the
meaning set forth in the Basic Plan).
5.2 CALCULATION AND PAYMENT OF BENEFITS. Except with respect to a
Participant who is a "Cash Balance Participant" under the Basic Plan,
benefits payable under the Plan shall be calculated in the same manner,
paid in the same form, commence at the same time, and paid under the same
terms and conditions as the benefits payable to the Participant (or
Beneficiary) under the Basic Plan. A Participant who is a "Cash Balance
Participant" under the Basic Plan shall have the right to elect benefits
under the Plan under the same terms and conditions (and only under the same
terms and conditions), including but not limited to manner of calculation,
form of payment and time of commencement, as the Participant would under
the Basic Plan if the Participant were not a "Cash Balance Participant."
5.3 DEATH BENEFITS. In the event of the death of the Participant before
benefits have commenced, death benefits under the Plan will become payable
to the Participant's Beneficiary under the same terms and conditions as
specified in the Basic Plan, determined as if (where applicable) the
Participant were not a "Cash Balance Participant"
<PAGE>
under the Basic Plan. In the event of the death of the Participant after
benefits have commenced, death benefits under the Plan will be payable to
the Participant's Beneficiary in accordance with the form of distribution
elected by the Participant.
IN WITNESS WHEREOF, this Amendment One has been adopted by the Human
Resources and Planning Committee on the 18th day of June, 1997 and is
executed by a duly authorized officer of Fleet Financial Group, Inc.
FLEET FINANCIAL GROUP, INC.
By: /s/ William C. Mutterperl
-----------------------------
William C. Mutterperl
Senior Vice President
-2-
<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 June 30
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 253,387,722 253,387,722 263,176,421 263,176,421
Additional shares due to:
Stock options 3,982,620 4,254,169 2,316,836 2,419,382
Warrants 5,316,725 5,448,246 3,847,486 3,867,376
------------- ------------- ------------- -------------
Total equivalent shares 262,687,067 263,090,137 269,340,743 269,463,179
------------- ------------- ------------- -------------
Earnings per share
Net income $ 328,175 $ 328,175 $ 277,727 $ 277,727
Less: Preferred stock dividends (16,150) (16,150) (19,314) (19,314)
------------- ------------- ------------- -------------
Adjusted net income $ 312,025 $ 312,025 $ 258,413 $ 258,413
------------- ------------- ------------- -------------
Total equivalent shares 262,687,067 263,090,137 269,340,743 269,463,179
------------- ------------- ------------- -------------
Earnings per share on net income $1.19 $1.19 $0.96 $0.96
------------- ------------- ------------- -------------
</TABLE>
31
<PAGE>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended June 30
----------------------------------------------------------
1997 1996
---------------------------- ----------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 255,957,098 255,957,098 262,851,155 262,851,155
Additional shares due to:
Stock options 3,833,552 4,367,709 2,208,956 2,556,645
Warrants 5,187,222 5,448,246 3,758,732 3,867,376
------------- ------------- ------------- -------------
Total equivalent shares 264,977,872 265,773,053 268,818,843 269,275,176
------------- ------------- ------------- -------------
Earnings per share
Net income $ 638,866 $ 638,866 $ 541,529 $ 541,529
Less: Preferred stock dividends (33,174) (33,174) (31,852) (31,852)
------------- ------------- ------------- -------------
Adjusted net income $ 605,692 $ 605,692 $ 509,677 $ 509,677
------------- ------------- ------------- -------------
Total equivalent shares 264,977,872 265,773,053 268,818,843 269,275,176
------------- ------------- ------------- -------------
Earnings per share on net income $ 2.29 $ 2.28 $ 1.90 $ 1.89
------------- ------------- ------------- -------------
</TABLE>
32
<PAGE>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS
(thousands)
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30 June 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,
extra-ordinary
credit and cumu-
lative effect of
change in method of
accounting $ 560,929 $ 1,074,366 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on
borrowed funds 137,094 265,530 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 11,730 24,544 52,264 49,921 50,597 52,254 49,197
(b) Preferred divi-
dends 27,604 55,788 117,676 62,064 48,859 60,365 65,658
------------- ------------ ------------ ------------ ------------ ------------ ------------
(c)Adjusted earnings $ 737,357 $ 1,420,228 $ 2,785,594 $ 2,424,339 $ 2,469,490 $ 1,958,829 $ 1,370,654
------------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges and
preferred dividends $ 176,428 $ 345,862 $ 854,996 $ 1,390,583 $ 1,089,851 $ 864,373 $ 753,285
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/fixed
charges............... 4.18x 4.11x 3.26x 1.74x 2.27x 2.27x 1.82x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
INCLUDING INTEREST ON DEPOSITS
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30 June 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,
extra-ordinary
credit and
cumulative effect of
change in method of
accounting $ 560,929 $ 1,074,366 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a)Fixed charges:
(1) Interest on
borrowed funds 137,094 265,530 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 11,730 24,544 52,264 49,921 50,597 52,254 49,197
(3) Interest on
deposits 407,151 823,414 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804
(b) Preferred
dividends 27,604 55,788 117,676 62,064 48,859 60,365 65,658
------------- ------------ ------------ ------------ ------------ ------------ ------------
(c) Adjusted earnings $ 1,144,508 $ 2,243,642 $ 4,539,317 $ 4,150,742 $ 3,640,022 $ 3,123,875 $ 3,069,458
------------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges and
preferred dividends $ 583,579 $ 1,169,276 $ 2,608,719 $ 3,116,986 $ 2,260,383 $ 2,029,419 $ 2,452,089
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/fixed
charges 1.96x 1.92x 1.74x 1.33x 1.61x 1.54x 1.25x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
33
<PAGE>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
(THOUSANDS)
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30 June 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.......... $ 560,929 $ 1,074,366 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on
borrowed funds 137,094 265,530 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 11,730 24,544 52,264 49,921 50,597 52,254 49,197
------------- ------------ ------------ ------------ ------------ ------------ ------------
(b) Adjusted earnings $ 709,753 $ 1,364,440 $ 2,667,918 $ 2,362,275 $ 2,420,631 $ 1,898,464 $ 1,304,996
Fixed charges $ 148,824 $ 290,074 $ 737,320 $ 1,328,519 $ 1,040,992 $ 804,008 $ 687,627
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/ fixed
charges............... 4.77x 4.70x 3.62x 1.78x 2.33x 2.36x 1.90x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
INCLUDING INTEREST ON DEPOSITS
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30 June 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.......... $ 560,929 $ 1,074,366 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on
borrowed funds 137,094 265,530 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 11,730 24,544 52,264 49,921 50,597 52,254 49,197
(3) Interest on
deposits 407,151 823,414 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804
------------- ------------ ------------ ------------ ------------ ------------ ------------
(b) Adjusted earnings $ 1,116,904 $ 2,187,854 $ 4,421,641 $ 4,088,678 $ 3,591,163 $ 3,063,510 $ 3,003,800
------------- ------------ ------------ ------------ ------------ ------------ ------------
Fixed charges........... $ 555,975 $ 1,113,488 $ 2,491,043 $ 3,054,922 $ 2,211,524 $ 1,969,054 $ 2,386,431
------------- ------------ ------------ ------------ ------------ ------------ ------------
Adjusted earnings/ fixed
charges............... 2.01x 1.96x 1.78x 1.34x 1.62x 1.56x 1.26x
------------- ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the June 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> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 5,621 6,989
<INT-BEARING-DEPOSITS> 216 50
<FED-FUNDS-SOLD> 220 9
<TRADING-ASSETS> 114 122
<INVESTMENTS-HELD-FOR-SALE> 7,665 10,452
<INVESTMENTS-CARRYING> 1,039 963
<INVESTMENTS-MARKET> 1,044 950
<LOANS> 58,186 59,093
<ALLOWANCE> (1,443) (1,597)
<TOTAL-ASSETS> 83,401 87,728
<DEPOSITS> 63,229 68,145
<SHORT-TERM> 5,786 4,637
<LIABILITIES-OTHER> 2,818 2,516
<LONG-TERM> 4,550 5,303
0 0
835 1,003
<COMMON> 3,119 3,148
<OTHER-SE> 3,064 2,976
<TOTAL-LIABILITIES-AND-EQUITY> 83,401 87,728
<INTEREST-LOAN> 2,594 2,427
<INTEREST-INVEST> 295 387
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 2,889 2,814
<INTEREST-DEPOSIT> 823 831
<INTEREST-EXPENSE> 1,089 1,235
<INTEREST-INCOME-NET> 1,800 1,579
<LOAN-LOSSES> 148 84
<SECURITIES-GAINS> 18 38
<EXPENSE-OTHER> 1,793 1,643
<INCOME-PRETAX> 1,074 921
<INCOME-PRE-EXTRAORDINARY> 1,074 921
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 639 542
<EPS-PRIMARY> 2.29 1.90
<EPS-DILUTED> 2.28 1.89
<YIELD-ACTUAL> 5.21 4.6
<LOANS-NON> 498 691
<LOANS-PAST> 252 221
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,488 1,321
<CHARGE-OFFS> (262) 190
<RECOVERIES> 70 55
<ALLOWANCE-CLOSE> 1,443 1,597
<ALLOWANCE-DOMESTIC> 1,443 1,597
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 221 313
</TABLE>
