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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD TO
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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 incorporation or organization) (IRS Employer
Identification No.)
ONE FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(Address of principal executive office) (Zip Code)
(617) 346-4000
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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The number of shares of common stock of the Registrant outstanding as of March
31, 1997 was 255,826,379.
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FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
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PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 6
Condensed Notes to Consolidated Financial Statements 7
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION 22
SIGNATURES 25
EXHIBITS 26
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
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FOR THE THREE MONTHS ENDED MARCH 31
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996
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Interest and fees on loans and leases $1,287 $1,144
Interest on securities 150 193
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Total interest income 1,437 1,337
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Interest expense:
Deposits 416 402
Short-term borrowings 39 106
Long-term debt 89 105
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Total interest expense 544 613
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Net interest income 893 724
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Provision for credit losses 65 35
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Net interest income after provision for
credit losses 828 689
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Noninterest income:
Service charges, fees and commissions 157 108
Mortgage banking revenue, net 104 83
Investment services revenue 103 87
Student loan servicing fees 26 22
Venture capital revenue 18 27
Securities gains 13 18
Gain on sale of branch divestitures --- 60
Other 105 73
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Total noninterest income 526 478
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Noninterest expense:
Employee compensation and benefits 425 348
Occupancy 75 61
Equipment 70 57
Intangible asset amortization 39 25
Legal and other professional 28 23
Telephone 20 16
Printing and mailing 19 16
Marketing 18 22
Other 146 149
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Total noninterest expense 840 717
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Income before income taxes 514 450
Applicable income taxes 203 186
Net income $ 311 $ 264
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Net income applicable to common shares $ 294 $ 251
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Fully diluted weighted average common 267,479,414 268,376,014
shares outstanding:
Fully diluted earnings per share: 1.10 $0.94
Dividends declared 0.45 0.43
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SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
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MARCH 31, DECEMBER 31,
DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS 1997 1996
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ASSETS
Cash, due from banks and interest-bearing deposits $5,047 $7,243
Federal funds sold and securities purchased under
agreements to resell 262 1,772
Securities available for sale 7,465 7,503
Securities held to maturity (market value: $1,095
and $1,172) 1,092 1,177
Loans and leases 59,054 58,844
Reserve for credit losses (1,462) (1,488)
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Net loans and leases 57,592 57,356
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Mortgage servicing rights 1,861 1,566
Mortgages held for resale 1,334 1,560
Premises and equipment 1,328 1,347
Intangible assets 1,663 1,699
Other assets 4,048 4,295
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Total assets $81,692 $85,518
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LIABILITIES
Deposits:
Demand $16,089 $17,903
Regular savings, NOW, money market 27,738 27,976
Time 20,312 21,192
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Total deposits 64,139 67,071
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Federal funds purchased and securities sold under
agreements to repurchase 2,764 2,871
Other short-term borrowings 815 756
Accrued expenses and other liabilities 2,260 2,291
Long-term debt 4,617 5,114
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Total liabilities 74,595 78,103
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STOCKHOLDERS' EQUITY
Preferred stock 869 953
Common stock (shares issued: 263,384,372 in 1997
and 263,395,054 in 1996; shares outstanding:
255,826,379 in 1997 and 261,992,124 in 1996) 3 3
Common surplus 3,137 3,145
Retained earnings 3,513 3,342
Net unrealized gain (loss) on securities available
for sale (32) 31
Treasury stock, at cost (7,557,993 shares in 1997 and
1,402,930 shares in 1996) (393) (59)
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Total stockholders' equity 7,097 7,415
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Total liabilities and stockholders' equity $81,692 $85,518
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SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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<TABLE>
<CAPTION>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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NET
UNREALIZED
COMMON GAIN(LOSS)
STOCK AT ON SECURITIES
THREE MONTHS ENDED MARCH 31 PREFERRED $.01 COMMON RETAINED AVAILABLE TREASURY
DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS STOCK PAR SURPLUS EARNINGS FOR SALE STOCK TOTAL
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<S> <C> <C> <C> <C> <C> <C> <C>
1996
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Balance at December 31, 1995 $399 $ 3 $3,149 $2,768 $ 52 $ (6) $ 6,365
Net income 264 264
Cash dividends declared on common stock ($0.43 per
share) (113) (113)
Cash dividends declared on preferred stock (13) (13)
Issuance of preferred stock 425 (11) 414
Common stock issued in connection with:
Employee benefit and stock option plans 8 (6) 15 17
Warrants 15 15
Adjustment of valuation reserve for securities
available for sale (51) (51)
Other items, net (39) (6) (9) (54)
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Balance at March 31, 1996 $824 $ 3 $3,122 $2,894 $ 1 $ --- $6,844
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1997
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Balance at December 31, 1996 $953 $ 3 $3,145 $3,342 $ 31 $ (59) $7,415
Net income 311 311
Cash dividends declared on common stock
($0.45 per share) (115) (115)
Cash dividends declared on preferred stock (17) (17)
Common stock issued in connection with
Employee benefit and stock option plans (6) (8) 42 28
Treasury stock purchased (376) (376)
Adjustment of valuation reserve for securities
available for sale (63) (63)
Exchange of Series V preferred stock for trust
preferred securities (84) (84)
Other items, net (2) (2)
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Balance at March 31, 1997 $869 $ 3 $3,137 $3,513 $ (32) $ (393) $7,097
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SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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THREE MONTHS ENDED MARCH 31
DOLLARS IN MILLIONS 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 311 $ 264
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 53 41
Amortization of mortgage servicing rights and other
intangible assets 96 66
Provision for credit losses 65 35
Deferred income tax expense 50 62
Securities gains (13) (18)
Gain from branch divestitures --- (60)
Originations and purchases of mortgages held for sale (4,589) (4,900)
Proceeds from sales of mortgages held for sale 4,815 4,507
(Increase) decrease in accrued receivables, net (147) 109
Increase (decrease) in accrued liabilities, net (31) 71
Other, net 173 96
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Net cash flow provided by operating activities 783 273
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (983) (3,331)
Proceeds from maturities of securities available for sale 763 2,891
Proceeds from sales of securities available for sale 196 10,171
Purchases of securities held to maturity (147) (171)
Proceeds from maturities of securities held to maturity 193 125
Loans made to customers, nonbanking subsidiaries (620) (274)
Principal collected on loans made to customers, nonbanking
subsidiaries 412 178
Divestiture of loans --- 1,773
Net (increase) decrease in loans and leases, banking
subsidiaries (144) 1,589
Purchases of premises and equipment (40) (43)
Purchases of mortgage servicing rights (73) (79)
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Net cash flow (used) provided by investing activities (443) 12,829
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CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (2,932) (4,652)
Divestiture of deposits --- (2,349)
Net decrease in short-term borrowings (48) (5,395)
Proceeds from issuance of long-term debt --- 342
Repayments of long-term debt (587) (823)
Proceeds from the issuance of common stock 28 32
Proceeds from the issuance of preferred stock --- 414
Repurchase of common stock (376) (10)
Cash dividends paid (131) (114)
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Net cash flow used by financing activities (4,046) (12,555)
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Net (decrease) increase in cash and cash equivalents (3,706) 547
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Cash and cash equivalents at beginning of the period 9,015 4,566
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Cash and cash equivalents at end of the period $ 5,309 $ 5,113
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SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 three months ended March 31, 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. ACQUISITIONS AND DIVESTITURES
On May 1, 1996, the corporation acquired from National Westminster Plc,
substantially all of the net assets of the three main operating subsidiaries
of NatWest Bancorp ("NatWest Bank"). NatWest Bank continues its existence as
part of Fleet Bank, National Association. In accordance with the NatWest
merger agreement, Fleet paid a purchase price at closing of $2.7 billion.
Subject to the level of earnings of Fleet Bank, National Association, Fleet
may be required to make additional payments (the "Earnout") of up to $560
million over the next eight years, commencing in the third quarter of 1997.
The acquisition of NatWest Bank contributed approximately $13 billion and $18
billion of loans and deposits, respectively, and approximately 300 branches
in New York and New Jersey. The transaction was accounted for using the
purchase method of accounting. Accordingly, the corporation's financial
statements include the effect of NatWest only for the period subsequent to
the May 1, 1996 acquisition date. Goodwill of approximately $660 million was
recorded in connection with this transaction and is being amortized on a
straight-line basis over 15 years. Additional goodwill will be recorded for
any payments under the earnout.
The information below presents, on a pro forma basis,
certain historical financial information for the corporation, adjusted for
the NatWest transaction as if the transaction had been consummated on January
1, 1996.
PRO FORMA RESULTS
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THREE MONTHS ENDED MARCH 31
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA) 1996
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PRO FORMA-FLEET AND NATWEST
Net income $302
Net income applicable to common stockholders 282
Net income per common share 1.05
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CORPORATION AS REPORTED
Net income $264
Net income applicable to common stockholders 251
Net income per common share 0.94
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The corporation has reached definitive agreements to sell Option One, a
subsidiary that originates and services residential loans, the corporate
trust business, and 18 branches located in Upstate New York. The corporation
anticipates that these sales will be completed during the second quarter of
1997.
NOTE 3. PREFERRED STOCK
During the first quarter of 1997, the corporation issued 3.4 million
shares of trust preferred securities with a liquidation value of $84 million
in exchange for 3.4 million depository shares (335 thousand shares) of Series
V preferred stock. The trust preferred securities are classified as
long-term debt.
NOTE 4. 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,"
<PAGE>
which delays for one year the effective date of the provisions of SFAS
Statement No. 125 relating to repurchase agreements, dollar-rule, 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 5. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
CASH-FLOW DISCLOSURE
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THREE MONTHS ENDED MARCH 31
DOLLARS IN MILLIONS 1997 1996
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Supplemental disclosure for cash paid
during the period for:
Interest expense $530 $670
Income taxes, net of refunds 18 24
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to foreclosed property
and repossessed equipment 9 7
Securitization of residential loans --- 498
Exchange of Series V preferred stock for
trust preferred securities 84 ---
Adjustment to unrealized gain/(loss) on
securities available for sale (63) (51)
Retirement of common stock --- 34
Divestitures:
Assets sold --- 1,773
Net cash paid for divestitures --- (576)
Liabilities sold --- 2,349
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERALL PERSPECTIVE
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Three months ended March 31
Dollars in millions
except per share data 1997 1996
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Earnings
Net income $ 311 $ 264
Net interest income (FTE) (a) 902 732
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Per Common Share
Fully diluted earnings 1.10 0.94
Cash dividends declared 0.45 0.43
Book value 24.34 22.90
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Operating Ratios
Return on average assets 1.52% 1.41%
Return on common equity 18.82 16.96
Efficiency ratio 58.8 59.3
Equity to assets
(period-end) 8.69 9.49
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At March 31
Total assets $81,692 $72,123
Stockholders' equity 7,097 6,844
Nonperforming assets(b) 704 553
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(a) The FTE adjustment included in net interest income was $9 million and $8
million for the three months ended March 31, 1997 and 1996, respectively.
(b) Nonperforming assets and related ratios at March 31, 1997 and 1996 do not
include $253 million and $307 million, respectively, of nonperforming assets
classified as held for sale or accelerated disposition.
Fleet reported net income of $311 million, or $1.10 per fully diluted
share, for the quarter ended March 31, 1997, compared to $264 million, or $.94
per fully diluted share, in the first quarter of 1996, an increase of 18%.
Return on average assets and return on equity improved to 1.52% and 18.82%,
respectively, for the first quarter of 1997, from 1.41% and 16.96%,
respectively, for the first quarter of 1996. First quarter 1997 results reflect
the impact of the corporation's acquisition of NatWest Bank, National
Association ("NatWest") which was acquired on May 1, 1996, while the first
quarter of 1996 includes a $24 million (post-tax) gain related to branch
divestitures.
The improved results reflect the impact of the NatWest acquisition as the
corporation has experienced substantial growth in its core revenue categories,
including mortgage banking revenue and investment services revenue, combined
with expense savings attributable to the integration of the NatWest and Shawmut
acquisitions. During the quarter, the corporation also repurchased 6.9 million
shares of common stock as part of a program to manage capital levels as the
corporation generates capital through continued earnings growth.
INCOME STATEMENT ANALYSIS
Net Interest Income
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Three months ended March 31
FTE Basis
Dollars in millions 1997 1996
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Interest income $1,437 $1,337
Tax-equivalent adjustment 9 8
Interest expense 544 613
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Net interest income $ 902 $ 732
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Net interest income on a fully taxable equivalent basis totaled $902
million for the quarter ended March 31, 1997, compared to $732 million for the
same period in 1996. The $170 million increase was principally related to the
NatWest acquisition, offset in part by a balance sheet restructuring program and
divestitures of $2.4 billion in deposits and $1.8 billion in loans as a result
of Fleet's merger with Shawmut National Corporation in November 1995. In
anticipation of the NatWest acquisition, the corporation underwent a major
balance sheet restructuring during early 1996 that reduced the corporation's net
interest income but improved its earning asset mix by selling lower-yielding
securities and paying down higher-cost funding.
Net Interest Margin and Interest-Rate Spread
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Three months ended March 31 1997 1996
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FTE Basis Average Average
Dollars in millions Balance Rate Balance Rate
- --------------------------- -------- ----- -- -------- ------ --
Securities $ 8,580 6.67 % $12,130 6.24 %
Loans and leases 58,669 8.63 49,497 8.61
Mortgages held for sale 1,686 7.59 2,085 7.48
Other 1,575 4.91 2,549 9.13
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Total interest-earning
assets 70,510 8.29 66,261 8.15
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Deposits 48,494 3.44 41,249 3.92
Short-term borrowings 3,608 4.91 8,059 5.30
Long-term debt 5,003 7.27 6,080 6.92
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Interest-bearing
liabilities 57,105 3.87 55,388 4.45
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Interest-rate spread 4.42 3.70
Interest-free sources of
funds 13,405 10,873
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Total sources of funds $70,510 3.13 % $66,261 3.72 %
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Net interest margin 5.16 % 4.43 %
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The net interest margin for the first quarter of 1997 increased 73 basis
points to 5.16% from the first 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 $3.6 billion and higher-cost average short-term borrowings decreased
$4.5 billion. The securities and short-term borrowings were replaced by more
favorable yielding loans and lower-cost core deposits acquired from
9
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NatWest and was part of the aforementioned corporation's balance sheet
restructuring program.
Average loans and leases increased $9.2 billion to $58.7 billion for the
first quarter of 1997, when compared with the first quarter of 1996, due to the
NatWest acquisition, partially offset by the divestiture of loans in the first
quarter of 1996. Average loans and leases as a percentage of interest-earning
assets has increased to 83% in the first quarter of 1997 from 75% during the
first quarter of 1996.
Average interest-bearing deposits increased $7.3 billion to $48.5 billion
for the first quarter of 1997 due to the NatWest acquisition, offset by
divestiture of deposits of $2.4 billion in the first quarter of 1996. The net
interest rate paid on average deposits decreased to 3.44% for the first quarter
of 1997 compared to 3.92% for the same period of 1996. The decrease in cost of
deposits reflects the NatWest acquisition which increased the level of
lower-cost core deposits for the first three months of 1997 in comparison to the
same period in 1996. Average core deposits as a percentage of interest-bearing
liabilities has increased to 77% from 60% during the same time period.
The $4.5 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 coupled with the acquisition of NatWest, which enabled the
corporation to replace short-term borrowings with lower-cost core deposits.
The $1.1 billion decrease in long-term debt and 35 basis point increase in
the funding rate was due to scheduled maturities of lower-rate instruments and
the issuance of higher-rate instruments which include 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 first quarter of 1997 remained consistent with the first
quarter of 1996 at 74 basis points and 73 basis points, respectively.
Noninterest Income
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Three months ended March 31
Dollars in millions 1997 1996
- ----------------------------------------- --------- ---------
Service charges, fees and commissions $157 $108
Mortgage banking revenue, net 104 83
Investment services revenue 103 87
Student loan servicing fees 26 22
Venture capital revenue 18 27
Securities gains 13 18
Gain from branch divestitures --- 60
Other noninterest income 105 73
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Total noninterest income $526 $478
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Noninterest income for the first quarter of 1997 totaled $526 million
compared to $478 million for the same period of 1996. Excluding NatWest's
contribution of $75 million in the first quarter of 1997 and the $60 million
gain from branch divestitures in the first quarter of 1996, noninterest income
increased by $33 million, or 8%, over the first quarter of 1996. Increases were
noted in various categories, including investment services revenue, mortgage
banking revenue and student loan servicing fees.
Service charges, fees and commissions totaled $157 million for the first
quarter of 1997 compared to $108 million for the first quarter of 1996, an
increase of 45% related directly to the addition of NatWest. Included in service
charges, fees and commissions are service charges on deposits, electronic
banking and network fees, safe deposit income and other fees.
Mortgage Banking Revenue, Net
- ------------------------------------------------------------
Three months ended March 31
Dollars in millions 1997 1996
- ------------------------------------------------------------
Net loan servicing revenue $111 $94
Mortgage production revenue 40 26
Gains on sales of mortgage servicing 10 4
Mortgage servicing rights amortization (57) (41)
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Total mortgage banking revenue, net $104 $83
- ------------------------------------------------------------
Net mortgage banking revenue of $104 million in the first quarter of 1997
increased $21 million over the $83 million recorded in the same period of 1996.
Loan servicing revenue represents fees received for servicing residential
mortgage loans. The 18% increase in loan servicing revenue is directly
attributable to the $7 billion increase in the corporation's servicing portfolio
from $116 billion at March 31, 1996 to $123 billion at March 31, 1997. Mortgage
production revenue, which includes income derived from the loan origination
process and net gains on sales of mortgage loans, has been positively impacted
by increased gains on the sale of loans, partially offset by lower loan
10
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
origination fees in the first quarter of 1997 when compared with the same
period of 1996. As previously discussed, the corporation has entered into a
definitive agreement to sell Option One, which contributed $20 million of
mortgage banking revenue during the first quarter of 1997, the majority of
which was mortgage production revenue. The corporation sold mortgage
servicing rights (MSRs) of approximately $1.3 billion and $1.0 billion in the
first quarter of 1997 and 1996, respectively, resulting in pre-tax gains of
$10 million and $4 million, respectively. The corporation's decision to sell
MSRs and mortgage loans depends on a variety of factors, including the
available markets and current market prices for such assets and the working
capital requirements of the corporation. Thus, the likelihood or
profitability of any such sales in the future cannot be predicted.
MSR amortization increased $16 million to $57 million for the first quarter
of 1997 as compared to $41 million for the same period of 1996. The level of
amortization increased as the first quarter of 1996 included the recovery of a
valuation reserve that was partially offset in 1996 by higher levels of
amortization relating to the investment in interest-rate contracts that are
purchased to hedge the prepayment risk associated with the mortgage servicing
portfolio. At March 31, 1997, the carrying value and fair value of the
corporation's MSRs were $1.9 billion and $2.0 billion, respectively.
Investment Services Revenue
- --------------------------------- ------------- ------------
Three months ended March 31
Dollars in millions 1997 1996
- --------------------------------- ------------- ------------
Private clients group $ 49 $ 45
Retirement plan services 16 14
Retail investments 16 8
Not-for-profit institutional
services 11 10
Corporate trust 4 4
Investment management 3 2
Other 4 4
- --------------------------------- ------------- ------------
Total investment services
revenue $103 $ 87
- --------------------------------- ------------- ------------
Investment services revenue increased 18% in the first quarter of 1997 to
$103 million. 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 aided by a strong equity market. Assets under
management increased from $45 billion at March 31, 1996 to $48 billion at March
31, 1997. As previously discussed, the corporation has entered into a definitive
agreement to sell the corporate trust unit which generated $4 million of revenue
during the first quarter of 1997.
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 4.7 million accounts nationwide and is the
largest third-party student loan servicer in the United States, with over $23
billion in loans serviced.
Venture capital revenue decreased $9 million to $18 million for the
quarter ended March 31, 1997 when compared to the same quarter of 1996 as
Fleet Private Equity, the corporation's venture capital business, did not
experience the same level of appreciation when compared with the first
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.
As a condition to the regulatory approval of the merger with Shawmut
National Corp., (Shawmut Merger) the corporation divested certain branches,
loans and deposits. The corporation realized $60 million of gains from these
divestitures during the first quarter of 1996.
Other noninterest income increased $32 million to $105 million due
primarily to higher corporate finance fees, trading and foreign exchange gains
and increased credit card revenue.
Noninterest Expense
- -------------------------------------- --------- ----------
Three months ended March 31
Dollars in millions 1997 1996
- -------------------------------------- --------- ----------
Employee compensation and benefits $425 $348
Occupancy 75 61
Equipment 70 57
Intangible asset amortization 39 25
Legal and other professional 28 23
Telephone 20 16
Printing and mailing 19 16
Marketing 18 22
Other 146 149
- -------------------------------------- --------- ----------
Total noninterest expense $840 $717
- -------------------------------------- --------- ----------
Noninterest expense for the first quarter of 1997 totaled $840 million
compared to $717 million for the same period of 1996. The increase of $123
million over the prior year quarter was due primarily to the
11
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
acquisition of NatWest. Excluding NatWest, noninterest expense and operating
noninterest expense (defined as total noninterest expense less intangible
asset amortization and integration costs) declined $50 million and $57
million, respectively, from the first quarter of 1996. These decreases were
primarily the result of ongoing integration of the Shawmut Merger.
Excluding NatWest, employee compensation and benefits remained consistent
with the March 31, 1996 level. Occupancy expense, excluding NatWest, decreased
$6 million from the prior year's quarter due primarily to ongoing successful
integration from the Shawmut Merger, as well as branch divestitures. Equipment
expense, excluding NatWest, increased $2 million from the prior year's quarter
primarily as a result of technological upgrades and improvements, as well as to
support the integration of acquired companies.
Intangible asset amortization increased to $39 million in the first quarter
of 1997 from $25 million in the first quarter of 1996, primarily as a 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 a percentage of the level of earnings from the NatWest
franchise, not to exceed $560 million during an eight-year period. Legal and
other professional expense increased $4 million over the first quarter of 1996,
excluding NatWest, due to merger integration expenses as a result of the Shawmut
Merger, as well as various strategic initiatives.
In connection with the NatWest purchase price, the corporation recorded a
restructuring liability of $250 million during the second quarter of 1996. The
following table presents a summary of activity with respect to the corporation's
merger-related charges pertaining to Shawmut, in addition to the NatWest related
restructuring liability for the three months ended March 31, 1997.
Merger and Restructuring-Related Liabilities
- -------------------------------------------------------------
Three Months Ended
March 31, 1997
Dollars in millions Shawmut NatWest Total
- -------------------------------------------------------------
Balance at December 31, 1996 $158 $ 89 $247
Cash outlays (91) (25) (116)
- -------------------------------------------------------------
Balance at March 31, 1997 $ 67 $ 64 $131
- -------------------------------------------------------------
The cash outlays made during the first three 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 three months of 1997, $3 million of incremental costs have been incurred
relating to the NatWest acquisition and have not been charged against the merger
accrual. It is anticipated that approximately $10 million of additional
incremental costs will be incurred in 1997. The corporation expects that the
remaining accrual balance of $131 million at March 31, 1997 will be sufficient
to absorb the remaining merger-related costs.
Income Taxes
For the first quarter of 1997, the corporation recognized income tax
expense of $203 million, an effective tax rate of 39.5%. Tax expense for the
same period of 1996 was $186 million, an effective tax rate of 41.4%. The first
quarter of 1996 was impacted by a higher effective rate due to a greater level
of nondeductible goodwill which was written off in conjunction with branch
divestitures.
12
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Lines of Business
The financial performance of the corporation is monitored by an internal
profitability measurement 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 and National Consumer, Fee-Based Business, Treasury
and All Other.
Management accounting policies are in place for assigning expenses that are
not directly incurred by businesses, such as overhead, operations and technology
expense. Additionally, equity, loan loss provision and loan loss reserves are
assigned on an economic basis. The corporation has developed a risk-adjusted
methodology that quantifies risk types (e.g., credit, operating, market,
fiduciary) 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
are periodically refined and results may be restated to reflect methodological
refinements and/or management organization changes. The results for the first
quarter of 1997 reflect the integration of NatWest into Fleet's existing
management reporting structure. Results by lines of business for the first
quarter of 1997 and 1996 are presented below.
<TABLE>
<CAPTION>
Selected Financial Highlights by Lines of Business
- ----------------------------------------------------------------------------------------------------------------------
Financial
Commercial Services and
Consumer Financial Investment National Fee-Based
Dollars in millions Banking Services Services Consumer Business Treasury All Other Total
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
Income Statement Data
Net Interest Income (FTE) $ 555 $ 247 $ 26 $ 48 $ 5 $ 42 $(21) $ 902
Noninterest Income 141 61 106 80 106 25 7 526
Noninterest Expense 400 131 83 84 76 17 49 840
Net Income 130 73 27 25 21 29 6 311
- ----------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Average Loans and Leases 16,315 31,688 1,955 1,178 143 7,413 (23) 58,669
Average Deposits 44,897 5,230 2,303 5,953 1,527 4,378 403 64,691
ROE 31% 15% 60% 61% 14% 38% NM 19%
- ----------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
Income Statement Data
Net Interest Income (FTE) $ 392 $ 196 $ 25 $ 44 $ 28 $ 69 $(22) $ 732
Noninterest Income 90 46 90 56 72 22 102 478
Noninterest Expense 331 117 73 71 43 22 60 717
Net Income 63 51 22 16 35 38 39 264
- ----------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Average Loans and Leases 12,469 24,359 1,407 933 67 10,142 120 49,497
Average Deposits 35,703 3,588 2,079 4,796 778 5,042 442 52,428
ROE 17% 15% 55% 56% 14% 28% NM 17%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer Banking
Consumer Banking includes Retail Banking, Small Business Banking and Direct
Financial Services.
Consumer Banking financial results for the first quarter of 1997 were $130
million, compared to $63 million for the same period last year. The increase
in income is primarily the result of lower operating costs and the
acquisition of NatWest. In addition, during 1996, Consumer Banking made
significant investments in people and technology in Direct Banking, the
Credit Card business, and the Insurance business.
Commercial Financial Services
Commercial Financial Services provides a full range of credit and banking
services to its corporate, middle market, real estate and leasing customers.
This group contributed $73 million of earnings in the first quarter of
1997, as compared to $51 million in the prior year quarter. The 43% increase is
due principally to the acquisition of NatWest and higher revenues generated from
corporate finance activities, as well as cost savings.
13
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investment Services
Investment Services is comprised of Private Clients Group, Retirement Plan
Services, Fleet Brokerage Securities, Retail Investment Services, Not-for-Profit
Institutional Services and Fleet Investment Advisors.
Investment Services earned $27 million and had an ROE of 60% in the first
quarter of 1997 compared to $22 million and an ROE of 55% in the first quarter
of 1996. The increase in earnings is primarily attributable to a 55% increase in
mutual fund and annuity sales over the first quarter of 1996.
Financial Services and National Consumer
Financial Services and National Consumer is composed of Fleet's Government
Banking, Global Services, Option One and Student Loan Services businesses.
This group earned $25 million in the first quarter of 1997 compared to $16
million in the prior year quarter. The 56% increase in net income is primarily
due to stronger loan sales at Option One, servicing a higher level of student
loan accounts and the assimilation of NatWest Government Banking into the
organization.
Fee-Based Business
Fee-Based Business is composed of Fleet Private Equity, Mortgage Banking
and Home Equity USA. Fee-Based Business earned $21 million in the first quarter
of 1997 compared to net income of $35 million in the first quarter of 1996.
Fleet Private Equity, the corporation's venture capital finance subsidiary,
earned $8 million in the first quarter as compared to $15 million earned in the
prior year quarter. The decrease in earnings resulted from a $9 million decrease
in venture capital revenue as the corporation did not experience the same level
of appreciation when compared with the first quarter of 1996.
Fleet Mortgage Group, the corporation's mortgage banking subsidiary
earned $11 million in the first quarter as compared to $17 million in the
prior year quarter. The decrease in earnings is due to the first quarter of
1996 including a recovery of a valuation reserve that was partially offset by
higher levels of amortization relating to the investment in interest-rate
contracts that are purchased to hedge the prepayment risk associated with the
mortgage servicing portfolio. The $25 million increase in MSR amortization
was partially offset by higher levels of loan servicing revenue and gains on
sales of mortgage servicing rights, coupled with decreased operating costs.
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 $29 million in the first quarter as compared to
$38 million in the prior year quarter. The decrease in earnings is due primarily
to the reduction of investment securities and residential mortgages as part of
the restructuring of the balance sheet, as well as lower levels of gains in
1997, partially offset by higher foreign exchange trading gains in the first
quarter of 1997.
All Other
All Other includes the parent company and certain transactions not
allocable to any specific business activity. In addition, the impact of
methodology allocations, such as loan loss provision, credit reserve, equity and
the offsets to transfer pricing are reported in this unit.
All Other earned $6 million in the first quarter of 1997 compared to net
income of $39 million in the first quarter of 1996. This unit's earnings include
branch divestitures gains of $24 million (post-tax) in the first quarter of
1996.
14
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
Total assets decreased from $85.5 billion at December 31, 1996 to $81.7
billion at March 31, 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.
Securities
<TABLE>
<CAPTION>
- --------------------------------------- ---------------------------- ---------------------------- ----------------------------
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
Amortized Market Amortized Market Amortized Market
Dollars in millions Cost Value Cost Value Cost Value
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C>
Securities available for sale:
US Treasury and government agencies $1,058 $1,053 $1,077 $1,083 $ 1,722 $ 1,703
Mortgage-backed securities 6,022 5,961 5,987 6,006 7,011 7,005
Other debt securities 31 31 --- --- 1 1
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
Total debt securities 7,111 7,045 7,064 7,089 8,734 8,709
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
Marketable equity securities 201 213 229 255 359 389
Other securities 207 207 159 159 145 145
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
Total securities available for sale 7,519 7,465 7,452 7,503 9,238 9,243
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
Total securities held to maturity 1,092 1,095 1,177 1,172 848 824
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
Total securities $8,611 $8,560 $8,629 $8,675 $10,086 $10,067
- --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
</TABLE>
The amortized cost of securities available for sale remained consistent at
$7.5 billion at December 31, 1996 and March 31, 1997. The valuation reserve on
securities available for sale declined to an unrealized loss position of $54
million at March 31, 1997 from an unrealized gain position of $51 million at
December 31, 1996, due to an overall increase in interest rates during the
quarter.
Loans and Leases
- --------------------------- ---------- ---------- ----------
March 31, Dec. 31, March 31,
Dollars in millions 1997 1996 1996
- --------------------------- ---------- ---------- ----------
Commercial and industrial $30,267 $29,278 $21,931
Lease financing 2,602 2,611 2,282
Commercial real estate:
Construction 1,023 1,074 645
Interim/permanent 5,126 5,379 4,007
Residential real estate 7,921 8,048 9,370
Consumer 12,115 12,454 9,324
- --------------------------- ---------- ---------- ----------
Total loans and leases $59,054 $58,844 $47,559
- --------------------------- ---------- ---------- ----------
Total loans and leases increased $210 million from $58.8 billion at
December 31, 1996 to $59.1 billion at March 31, 1997 due primarily to an
increase in the commercial and industrial portfolio, partially offset by
decreases in the consumer and commercial real estate portfolios.
Commercial and industrial (C&I) loans increased $989 million from December
31, 1996 to March 31, 1997, due primarily to increases in corporate finance,
specialized lending and national banking.
Commercial real estate (CRE) loans decreased $304 million from December 31,
1996 to March 31, 1997 due to the syndication of several loans in the first
quarter, coupled with expected pay-downs.
Outstanding residential real estate loans secured by one- to four-family
residences decreased $127 million to $7.9 billion at March 31, 1997, compared to
$8.0 billion at December 31, 1996.
Consumer Loans
- ---------------------------- ---------- ----------- ----------
March 31, Dec. 31, March 31,
Dollars in millions 1997 1996 1996
- ---------------------------- ---------- ----------- ----------
Home equity $ 4,987 $ 5,061 $4,467
Credit card 3,050 3,227 1,674
Student loans 1,301 1,255 1,226
Installment/Other 2,777 2,911 1,957
- ---------------------------- ---------- ----------- ----------
Total $12,115 $12,454 $9,324
- ---------------------------- ---------- ----------- ----------
Consumer loans of $12.1 billion at March 31, 1997 decreased $339 million
when compared to a portfolio of $12.5 billion at December 31, 1996. The decrease
from December 31, 1996 is principally attributed to decreased credit card loans
of $177 million due to a high level of balance pay-offs. In addition, other
consumer loans decreased $134 million to $2.8 billion at March 31, 1997 from
$2.9 billion at December 31, 1996, due primarily to an approximately $100
million decrease in the indirect lending portfolio. On January 15, 1997, the
corporation announced its intention to sell its indirect auto lending operation,
a business unit with approximately $2 billion in loans, that provides new and
used car financing originated by
15
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
auto dealers in New England, New York and New Jersey.
Nonperforming Assets(a)
- -------------------------- ------ ------- ---------- -------
Dollars in millions C&I CRE Consumer Total
- -------------------------- ------ ------- ---------- -------
Nonperforming loans and
leases:
Current or less than 90
days past due $187 $ 58 $ 12 $257
Noncurrent 156 99 162 417
OREO 1 7 22 30
- -------------------------- ------ ------- ---------- -------
Total NPAs
March 31, 1997 $344 $164 $196 $704
- -------------------------- ------ ------- ---------- -------
Total NPAs
December 31, 1996 $351 $166 $206 $723
- -------------------------- ------ ------- ---------- -------
Total NPAs
March 31, 1996 $267 $126 $160 $553
- -------------------------- ------ ------- ---------- -------
(a) Throughout this document, NPAs and related ratios
do not include loans greater than 90 days past due
and still accruing interest ($226 million, $247
million and $180 million at March 31, 1997,
December 31, 1996, and March 31, 1996,
respectively). Included in the 90 days past due and
still accruing interest were $186 million, $192
million and $132 million of consumer loans at March
31, 1997, December 31, 1996 and March 31, 1996,
respectively.
Nonperforming assets (NPAs) decreased $19 million from December 31, 1996 to
$704 million at March 31, 1997. NPAs at March 31, 1997, as a percentage of total
loans, leases and OREO, and as a percentage of total assets were 1.19% and .86%,
respectively, compared to 1.23% and .85%, respectively, at December 31, 1996.
The relative improvement was due primarily to declining levels of nonperforming
assets in the C&I and consumer portfolios. NPAs may increase during 1997 as the
region in which Fleet operates has experienced slower growth than the nation as
a whole, and this trend is expected to continue.
Activity in Nonperforming Assets
- ------------------------------------------------------------
1st Qtr. 4th Qtr. 1st Qtr.
Dollars in millions 1997 1996 1996
- ------------------------------------------------------------
Balance at beginning of $723 $759 $499
period
Additions 172 280 221
Reductions:
Payments/interest applied (98 ) (110 ) (88 )
Returned to accrual (15 ) (12 ) (17 )
Charge-offs/writedowns (53 ) (71 ) (37 )
Sales/other (25 ) (26 ) (25 )
NPAs reclassified as
held for accelerated --- (97 ) ---
disposition
- ------------------------------------------------------------
Total reductions (191 ) (316 ) (167 )
- ------------------------------------------------------------
Balance at end of period $704 $723 $553
- ------------------------------------------------------------
The $280 million of additions to nonperforming assets in the fourth quarter
of 1996 primarily relate to the extensive review of the acquired NatWest
portfolio.
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
- ------------------- ---------- ---------- ---------- --------
Dollars in millions C&I CRE Consumer Total
- ------------------- ---------- ---------- ---------- --------
Nonaccrual loans
and leases $ 82 $141 $ 16 $239
OREO 5 1 8 14
- ------------------- ---------- ---------- ---------- --------
March 31, 1997 $ 87 $142 $ 24 $253
- ------------------- ---------- ---------- ---------- --------
December 31, 1996 $ 93 $147 $ 25 $265
- ------------------- ---------- ---------- ---------- --------
March 31, 1996 $ 46 $ 63 $198 $307
- ------------------- ---------- ---------- ---------- --------
Reserve for Credit Loss Activity
- ---------------------------------------------------------------
Three months ended March 31
Dollars in millions 1997 1996
- ---------------------------------------------------------------
Balance at beginning of year $1,488 $1,321
Provision charged against income 65 35
Loans and leases charged off (127 ) (83 )
Recoveries of loans and leases charged off 37 23
- ---------------------------------------------------------------
Net charge-offs (90 ) (60 )
Other (1 ) (9 )
- ---------------------------------------------------------------
Balance at end of period $1,462 $1,287
- ---------------------------------------------------------------
Ratios of net charge-offs to average loans
and leases 0.61 % 0.49 %
- ---------------------------------------------------------------
Ratios of reserve for credit losses to
period-end loans and leases 2.48 % 2.71 %
- ---------------------------------------------------------------
Ratio of reserve for credit losses to
period-end NPAs 208 % 233 %
- ---------------------------------------------------------------
Ratio of reserve for credit losses to
period-end non-
performing loans and leases 217 % 258 %
- ---------------------------------------------------------------
Fleet's reserve for credit losses increased from $1,287 million at March
31, 1996, to $1,462 million at March 31, 1997, which included reserves related
to NatWest. The first quarter 1997 provision for credit losses was $65 million,
$30 million higher than the prior year's first quarter. The increase is due to
$27 million of provision for credit losses related to the NatWest franchise and
higher provision being recorded primarily as a result of increased net
charge-offs in the credit card portfolio. The provision for credit losses is
expected to increase in 1997 as the gap between the provision for credit losses
and charge-offs is expected to narrow.
16
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Charge-Offs
- ------------------------------------------- -------- --------
Three months ended March 31
Dollars in millions 1997 1996
- ------------------------------------------- -------- --------
Commercial and industrial $ 8 $13
Commercial real estate 9 11
Credit card 44 18
Residential 7 6
Other consumer 22 12
- ------------------------------------------- -------- --------
Total $90 $60
- ------------------------------------------- -------- --------
Net charge-offs were $90 million in the first quarter of 1997 compared to
$60 million in the first quarter of 1996 as a result of the addition of the
NatWest franchise, coupled with increasing charge-offs in the credit card
portfolio. Net charge-offs from the credit card portfolio increased from $18
million in the first quarter of 1996 to $44 million in the first quarter of 1997
as the average portfolio grew from $1.6 billion to $3.2 billion over the same
periods. The corporation expects credit card delinquencies and net charge-offs
to increase slightly above current levels.
Funding Sources
- ---------------------------- ---------- --------- -----------
March 31, Dec. 31, March 31,
Dollars in millions 1997 1996 1996
- ---------------------------- ---------- --------- -----------
Deposits:
Demand $16,089 $17,903 $10,485
Regular savings, NOW,
money market 27,738 27,976 21,783
Time:
Domestic 17,545 18,583 16,163
Foreign 2,767 2,609 1,690
- ---------------------------- ---------- --------- -----------
Total deposits 64,139 67,071 50,121
- ---------------------------- ---------- --------- -----------
Short-term borrowed funds:
Federal funds purchased $ 588 $ 488 $ 552
Securities sold under
agreements to
repurchase 2,176 2,382 3,258
Commercial paper 660 676 1,399
Other 155 81 1,964
- ---------------------------- ---------- --------- -----------
Total short-term borrowed
funds 3,579 3,627 7,173
- ---------------------------- ---------- --------- -----------
- ---------------------------- ---------- --------- -----------
Long-term debt 4,617 5,114 6,000
- ---------------------------- ---------- --------- -----------
Total $72,335 $75,812 $63,294
- ---------------------------- ---------- --------- -----------
Total deposits decreased $2.9 billion to $64.1 billion at March 31, 1997,
when compared to December 31, 1996, due primarily to deposit runoff. Demand
deposits decreased $1.8 billion primarily due to seasonal increases in year-end
balances for quarterly and annual service charges, tax payments and higher
balances related to corporate customer accounts. Time deposits decreased $880
million due to decreases in retail certificates of deposit and individual
retirement accounts.
Long-term debt decreased $497 million to $4.6 billion at March 31, 1997,
when compared to December 31, 1996, due to $573 million in scheduled maturities,
partially offset by $84 million of trust preferred securities issued in exchange
for Series V preferred stock.
ASSET-LIABILITY MANAGEMENT
The goal of asset-liability management is to ensure that liquidity, capital
and market risk are prudently managed. Asset-liability management is governed by
policies reviewed and approved annually by the corporation's Board of Directors
(Board). The Board delegates responsibility for asset-liability management to
the corporate Asset-Liability Management Committee (ALCO). ALCO sets strategic
directives that guide the day-to-day asset-liability management activities of
the corporation. ALCO also reviews and approves all major funding, capital and
market risk-management programs.
Interest-Rate Risk
Interest-rate risk is the sensitivity of income to variations in interest
rates over both short-term and long-term time horizons. The primary goal of
interest-rate risk management is to control this risk within limits approved by
the Board and narrower guidelines approved by ALCO. These limits and guidelines
reflect the corporation's tolerance for interest-rate risk. The corporation
attempts to control interest-rate risk by identifying exposures, quantifying and
hedging them. The corporation quantifies its interest-rate risk exposures using
sophisticated simulation and valuation models, as well as simpler gap analyses.
The corporation manages its interest-rate exposures using a combination of on-
and off-balance sheet instruments, primarily fixed-rate portfolio securities,
interest-rate swaps and options.
The corporation'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:
17
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------ --- ------------------------------
Rate Change Estimated Exposure as a % of
(Basis Points) Net Interest Income
- ------------------ --- ------------------------------
+200 0.8%
-200 (1.6)
- ------------------ --- ------------------------------
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:
- ------------------ --- ------------------------------
Rate Change Estimated Exposure as a
(Basis Points) % of Economic Value
- ------------------ --- ------------------------------
+200 (2.0)%
-200 (3.9)
- ------------------ --- ------------------------------
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 March 31, 1997, the
estimated exposure was 0.7% asset-sensitive (see the following table):
Interest-Rate Gap Analysis
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Repriced Within
- ------------------------------------------------------------------------------------------------------------------------
March 31, 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>
- ------------------------------------------------------------------------------------------------------------------------
Total assets $45,547 $ 8,527 $5,409 $8,996 $13,213 $81,692
Total liabilities and stockholders'
equity (30,057 ) (14,924 ) (8,280 ) (7,754 ) (20,677 ) (81,692 )
Net off-balance sheet (9,870 ) 1,374 4,325 3,506 665 ---
- ------------------------------------------------------------------------------------------------------------------------
Periodic gap 5,620 (5,023 ) 1,454 4,748 (6,799 )
Cumulative gap 5,620 597 2,051 6,799 ---
Cumulative gap as a percent of total
assets at March 31, 1997 6.9 % 0.7 % 2.5 % 8.3 %
- ------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total
assets at December 31, 1996 1.8 % 2.4 % 0.7 % 9.1 %
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The most significant factors affecting the interest-rate risk position in
the first quarter were the planned reduction in time deposit balances and the
aging of the interest-rate swap and securities portfolio. In its management of
these and other factors influencing the current environment, the corporation has
attempted to maintain a moderately asset sensitive position.
18
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Risk-Management Instrument Analysis
- ---------------------------------------------------------------------------------------------------------------------------
Weighted
Assets/ Average Weighted Average
March 31, 1997 Notional Liabilities Maturity Fair Rate
Dollars in millions Value Hedged (Years) Value Receive Pay
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-rate swaps:
Receive fixed/pay variable $ 8,015 Variable rate loans
895 Fixed rate deposits
850 Escrow deposits
765 Long-term debt
375 Short-term borrowings
----------
10,900 2.4 $(129 ) 6.94 % 6.64 %
- ---------------------------------------------------------------------------------------------------------------------------
Basis swaps 2,729 Deposits
299 Securities
30 Long-term debt
----------
3,058 2.0 --- 5.62 5.52
- ---------------------------------------------------------------------------------------------------------------------------
Interest-rate floors-purchased $21,431 Mortgage servicing rights 4.0 3 --- (a) --- (a)
Interest-rate caps-purchased 4,309 Mortgage servicing rights 3.6 53 --- (a) --- (a)
Interest-rate caps-sold 4,309 Mortgage servicing rights 3.6 (142 ) --- (a) --- (a)
Call options-purchased 1,235 Mortgage servicing rights 0.3 1 --- ---
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Total risk-management instruments $45,242 3.3 $(214 ) 6.65 % 6.39 %
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The mortgage-banking risk-management interest-rate floors-purchased,
caps-purchased and caps-sold have weighted average strike rates of 5.27%,
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 March 31, 1997, derivative instruments totaling $45.2
billion (notional amount) were being used for interest-rate and mortgage-banking
risk-management purposes.
At March 31, 1997, the corporation had net deferred income of $24.9 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 a very
interest-rate sensitive asset due to the mortgage borrower's option to prepay
the mortgage loan.
To mitigate the prepayment risk of declining long-term interest rates,
higher than expected mortgage prepayments, and a potential impairment to 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. Combination of these
instruments result in a net purchased option position. At March 31, 1997, the
corporation had approximately $21.4 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 March
31, 1997, net hedge losses of $128 million have been deferred and recorded as
adjustments to the carrying value of MSRs. Deferred hedge losses include $41
million of realized hedge losses related to the termination of certain risk
management instruments during the first quarter of 1997. Amounts paid for
interest-rate contracts are amortized over the life of the contracts and are
included as a component of MSR amortization. At March 31, 1997, the carrying
value and fair value of the corporation's MSRs were $1.9 billion and $2.0
billion, respectively.
19
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risk-Management Instrument Activity
The risk-management instrument activity for the three months ended March
31, 1997 is summarized in the following table (all amounts are notional
amounts):
<TABLE>
<CAPTION>
Risk-Management Instrument Activity
- -------------------------------------------------------------------------------------------------------------------------------
Interest-Rate Swaps Interest-Rate Options
------------------------------------- -----------------------------------------------------
Call Call
Receive- Pay- Index- Floors Caps Caps Options Options
Dollars in millions Fixed Fixed Basis Amortizing Other Purchased Purchased Sold Purchased Sold Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notional amounts:
Balance at December 31, 1996 $11,055 $ 4 $3,823 $ 11 $112 $15,911 $2,515 $2,515 $1,276 $225 $37,447
Additions 125 --- --- --- --- 5,520 2,441 2,441 1,235 --- 11,762
Maturities (280 ) --- --- (11 ) (112 ) --- --- --- --- --- (403 )
Terminations --- (4 ) (765 ) --- --- --- (647 ) (647 ) (1,276 ) (225 ) (3,564 )
- -------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 $10,900 $ --- $3,058 $ --- $--- $21,431 $4,309 $4,309 $1,235 $--- $45,242
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first quarter of 1997, there was a net increase of
approximately $7.8 billion of risk-management instruments as the corporation
expanded its hedge program for mortgage servicing rights.
The maturities of the risk-management instruments are shown in the
following table:
<TABLE>
<CAPTION>
Maturities of the Risk-Management Instruments
- ---------------------------------------------------------------------------------------------------------------------
March 31, 1997
Dollars in millions Within 1 1 to 2 2 to 3 3 to 4 4 to 5 After 5 Total
Year Years Years Years Years Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notional amounts:
Interest rate swaps
Receive-fixed $2,404 $4,325 $1,607 $ 624 $ 1,225 $ 715 $10,900
Basis 329 1,529 1,200 --- --- --- 3,058
Interest-rate --- --- 2,886 7,985 10,060 500 21,431
floors-purchased
Interest-rate --- --- 905 2,736 668 --- 4,309
caps-purchased
Interest-rate caps-sold --- --- 905 2,736 668 --- 4,309
Call options-purchased 1,235 --- --- --- --- --- 1,235
- ---------------------------------------------------------------------------------------------------------------------
Total risk-management
instruments $3,968 $5,854 $7,503 $14,081 $12,621 $1,215 $45,242
- ---------------------------------------------------------------------------------------------------------------------
</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, the ability to fund new
and existing loan commitments and to take advantage of business opportunities.
Liquidity is composed of the maintenance of a strong base of core customer
funds, maturing short-term assets, the ability to sell marketable securities,
committed lines of credit and access to capital markets. Increasingly, liquidity
is enhanced through the securitization of consumer asset receivables. Liquidity
at Fleet is measured and monitored daily, allowing management to better
understand and react to balance sheet trends. ALCO is responsible for
implementing the Board's policies and guidelines governing liquidity.
The strength of Fleet's liquidity position is a result of its base of core
customer deposits. These core deposits are supplemented by wholesale funding
sources in the national and international capital markets as well as from
direct customer contacts. Wholesale funding sources include large certificates
of deposit, foreign branch deposits, federal funds, collateralized borrowings
and a $4 billion bank-note program.
At March 31, 1997 and December 31, 1996, the corporation had commercial
paper outstanding of $660 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 amount of funds available under
these agreements was $1.0 billion at March 31, 1997, with no outstanding balance
under these lines of credit. Fleet has shelf registration statements that
20
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
provide for the issuance of common and preferred stock, senior or
subordinated debt securities and other securities with total amount of funds
available of approximately $963.4 million at March 31, 1997.
CAPITAL
- -------------------------------------------------------------
March 31, Dec, 31, March 31,
Dollars in millions 1997 1996 1996
- -------------------------------------------------------------
Risk-adjusted assets $77,970 $78,571 $63,591
Tier 1 risk-based
capital (4% minimum) 7.54% 7.67 % 9.18 %
Total risk-based capital
(8% minimum) 11.26 11.36 13.03
Leverage ratio
(4% minimum) 7.22 7.14 7.88
Common equity-to-assets 7.62 7.56 8.35
Total equity-to-assets 8.69 8.67 9.49
Tangible common
equity-to-assets 5.70 5.68 6.96
Tangible total
equity-to-assets 6.79 6.82 8.12
- -------------------------------------------------------------
At March 31, 1997, the corporation exceeded all regulatory required minimum
capital ratios as Fleet's preliminary Tier 1 and Total risk based capital ratios
were 7.54 percent and 11.26 percent, respectively, compared with 7.67 percent
and 11.36 percent, respectively, at December 31, 1996. The leverage ratio, a
measure of Tier 1 capital to average quarterly assets, was 7.22 percent at March
31, 1997, compared with 7.14 percent at December 31, 1996. The corporation's
ratios decreased slightly when compared to December 31, 1996 due to the
repurchase of 6.9 million common shares during the first quarter of 1997 at an
average cost of $54.67 per share. These shares were repurchased as part of the
corporation's capital management program as 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 March 31, 1997, basic and diluted EPS, as calculated
under the new statement, are $1.14 and $1.10, respectively, as compared to the
reported EPS of $1.10 for both fully diluted and primary earnings per share.
Also in February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure," which will be effective for 1997 financial
statements. The corporation's disclosures currently comply with the provisions
of this statement.
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.
<PAGE>
PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The corporation held its Annual Meeting of Stockholders on April 16, 1997.
(b) Not applicable.
(c) A brief description of each matter voted upon at the meeting, and the
number of votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes, as to each such matter, follows. A
separate tabulation with respect to each nominee for office is also
included.
Two matters were voted on at the Annual Meeting.
1. ELECTION OF DIRECTORS
All six nominees for election as directors were elected. There were
no abstentions or broker non-votes for any of the nominees.
NAME OF DIRECTOR FOR AGAINST TERM EXPIRATION
--------------- --- ------- ---------------
William Barnet, III 214,247,483 3,122,232 2000
John T. Collins 214,255,830 3,113,885 2000
Raymond C. Kennedy 214,221,594 3,148,121 2000
Robert J. Matura 214,229,063 3,140,652 2000
Terrence Murray 214,129,617 3,240,098 2000
Samuel O. Thier 214,093,193 3,276,522 2000
The following directors will continue in office and were not up for
re-election.
Joel B. Alvord 1998
Bradford R. Boss 1998
Stillman B. Brown 1998
James F. Hardyman 1998
Arthur C. Milot 1998
Lois D. Rice 1998
John R. Riedman 1998
Paul J. Choquette, Jr. 1999
Bernard M. Fox 1999
Robert J. Kavner 1999
Thomas D. O'Connor 1999
Michael B. Picotte 1999
Paul R. Tregurtha 1999
22
<PAGE>
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The second proposal voted on by stockholders of the corporation, to
approve the appointment of KPMG Peat Marwick LLP to serve as
independent auditors of the corporation for the current fiscal year
ended December 31, 1997, was approved with 215,996,739 votes cast for,
862,002 votes cast against, and 510,974 abstentions. There were no
broker non-votes.
(d) Not applicable
23
<PAGE>
PART II. ITEM 6.
(a) Exhibit Index
Page of
Exhibit this
Number Report
- ------ --------
4 Instruments defining the right of security holders, including
debentures *
11 Statement re-computation of per share earnings
12 Statement re-computation of ratios
27 Financial data schedule
* Registrant has no instruments defining the rights of holders of equity or
debt securities where the amount of securities authorized thereunder
exceeds 10% of the total assets of the registrant and its subsidiaries on a
consolidated basis. Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
(b) Four Form 8-K's were filed during the period from January 1, 1997 to
the date of the filing of this report.
- Current Report on Form 8-K dated January 15, 1997 announcing
fourth quarter earnings and the sale of Option One, the indirect
lending portfolio and corporate trust business, as well as the
common stock repurchase plan.
- Current Report on Form 8-K dated February 12, 1997 reporting the
exchange of 3.4 million shares of Series V 7.25% Perpetual
Preferred Stock for 3.4 million shares of 8.00% Trust Originated
Preferred Securities on February 4, 1997.
- Current Report on Form 8-K dated March 28, 1997 filing the
Unaudited Pro Forma Combined Financial Statements as of December
31, 1996, and Notes thereto, in connection with the NatWest
Merger.
- Current Report on Form 8-K dated April 16, 1997 announcing first
quarter earnings.
24
<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: May 14, 1997
25
<PAGE>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three Months Ended March 31
------------------------------------------------------
1997 1996
------------------------------------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
------------------------------------------------------
Equivalent shares:
Average shares
outstanding 258,555,022 258,555,022 262,525,888 262,525,888
Additional shares
due to:
Stock options 3,785,675 3,853,161 2,163,012 2,178,472
Warrants 5,043,537 5,071,231 3,663,854 3,671,654
------------------------------------------------------
Total equivalent shares 267,384,234 267,479,414 268,352,754 268,376,014
------------------------------------------------------
------------------------------------------------------
Earnings per share
Net income $ 310,691 $ 310,691 $263,802 $ 263,802
Less: Preferred stock
dividends (17,024) (17,024) (12,538) (12,538)
------------------------------------------------------
------------------------------------------------------
Adjusted net income $ 293,667 $ 293,667 $251,264 $ 251,264
------------------------------------------------------
------------------------------------------------------
Total equivalent shares 267,384,234 267,479,414 268,352,754 268,376,014
------------------------------------------------------
------------------------------------------------------
Earnings per share on
net income $ 1.10 $ 1.10 $ 0.94 $ 0.94
------------------------------------------------------
------------------------------------------------------
26
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS
(THOUSANDS)
Three months
ended
March 31 Year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Income before income taxes,
extraordinary credit and cumulative effect of
change in method of accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197
(b) Preferred dividends 28,133 117,676 62,064 48,859 60,365 65,658
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Adjusted earnings $ 682,821 $2,785,594 $2,424,339 $2,469,490 $1,958,829 $1,370,654
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges and preferred dividends $ 169,384 854,996 $1,390,583 $1,089,851 $ 864,373 $ 753,285
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings/fixed charges 4.03x 3.26x 1.74x 2.27x 2.27x 1.82x
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCLUDING INTEREST ON DEPOSITS
Three months
ended
March 31 Year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Income before income taxes, extra-
ordinary credit and cumulative effect
of change in method of accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197
(3) Interest on deposits 416,263 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804
(b) Preferred dividends 28,133 117,676 62,064 48,859 60,365 65,658
- ---------------------------------------------------------------------------------------------------------------------------------
(c) Adjusted earnings $1,099,084 $4,539,317 $4,150,742 $3,640,022 $3,123,875 $3,069,458
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges and preferred dividends $ 585,647 $2,608,719 $3,116,986 $2,260,383 $2,029,419 $2,452,089
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings/fixed charges 1.88x 1.74x 1.33x 1.61x 1.54x 1.25x
- ---------------------------------------------------------------------------------------------------------------------------------
27
<PAGE>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
EXCLUDING INTEREST ON DEPOSITS
(THOUSANDS)
Three months
ended
March 31 Year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Income before income taxes,
extraordinary credit and cumulative
effect of change in method of
accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted earnings $ 654,688 $2,667,918 $2,362,275 $2,420,631 $1,898,464 $1,304,996
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges $ 141,251 $ 737,320 $1,328,519 $1,040,992 $ 804,008 $ 687,627
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings/fixed charges 4.63x 3.62x 1.78x 2.33x 2.36x 1.90x
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INCLUDING INTEREST ON DEPOSITS
Three months
ended
March 31 Year ended December 31
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings:
Income before income taxes,
extraordinary credit and cumulative
effect of change in method of
accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430
(2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197
(3) Interest on deposits 416,263 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804
- ---------------------------------------------------------------------------------------------------------------------------------
(b) Adjusted earnings $1,070,951 $4,421,641 $4,088,678 $3,591,163 $3,063,510 $3,003,800
- ---------------------------------------------------------------------------------------------------------------------------------
Fixed charges $ 557,514 $2,491,043 $3,054,922 $2,211,524 $1,969,054 $2,386,431
- ---------------------------------------------------------------------------------------------------------------------------------
Adjusted earnings/fixed charges 1.92x 1.78x 1.34x 1.62x 1.56x 1.26x
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the March
31, 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> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 4,894 3,287
<INT-BEARING-DEPOSITS> 153 18
<FED-FUNDS-SOLD> 262 1,808
<TRADING-ASSETS> 120 98
<INVESTMENTS-HELD-FOR-SALE> 7,465 9,243
<INVESTMENTS-CARRYING> 1,092 848
<INVESTMENTS-MARKET> 1,095 824
<LOANS> 59,054 47,559
<ALLOWANCE> 1,462 1,287
<TOTAL-ASSETS> 81,692 72,123
<DEPOSITS> 64,139 50,121
<SHORT-TERM> 3,579 7,173
<LIABILITIES-OTHER> 2,260 1,985
<LONG-TERM> 4,617 6,000
0 0
869 824
<COMMON> 3,140 3,125
<OTHER-SE> 3,088 2,895
<TOTAL-LIABILITIES-AND-EQUITY> 81,692 72,123
<INTEREST-LOAN> 1,287 1,144
<INTEREST-INVEST> 150 193
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 1,437 1,337
<INTEREST-DEPOSIT> 416 402
<INTEREST-EXPENSE> 544 613
<INTEREST-INCOME-NET> 893 724
<LOAN-LOSSES> 65 35
<SECURITIES-GAINS> 13 18
<EXPENSE-OTHER> 840 717
<INCOME-PRETAX> 514 450
<INCOME-PRE-EXTRAORDINARY> 514 450
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 311 264
<EPS-PRIMARY> 1.10 .94
<EPS-DILUTED> 1.10 .94
<YIELD-ACTUAL> 5.16 4.43
<LOANS-NON> 674 499
<LOANS-PAST> 226 180
<LOANS-TROUBLED> 2 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,488 1,321
<CHARGE-OFFS> 127 83
<RECOVERIES> 37 23
<ALLOWANCE-CLOSE> 1,462 1,287
<ALLOWANCE-DOMESTIC> 1,462 1,287
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 220 235
</TABLE>
