<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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _________ TO __________
COMMISSION FILE NUMBER 1-6366
FLEET FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
RHODE ISLAND 05-0341324
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(Address of principal executive office) (Zip Code)
(617) 346-4000
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
-------- --------
The number of shares of common stock of the Registrant outstanding as of
July 31, 1998 was 283,924,673.
================================================================================
<PAGE>
FLEET FINANCIAL GROUP, INC.
FORM 10-Q FOR QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE
----
PART I. ITEM 1. FINANCIAL INFORMATION
Consolidated Statements of Income
Three Months Ended June 30, 1998 and 1997 3
Six Months Ended June 30, 1998 and 1997 4
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 5
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1998 and 1997 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 7
Condensed Notes to Consolidated Financial Statements 8
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 21
SIGNATURES 22
EXHIBITS 23
2
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
======================================================================================================
FOR THE THREE MONTHS ENDED JUNE 30
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans $1,481 $1,329
Interest on securities 179 137
Other 56 41
- ------------------------------------------------------------------------------------------------------
Total interest income 1,716 1,507
- ------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 474 407
Short-term borrowings 109 58
Long-term debt 104 84
Other 57 34
- ------------------------------------------------------------------------------------------------------
Total interest expense 744 583
- ------------------------------------------------------------------------------------------------------
Net interest income 972 924
- ------------------------------------------------------------------------------------------------------
Provision for credit losses 118 83
- ------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 854 841
- ------------------------------------------------------------------------------------------------------
Noninterest income:
Investment services revenue 220 164
Banking fees and commissions 182 178
Processing-related revenue 126 130
Capital markets revenue 107 65
Credit card revenue 98 15
Other 76 223
- ------------------------------------------------------------------------------------------------------
Total noninterest income 809 775
- ------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 482 443
Occupancy 75 70
Equipment 74 76
Intangible asset amortization 59 41
Legal and other professional 34 35
Other 293 360
- ------------------------------------------------------------------------------------------------------
Total noninterest expense 1,017 1,025
- ------------------------------------------------------------------------------------------------------
Income before income taxes 646 591
Applicable income taxes 253 244
- ------------------------------------------------------------------------------------------------------
Net income $ 393 $ 347
======================================================================================================
Net income applicable to common shares $ 380 $ 331
Diluted weighted average common shares outstanding 294,380,093 283,814,698
Basic earnings per share $ 1.34 $ 1.20
Diluted earnings per share 1.29 1.17
Dividends declared .49 .45
- ------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
3
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
======================================================================================================
FOR THE SIX MONTHS ENDED JUNE 30
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and fees on loans $2,858 $2,638
Interest on securities 342 277
Other 110 82
- ------------------------------------------------------------------------------------------------------
Total interest income 3,310 2,997
- ------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 911 823
Short-term borrowings 195 103
Long-term debt 193 174
Other 110 64
- ------------------------------------------------------------------------------------------------------
Total interest expense 1,409 1,164
- ------------------------------------------------------------------------------------------------------
Net interest income 1,901 1,833
- ------------------------------------------------------------------------------------------------------
Provision for credit losses 210 148
- ------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 1,691 1,685
- ------------------------------------------------------------------------------------------------------
Noninterest income:
Investment services revenue 421 336
Banking fees and commissions 358 352
Capital markets revenue 245 136
Processing-related revenue 186 272
Credit card revenue 154 29
Other 140 263
- ------------------------------------------------------------------------------------------------------
Total noninterest income 1,504 1,388
- ------------------------------------------------------------------------------------------------------
Noninterest expense:
Employee compensation and benefits 926 902
Equipment 154 155
Occupancy 149 147
Intangible asset amortization 110 82
Legal and other professional 65 65
Merger-related charges 73 ---
Other 537 578
- ------------------------------------------------------------------------------------------------------
Total noninterest expense 2,014 1,929
- ------------------------------------------------------------------------------------------------------
Income before income taxes 1,181 1,144
Applicable income taxes 465 463
- ------------------------------------------------------------------------------------------------------
Net income $ 716 $ 681
======================================================================================================
Net income applicable to common shares $ 691 $ 648
Diluted weighted average common shares outstanding 293,999,643 286,067,372
Basic earnings per share $ 2.43 $ 2.33
Diluted earnings per share 2.35 2.26
Dividends declared .98 .90
- ------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
</TABLE>
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
==========================================================================================================================
JUNE 30, DECEMBER 31,
DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash, due from banks and interest-bearing deposits $ 5,847 $ 5,076
Federal funds sold and securities purchased under agreements to resell 220 498
Securities (market value: $11,298 and $9,367) 11,293 9,362
Loans 66,754 62,565
Reserve for credit losses (1,551) (1,432)
- --------------------------------------------------------------------------------------------------------------------------
Net loans 65,203 61,133
- --------------------------------------------------------------------------------------------------------------------------
Due from brokers/dealers 3,885 3,510
Mortgages held for resale 2,875 1,526
Premises and equipment 1,238 1,205
Mortgage servicing rights 1,668 1,768
Intangible assets 2,758 2,196
Other assets 5,726 4,773
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 100,713 $ 91,047
==========================================================================================================================
LIABILITIES
Deposits:
Demand $ 13,101 $13,148
Regular savings, NOW, money market 32,276 30,485
Time 21,615 20,102
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 66,992 63,735
- --------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold under agreements to repurchase 3,176 3,635
Other short-term borrowings 7,971 3,870
Due to brokers/dealers 4,983 4,316
Long-term debt 5,654 4,500
Accrued expenses and other liabilities 3,076 2,539
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 91,852 82,595
- --------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock 691 691
Common stock (285,584,715 shares issued in 1998 and 285,602,282
shares issued in 1997) 3 3
Common surplus 3,299 3,329
Retained earnings 4,851 4,437
Accumulated other comprehensive income 105 97
Treasury stock, at cost (1,737,498 shares in 1998 and 1,939,464 shares
in 1997) (88 ) (105 )
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 8,861 8,452
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $100,713 $ 91,047
==========================================================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
===================================================================================================================================
ACCUMULATED
OTHER
COMMON COMPRE-
STOCK AT HENSIVE
SIX MONTHS ENDED JUNE 30 PREFERRED $.01 COMMON RETAINED INCOME TREASURY
DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS STOCK PAR SURPLUS EARNINGS (LOSS) STOCK TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997
- ----
Balance at December 31, 1996 $ 953 $ 3 $3,223 $3,640 $ 31 $ (60) $7,790
Net income 681 681
Other comprehensive loss, net of tax:
Adjustment of valuation reserve for securities
available for sale (6) (6)
--------
Comprehensive income 675
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
Acquisition of Nash Weiss & Co. 16 16
Adjustment to retained earnings reflecting pooled
entity different year-end (23) (23)
Treasury stock purchased (693) (693)
Exchange of Series V preferred stock for trust
preferred securities (84) (84)
Other, net (3) (2) 1 (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $ 835 $ 3 $3,209 $4,036 $ 25 $ (682) $7,426
- -----------------------------------------------------------------------------------------------------------------------------------
1998
Balance at December 31, 1997 $ 691 $ 3 $3,329 $4,437 $ 97 $ (105) $8,452
Net income 716 716
Other comprehensive income, net of tax:
Adjustment of valuation reserve for securities
available for sale 8 8
--------
Comprehensive income 724
Cash dividends declared on common stock
($0.98 per share) (275) (275)
Cash dividends declared on preferred stock (25) (25)
Common stock issued in connection with
employee benefit and stock option plans (30) (2) 50 18
Treasury stock purchased (33) (33)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $ 691 $ 3 $3,299 $4,851 $105 $ (88) $8,861
===================================================================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
6
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
============================================================================================================
SIX MONTHS ENDED JUNE 30
DOLLARS IN MILLIONS 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 716 $ 681
Adjustments for noncash items:
Depreciation and amortization of premises and equipment 121 106
Amortization and impairment of mortgage servicing rights 253 116
Amortization of other intangible assets 110 79
Provision for credit losses 210 148
Deferred income tax expense 142 156
Securities gains (51) (18)
Merger and restructuring-related charges 73 ---
Net gains on sales of business units --- (175)
Originations and purchases of mortgages held for resale (12,669) (7,568)
Proceeds from sales of mortgages held for resale 11,320 7,691
(Increase)/decrease in due from brokers/dealers (374) 10
Increase in accrued receivables, net (88) (164)
Increase/(decrease) in due to brokers/dealers 666 (53)
Increase in accrued liabilities, net 288 553
Other, net (327) (146)
- ------------------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 390 1,416
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (3,665) (1,790)
Proceeds from maturities of securities available for sale 489 421
Proceeds from sales of securities available for sale 1,160 1,256
Purchases of securities held to maturity (577) (560)
Proceeds from maturities of securities held to maturity 752 759
Net cash and cash equivalents received from businesses acquired 380 ---
Net increase in loans and leases (2,737) (1,785)
Net cash received from sale of business units --- 748
Purchases of premises and equipment (92) (75)
Purchases of mortgage servicing rights (182) (135)
- ------------------------------------------------------------------------------------------------------------
Net cash flow used in investing activities (4,472) (1,161)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposits 670 (3,842)
Net increase in short-term borrowings 3,050 2,159
Proceeds from issuance of long-term debt 1,718 97
Repayments of long-term debt (564) (661)
Proceeds from the issuance of common stock 18 45
Repurchase and redemption of common and preferred stock (33) (727)
Cash dividends paid (284) (268)
- ------------------------------------------------------------------------------------------------------------
Net cash flow provided by/(used in) financing activities 4,575 (3,197)
- ------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 493 (2,942)
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of the period 5,574 9,104
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the period $6,067 $ 6,162
============================================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
7
<PAGE>
FLEET FINANCIAL GROUP, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
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 or the 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, 1997. On February
1, 1998, the corporation acquired The Quick & Reilly Group, Inc. (Quick &
Reilly). Since the Quick & Reilly acquisition was accounted for under the
pooling-of-interests method of accounting, all prior periods have been restated
to include Quick & Reilly financial information. The corporation's December 31,
1997 Annual Report has been restated for the Quick & Reilly acquisition and has
been filed on Form 8-K with the SEC. 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, 1998 may not
be indicative of operating results for the year ending December 31, 1998.
NOTE 2. ACQUISITIONS AND MERGER-RELATED CHARGES
During the fourth quarter of 1997, the corporation entered into a
definitive agreement to acquire the consumer credit card operations of
Advanta Corporation (Advanta). This acquisition closed on February 20, 1998
under the purchase method of accounting and as such, the results of Advanta
are included for the period subsequent to the acquisition date. Goodwill of
approximately $500 million was recorded in connection with this transaction
and is being amortized on a straight-line basis over 15 years. Additionally,
purchased credit card intangible of approximately $150 million was recorded.
Subject to the level of earnings at Advanta, Fleet may be required to make
additional earnout payments up to $100 million over five years, which will be
recorded as goodwill.
During the first quarter of 1998, the corporation recorded $73 million
of merger-related charges in connection with the acquisitions of Quick &
Reilly and the consumer credit card operations of Advanta. The merger-related
charges pertain primarily to exit costs, severance costs and professional
fees.
NOTE 3. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cash-Flow Disclosure
- ---------------------------------------------------------------
Six months ended June 30
Dollars in millions 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Supplemental disclosure for cash paid
during the period for:
Interest expense $1,396 $1,271
Income taxes, net of refunds 297 141
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to foreclosed property
and repossessed equipment 6 19
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 gain (loss) on
securities available for sale 8 (6)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Assets acquired and liabilities assumed in
business combinations were as follows:
Assets acquired, net of cash and cash
equivalents received 2,845 --
Net cash and cash equivalents received 380 --
Liabilities assumed 3,225 --
- ---------------------------------------------------------------
Divestitures:
Assets sold -- 541
Net cash received for divestitures -- 748
Liabilities sold -- 24
- ---------------------------------------------------------------
</TABLE>
8
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Three months Six months
Dollars in millions, ended June 30 ended June 30
except per share data 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------
Earnings
Net income $ 393 $ 347 $ 716 $ 681
Net interest income (FTE)(a) 981 933 1,919 1,851
- -------------------------------------------------------------------------
Per Common Share
Basic earnings 1.34 1.20 2.43 2.33
Diluted earnings 1.29 1.17 2.35 2.26
Cash dividends declared .49 .45 .98 .90
Book value 28.78 24.11 28.78 24.11
- -------------------------------------------------------------------------
Operating Ratios
Return on average assets 1.59 % 1.62 % 1.51 % 1.59 %
Return on common equity 18.97 20.14 17.51 19.65
Efficiency ratio 56.8 56.7 56.7 57.9
Equity to assets (period-end) 8.80 8.48 8.80 8.48
- -------------------------------------------------------------------------
At June 30
Total assets $100,713 $87,573 $100,713 $87,573
Stockholders' equity 8,861 7,426 8,861 7,426
Nonperforming assets(b) 337 531 337 531
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
(a) The FTE adjustment included in net interest income was $9 million for each
of the three months ended and $18 for each of the six months ended June 30,
1998 and 1997, respectively.
(b) Nonperforming assets and related ratios at June 30, 1998 and 1997 do not
include $147 million and $249 million, respectively, of nonperforming assets
classified as held for sale or accelerated disposition.
Fleet reported net income of $393 million, or $1.29 per diluted share,
for the quarter ended June 30, 1998, compared to $347 million, or $1.17 per
diluted share, in the second quarter of 1997. Return on average assets (ROA)
and return on common equity (ROE) were 1.59% and 18.97%, respectively, for
the second quarter of 1998, compared to 1.62% and 20.14%, respectively, for
the second quarter of 1997. Net income for the first six months of 1998 was
$716 million including merger-related charges of $73 million ($44 million
post-tax) pertaining to the acquisitions of Quick & Reilly and the consumer
credit card operations of Advanta. Diluted earnings per share rose 4% to
$2.35 for the first six months of 1998 compared with $2.26 earned in the
first half of 1997. ROA and ROE for the first six months of 1998 were
1.51% and 17.51%, respectively, compared with 1.59% and 19.65%, respectively,
for 1997.
The second quarter of 1997 results include net gains totaling $175
million (pre-tax) on the corporation's sales of Option One, its nonconforming
mortgage banking subsidiary, its Corporate Trust division and its Indirect
Auto Lending portfolio. Also included in the other noninterest expense
category were $155 million of charges pertaining primarily to the impairment
of certain technology investments, severance costs and the settlement of a
lawsuit.
INCOME STATEMENT ANALYSIS
Net Interest Income
<TABLE>
<CAPTION>
- ----------------------------- ----------------- -----------------
Three months Six months
FTE Basis ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- ----------------------------- -------- -------- -------- --------
Interest income $1,716 $1,507 $3,310 $2,997
Tax-equivalent adjustment 9 9 18 18
Interest expense 744 583 1,409 1,164
- ----------------------------- -------- -------- -------- --------
Net interest income $ 981 $ 933 $1,919 $1,851
- ----------------------------- -------- -------- -------- --------
</TABLE>
Net interest income on a fully taxable equivalent basis (FTE) totaled $981
million for the quarter ended June 30, 1998, compared to $933 million for the
same period in 1997. The increase is primarily attributable to the acquisition
of Advanta, strong growth in Fleet's earning assets and increased loan fees.
9
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Net Interest Margin and Interest-Rate Spread
- ------------------------------------------------------------------------
Three months ended June 30 1998 1997
FTE Basis Average Average
Dollars in millions Balance Rate Balance Rate
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities $11,099 6.58 % $ 8,327 6.72%
Loans 66,329 8.68 60,017 8.68
Mortgages held for sale 2,513 7.26 1,444 7.91
Due from brokers/dealers 4,482 4.55 2,628 4.60
Other 1,018 3.82 1,347 5.40
- ------------------------------------------------------------------------
Total interest-earning assets 85,441 8.09 73,763 8.24
- ------------------------------------------------------------------------
Deposits 51,322 3.70 47,614 3.43
Short-term borrowings 9,005 4.77 4,963 4.62
Due to brokers/dealers 5,167 4.62 3,026 4.58
Long-term debt 5,572 7.48 4,611 7.33
- ------------------------------------------------------------------------
Interest-bearing liabilities 71,066 4.20 60,214 3.89
- ------------------------------------------------------------------------
Interest-rate spread 3.89 4.35
Interest-free sources of funds 14,375 13,549
- ------------------------------------------------------------------------
Total sources of funds $85,441 $73,763
- ------------------------------------------------------------------------
Net interest margin 4.60 % 5.07%
- ------------------------------------------------------------------------
</TABLE>
The corporation's net interest margin for the second quarter of 1998 was
4.60%, a decrease of 47 basis points from the second quarter of 1997. The
decrease in net interest margin is primarily attributable to higher-cost
sources of funds, principally wholesale time deposits and short-term
borrowings, funding the corporation's growth in core commercial loans and the
credit card loans obtained as part of the Advanta acquisition, coupled with
substantial increases in lower spread activity at the corporation's brokerage
subsidiary, Quick & Reilly.
Average securities increased $2.8 billion from the second quarter of
1997, due to Fleet's efforts to reposition the corporation's interest-rate
sensitivity, while the yield declined slightly as a result of a low
interest-rate environment.
Average loans increased $8.5 billion to $66.3 billion for the second
quarter of 1998, when compared with the second quarter of 1997, excluding
$2.2 billion of indirect auto loans sold in the third quarter of 1997. This
growth resulted primarily from the acquisition of Advanta which incrementally
added approximately $2.2 billion of average credit card loans and increases
in the commercial, corporate finance, and lease financing portfolios.
Average due from brokers/dealers and due to brokers/dealers both
increased approximately $2 billion as a result of increased match book
activity and funding of customers' margin accounts at Quick & Reilly.
The $3.7 billion increase in average interest-bearing deposits compared
to the second quarter of 1997 is due primarily to $2.0 billion of time and
savings deposits from the acquisition of Advanta. The net interest rate paid
on average deposits increased 27 basis points to 3.70% for the second quarter
of 1998 compared to the same period of 1997. The increase in the cost of
deposits reflects a shift in the mix of deposits, partially attributable to
an influx of wholesale time deposits as a result of the Advanta acquisition.
The $4.0 billion increase in average short-term borrowings is
attributable to an increase in both federal funds purchased and treasury, tax
and loan borrowings as the corporation utilized these favorably priced
funding vehicles to fund asset growth.
The $961 million increase in average long-term debt was due principally
to increases of $737 million in senior and subordinated debt, and the
issuance of $225 million in trust preferred securities in order to take
advantage of the low interest-rate environment and to strengthen the
corporation's regulatory capital ratios.
Noninterest Income
<TABLE>
<CAPTION>
- ---------------------------------- -------------- -----------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- ---------------------------------- ------ ------- -------- --------
<S> <C> <C> <C> <C>
Investment services revenue $220 $164 $ 421 $ 336
Banking fees and commissions 182 178 358 352
Processing-related revenue 126 130 186 272
Capital markets revenue 107 65 245 136
Credit card revenue 98 15 154 29
Other noninterest income 76 223 140 263
- ---------------------------------- ------ ------- -------- --------
- ---------------------------------- ------ ------- -------- --------
Total noninterest income $809 $775 $1,504 $1,388
- ---------------------------------- ------ ------- -------- --------
</TABLE>
Noninterest income for the second quarter of 1998 increased $34 million
to $809 million compared to $775 million for the same period of 1997, an
increase of 4%. Excluding $175 million of net gains on sales of business
units in the second quarter of 1997, noninterest income increased $209
million, or 35%. Increases were noted in several core revenue categories
including investment services revenue, capital markets revenue, as well as
credit card revenue, partially offset by decreases in processing-related
revenue. These increases primarily reflect the acquisition of the consumer
credit card operations of Advanta, strong growth at Quick & Reilly, and
enhanced revenue growth in the investment management business, which has been
positively impacted by the acquisition of Columbia Management Company
(Columbia) in late 1997.
Investment Services Revenue
<TABLE>
<CAPTION>
- ------------------------------------- -------------- ---------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- ------------------------------------- ------- ------ ------- -------
<S> <C> <C> <C> <C>
Investment services revenue $136 $ 98 $261 $196
Brokerage fees and commissions 84 66 160 140
- ------------------------------------- ------- ------ ------- -------
Total investment services revenue $220 $164 $421 $336
- ------------------------------------- ------- ------ ------- -------
</TABLE>
Investment services revenue, which includes asset management revenues,
as well as brokerage fees and commissions, increased $56 million, or 34% over
the second quarter of 1997. Brokerage fees and commissions increased $18
million, or 27%, over the second quarter of 1997 due to increased customer
trading volumes as a result of the strong performance in the equity markets.
10
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The major components of investment service revenue excluding brokerage
revenue are as follows:
<TABLE>
<CAPTION>
- ----------------------------- -------------- ---------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- ----------------------------- ------- ------ ------- -------
<S> <C> <C> <C> <C>
Private clients group $ 55 $ 49 $106 $ 97
Columbia Management Company 27 --- 50 ---
Retail investments 20 15 37 32
Retirement plan services 17 15 33 31
Not-for-profit
institutional services 13 12 25 23
Other 4 7 10 13
- ----------------------------- ------- ------ ------- -------
Total $ 136 $ 98 $261 $196
- ----------------------------- ------- ------ ------- -------
</TABLE>
Investment services revenue, excluding brokerage revenue for the second
quarter of 1998, increased 39% to $136 million compared to $98 million in the
second quarter of 1997. This improvement was largely due to the acquisition of
Columbia in December 1997, as well as growth in overall assets under management.
Assets under management have grown 53%, including the acquisition of Columbia,
to $80 billion at June 30, 1998 from $52 billion at June 30, 1997. These
increases reflect the corporation's continued focus on developing, acquiring and
growing fee-based businesses. The Galaxy funds grew to $13 billion at June 30,
1998 from $10 billion over the same period in 1997, and Columbia mutual funds
represented $7 billion in assets under management at June 30, 1998.
Processing-Related Revenue
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage banking revenue, net $ 78 $ 91 $ 96 $194
Student loan servicing fees 30 26 58 52
Other 18 13 32 26
- --------------------------------------------------------------
Total processing-related
revenue $126 $130 $186 $272
- --------------------------------------------------------------
</TABLE>
Processing-related revenue decreased $4 million when compared to the
second quarter of 1997 due primarily to a decline in mortgage banking revenue
as a result of the sale of Option One, which contributed $20 million to the
second quarter of 1997. Student loan servicing fees increased $4 million, or
15%, at AFSA Data Corporation (AFSA), the corporation's student loan
servicing subsidiary. AFSA services 5.8 million accounts nationwide and is
the largest third-party student loan servicer in the United States, with over
$41 billion in loans serviced. Other processing-related revenue increased $5
million as a result of a full quarter's impact of a recently acquired health
care processing company.
<TABLE>
<CAPTION>
Mortgage Banking Revenue, Net
- -------------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loan servicing revenue $113 $114 $230 $225
Mortgage production revenue 58 35 85 75
Gains on sales of mortgage servicing 8 --- 34 10
Mortgage servicing rights amortization (101) (58) (178) (116)
Impairment charge --- --- (75) ---
- -------------------------------------------------------------------------------
Total mortgage banking revenue, net $ 78 $ 91 $ 96 $194
- -------------------------------------------------------------------------------
</TABLE>
Net mortgage banking revenue was $78 million in the second quarter of
1998. Excluding the sale of Option One during the second quarter of 1997, net
mortgage banking revenue increased $7 million, or 10%, compared to the second
quarter of 1997. Loan servicing revenue, which remained stable during the
second quarter of 1998, represents fees received for servicing residential
mortgage loans.
Mortgage production revenue increased $23 million to $58 million in the
second quarter of 1998 as a result of strong loan production volume as loan
production volume in the second quarter of 1998 exceeded $9 billion compared
to $4.4 billion in the second quarter of 1997. This revenue includes income
derived from the loan origination process and net gains on sales of mortgage
loans.
Mortgage servicing rights (MSRs) amortization increased $43 million to
$101 million for the second quarter of 1998 as compared to $58 million for
the same period of 1997. The level of amortization increased due to a strong
acceleration in prepayments resulting from a decline in mortgage interest
rates, coupled with a higher level of amortization of recently purchased
mortgage servicing rights with a higher servicing spread. At June 30, 1998,
the carrying value and fair value of the corporation's MSRs were $1.7 billion
and $1.8 billion, respectively.
Capital Markets Revenue
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Venture capital revenue $ 39 $10 $ 69 $ 28
Brokerage market-making revenue 31 24 62 40
Foreign exchange/interest-rate products 19 11 33 23
Corporate finance fees 12 10 18 16
Securities trading gains 6 6 12 11
Securities gains --- 4 51 18
- --------------------------------------------------------------------------
Total capital markets revenue $107 $65 $245 $136
- --------------------------------------------------------------------------
</TABLE>
11
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital markets revenue increased $42 million to $107 million for the
quarter ended June 30, 1998 when compared to the same quarter of 1997. This
was due primarily to increasing levels of venture capital revenue, increased
volume in the corporation's market-making activity at Quick & Reilly, as well
as strong foreign exchange and interest-rate product activities. The gains on
the investments of Fleet Private Equity, the corporation's venture capital
business, increased by $29 million in the second quarter of 1998 when
compared with the second quarter of 1997. The corporation's ability to
continue to experience increases in the value of these venture capital
investments depends on a variety of factors, including the condition of the
economy and equity markets. Thus, the likelihood of such gains in the future
cannot be predicted.
Other noninterest income increased $28 million to $76 million when
compared to $48 million, excluding $175 million of gains on sales of certain
business units, in the second quarter of 1997. This increase is due primarily
to revenues resulting from the Advanta acquisition.
Noninterest Expense
<TABLE>
<CAPTION>
- ------------------------------------ ---------------- -----------------
Three months Six months
ended June 30 ended June 30
Dollars in millions 1998 1997 1998 1997
- ------------------------------------- -------- ------- -------- --------
<S> <C> <C> <C> <C>
Employee compensation and benefits $ 482 $ 443 $ 926 $ 902
Occupancy 75 70 149 147
Equipment 74 76 154 155
Intangible asset amortization 59 41 110 82
Legal and other professional 34 35 65 65
Marketing 35 22 62 44
Telephone 25 21 46 42
Printing and mailing 24 20 46 41
Other 209 297 383 451
- ------------------------------------- -------- ------- -------- --------
Total noninterest expense excluding
merger-related charges 1,017 1,025 1,941 1,929
Merger-related charges --- --- 73 ---
- ------------------------------------- -------- ------- -------- --------
Total noninterest expense $1,017 $1,025 $2,014 $1,929
- ------------------------------------- -------- ------- -------- --------
</TABLE>
Total noninterest expense for the second quarter of 1998 totaled $1,017
million compared to $1,025 million for the same period of 1997. Excluding
$155 million of charges in the second quarter of 1997 pertaining primarily to
the impairment of certain technology investments, severance costs and the
settlement of a lawsuit, noninterest expense increased $147 million in the
second quarter of 1998 over the same period in 1997. The increase is
primarily attributable to the acquisitions of Advanta and Columbia.
Employee compensation and benefits increased $39 million compared with
the second quarter of 1997 due to increasing levels of compensation expense
attributable primarily to Advanta and annual merit increases, partly offset
by divested businesses. Marketing expense increased $13 million over the
prior year quarter due to increased marketing initiatives associated with the
Advanta and Columbia acquisitions.
Intangible asset amortization increased $18 million in the second
quarter of 1998 when compared to the second quarter of 1997. This increase
was due to the acquisitions of Columbia and Advanta, as well as additional
goodwill recorded in the third quarter of 1997 pertaining to the NatWest
earnout agreement.
Other noninterest expense increased $67 million to $209 million in the
second quarter of 1998 compared to $142 million in the second quarter of
1997, excluding $155 million of charges recorded in that quarter, due
primarily to the acquisition of Advanta.
IMPACT OF THE YEAR 2000 ISSUE
The corporation's Year 2000 project is directed by a Year 2000 Executive
Management Steering Committee consisting of its President and Vice Chairmen.
They provide direct oversight of the Year 2000 initiative and are updated
monthly on the project's progress. The corporation's Board of Directors
receives project updates on a quarterly basis.
The corporation has completed its assessment of Year 2000 issues,
developed a plan, and arranged for the required resources to complete the
necessary remediation efforts. The corporation will utilize both internal and
external resources to reprogram, or replace, and test the software and
hardware for Year 2000 modifications.
The corporation has remediated, tested and returned to production more
than half of its applications. This activity continues to track in accordance
with the original plan and the corporation expects to have substantially
completed the remediation and testing of all applications by the end of 1998.
The corporation has established a separate test environment to accommodate
its Year 2000 testing activity and the anticipated need to test with its
customers and other third parties during 1999.
The corporation relies on several third party service providers for key
business processes. It continues to work closely with these companies to
monitor the progress of their Year 2000 efforts. The corporation's senior
management has conducted on-site visits with its most critical service
providers to discuss and assess their Year 2000 readiness. In addition, the
corporation is receiving written and verbal verification from its significant
third party service providers and vendors as to their Year 2000 readiness.
The corporation will begin Year 2000 testing with several of these key
vendors in the third quarter of 1998 and plans to complete testing by the end
of the first quarter of 1999. Validation of Year 2000 readiness of all the
corporation's vendors continues with a particular focus on the readiness and
alternatives, where possible, for vendors that have been identified as
critical.
While the corporation continues to discuss these matters with, obtain
written certification from and test the systems of such other companies as to
the Year 2000 compliance, there can be no assurance that any potential impact
associated with incompatible systems after December 31, 1999 would not
have a material adverse effect on the corporation's business, financial
condition or results of operations.
The corporation had previously established business continuity plans for
its lines of business. The corporation is in the process of assessing these
plans for the possible impact of Year 2000 anticipated failures. It will
adjust its existing business continuity plans where appropriate and possible
for those scenarios that may have the most severe impact on its operations.
This activity is expected to be substantially complete by the end of the
fourth quarter of 1998.
The corporation continues to anticipate that the cost of the Year 2000
project will not exceed $150 million. During the quarter, the corporation
incurred $19 million of expenses and has incurred $52 million of expenses to
date.
Income Taxes
For the second quarter of 1998, the corporation recognized income tax
expense of $253 million, an effective tax rate of 39.2%. Tax expense for the
same period of 1997 was $244 million, an effective tax rate of 41.3%.
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: retail banking, commercial financial services, national financial
services, investment services, and treasury.
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 risk adjusted methodologies that quantify 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.
12
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Fleet Financial Group
Net Income by Line of Business
- ---------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Retail Banking $116 $121
Commercial Financial Services 108 84
National Financial Services 74 20
Investment Services 58 42
Treasury 27 14
All Other 10 66
- ---------------------------------------------------------------
Total $393 $347
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Retail Banking
- ---------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Income statement data:
Net interest income $ 451 $ 476
Noninterest income 161 152
Provision 29 29
Noninterest expense 372 377
- ---------------------------------------------------------------
Net income $ 116 $ 121
- ---------------------------------------------------------------
Balance sheet data:
Average loans 10,093 10,735
Average deposits 42,646 43,933
- ---------------------------------------------------------------
Return on equity 27% 27%
- ---------------------------------------------------------------
</TABLE>
Retail Banking includes businesses engaged in consumer retail services
through branch banking and direct banking units, as well as small business
lending and deposit services. The retail banking unit earned $116 million in
the second quarter of 1998, which was down slightly from the same period in
the prior year. Lower earnings primarily reflect lower deposit volumes
resulting partly from the reconfiguration of the branch network in the second
quarter of 1997, as well as customer migration from traditional deposit
products towards higher yielding products and mutual funds. The impact of
lower deposit volumes was mostly offset by higher noninterest revenue from
increased debit card and ATM activity associated with the deployment of
almost 300 ATMs late in 1997. Operating costs were down versus the second
quarter of 1997 partly due to efficiencies gained in the reconfiguration of
the branch network in the second quarter of 1997. These efficiencies helped
to fund investments associated with the expansion of alternative delivery
channels including remote ATMs, PC banking, and debit card volume.
<TABLE>
<CAPTION>
Commercial Financial Services
- -----------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- -----------------------------------------------------------------
<S> <C> <C>
Income statement data:
Net interest income $ 320 $ 292
Noninterest income 102 99
Provision 52 53
Noninterest expense 191 192
- -----------------------------------------------------------------
Net income $ 108 $ 84
- -----------------------------------------------------------------
Balance sheet data:
Average loans 38,958 33,996
Average deposits 11,395 11,174
- -----------------------------------------------------------------
Return on equity 20% 15%
- -----------------------------------------------------------------
</TABLE>
Commercial financial services includes traditional commercial banking,
national, specialized and asset-based lending, as well as investment banking,
government banking, trade finance and cash management services. Commercial
financial services earned $108 million in the second quarter of 1998.
Compared to the second quarter of 1997, earnings increased $24 million, or
29%, driven mostly by strong loan growth and continued tight expense control.
Compared to the prior year, loans increased 15%, or $5.0 billion, reflecting
strong loan growth within the commercial banking, specialty lending, and
asset-based lending sectors. Despite overall loan growth of 15%, the
provision for loan loss was slightly lower than the second quarter of 1997
due to improving credit quality. Increased noninterest income was largely
influenced by the continued success of corporate finance activities and the
ability to effectively cross sell existing corporate accounts. As a result,
corporate finance fees increased by 30%, while cash management and trade
services activities increased 12%. These increases were partly offset by
several large transactional items recorded in the second quarter of 1997.
13
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
National Financial Services
- ----------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Income statement data:
Net interest income $ 128 $ 71
Noninterest income 280 121
Provision 75 49
Noninterest expense 213 110
- ----------------------------------------------------------------
Net income $ 74 $ 20
- ----------------------------------------------------------------
Balance sheet data:
Average loans 4,976 3,079
Average deposits 2,651 1,799
- ----------------------------------------------------------------
Return on equity 13% 9%
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
National financial services includes mortgage banking, credit card
services, student loan processing, and venture capital services. The
following table presents comparative data for the four principal businesses
which comprise national financial services.
<TABLE>
<CAPTION>
National Financial Services
Net Income by Unit
- ----------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Venture capital $ 26 $ 4
Mortgage banking 23 12
Student loan processing 5 5
Credit card 20 (1)
- ----------------------------------------------------------------
Total $ 74 $ 20
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
Second quarter earnings of $74 million increased $54 million compared to
the same quarter a year ago. Improved earnings were only partly the result of
the Advanta acquisition. Mortgage banking and venture capital each recognized
increased earnings from higher levels of noninterest revenue. Mortgage
banking earnings increased due to higher loan production volumes, driven by
refinancing activity and new mortgage volumes as consumers seek to lock in
low mortgage interest rates. Increased venture capital income resulted from
gains on several managed investments. The growth in credit card earnings
reflects the impact of the acquisition of Advanta's credit card unit in the
first quarter of 1998.
<TABLE>
<CAPTION>
Investment Services
- ------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Income statement data:
Net interest income $ 45 $ 42
Noninterest income 257 189
Provision 1 1
Noninterest expense 201 158
- ------------------------------------------------------------
Net income $ 58 $ 42
- ------------------------------------------------------------
Balance sheet data:
Average loans 3,897 3,006
Average deposits 2,117 2,290
- ------------------------------------------------------------
Return on equity 22% 27%
- ------------------------------------------------------------
Assets under management $80,007 $52,409
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
Investment services provides asset management services to institutional
and wealthy market clients, retail mutual fund and annuity sales, and
discount brokerage services. Investment services earned $58 million in the
second quarter of 1998 compared to $42 million in the second quarter of 1997,
an increase of 38%. Improved earnings reflect Fleet's continued emphasis on
high growth noninterest income generating business lines. Noninterest income
increased by $68 million, or 36% reflecting strong growth in brokerage
activity and sales of investment products, as well as significant increases
in assets under management. Net interest income also increased due to loan
growth in both the brokerage and private clients group. Assets under
management totaled $80 billion at June 30, 1998, an increase of 53% compared
to $52 billion at June 30,1997. This growth reflects the acquisition of
Columbia, which had $20 billion in assets under management at June 30, 1998.
The return on equity of 22% in the second quarter of 1998 reflects the impact
of the premium paid in connection with the acquisition of Columbia. Excluding
the impact of the goodwill associated with that transaction, return on equity
would have been 40% in the second quarter of 1998.
<TABLE>
<CAPTION>
Treasury
- --------------------------------------------------------------
For the three months ended June 30, June 30,
Dollars in millions 1998 1997
- --------------------------------------------------------------
<S> <C> <C>
Income statement data:
Net interest income $ 29 $ 27
Noninterest income 22 9
Provision 4 3
Noninterest expense 15 16
- --------------------------------------------------------------
Net income $ 27 $ 14
- --------------------------------------------------------------
Balance sheet data:
Average loans 7,312 5,975
Average securities 9,993 7,347
Average deposits 6,953 4,097
- --------------------------------------------------------------
Return on equity 35% 22%
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
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 $27
million compared to second quarter 1997 earnings of $14 million. The increase
in earnings of $13 million reflect increased fee income from the sale of
foreign exchange and interest-rate protection products, as well as increased
residential loan and investment portfolio balances.
14
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All Other
This unit includes allocated support units, the management accounting
control units, and certain transactions or events not driven by specific
business lines. Similarly, for comparative purposes, certain businesses sold
in late 1997 have also been moved out of their business lines and into this
unit. Accordingly earnings in this unit can fluctuate with changes affecting
total company loan loss provision, one time charges, gains and other actions
not driven by specific business units.
Earnings were $10 million compared to $66 million in the second quarter
of 1997. Lower earnings result from certain businesses sold and transactional
gains recorded in the second quarter of 1997. Earnings for the second quarter
of 1997 included operating income from discontinued operations, as well as
gains associated with the sale of these units.
<TABLE>
<CAPTION>
Securities
- -------------------------------------------------------------------------------------------------------------------------
June 30, 1998 March 31, 1998 December 31, 1997
------------------------- ------------------------- -------------------------
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 $ 1,091 $ 1,106 $ 1,204 $ 1,211 $1,126 $1,134
Mortgage-backed securities 7,941 8,094 7,981 8,096 6,177 6,298
Other debt securities 494 496 255 255 186 189
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total debt securities 9,526 9,696 9,440 9,562 7,489 7,621
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Marketable equity securities 315 314 289 288 256 282
Other securities 209 209 158 158 210 210
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total securities available for sale 10,050 10,219 9,887 10,008 7,955 8,113
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total securities held to maturity 1,074 1,079 1,271 1,276 1,249 1,254
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Total securities $11,124 $11,298 $11,158 $11,284 $9,204 $9,367
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
- --------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The amortized cost of securities available for sale increased $2.1
billion to $10.1 billion at June 30, 1998 compared to December 31, 1997 due
to a program designed to reposition the corporation's interest-rate
sensitivity. The valuation adjustment on securities available for sale
increased $11 million during this period to an unrealized gain position of
$169 million at June 30, 1998.
<TABLE>
<CAPTION>
Loans
- ----------------------------------------------------------------------
June 30, March 31, Dec. 31,
Dollars in millions 1998 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and industrial $34,360 $33,397 $32,000
Lease financing 3,775 3,458 3,376
Commercial real estate 5,280 5,484 5,677
Residential real estate 9,768 9,344 10,019
Consumer 13,571 13,303 11,493
- ----------------------------------------------------------------------
Total loans $66,754 $64,986 $62,565
- ----------------------------------------------------------------------
</TABLE>
Total loans increased $4.2 billion from December 31, 1997 to $66.8
billion at June 30, 1998, resulting primarily from loan growth in the
commercial and industrial and lease financing portfolios, as well as the
acquisition of the consumer credit card operations of Advanta.
Commercial and industrial (C&I) loans increased $2.4 billion from
December 31, 1997 to June 30, 1998, due primarily to growth in asset-based
lending, large corporate loans, and continued participation in the
syndication market within the corporation's corporate finance group.
Commercial real estate (CRE) loans decreased $397 million from December 31,
1997 to June 30, 1998 due to pay-downs.
The corporation continues to monitor the financial developments in the
Asian economies. The corporation has certain relationships with customers in
the Asian marketplace. These relationships contain both market and credit
risks. Fleet's exposure to the Asian market as of June 30, 1998 was
approximately $125 million and related primarily to short-term trade related
financings.
Outstanding residential real estate loans secured by one- to four-family
residences decreased $251 million to $9.8 billion at June 30, 1998 compared
to $10.0 billion at December 31, 1997. This decline is the result of
accelerated prepayments coupled with the sale of residential loans
anticipated to prepay in the near future.
15
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Consumer Loans
- ---------------------------------------------------------------
June 30, March 31, Dec. 31,
Dollars in millions 1998 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Home equity $ 4,523 $ 4,662 $ 4,851
Credit card 5,032 4,741 2,742
Student loans 984 1,046 1,029
Installment/Other 3,032 2,854 2,871
- ---------------------------------------------------------------
Total $13,571 $13,303 $11,493
- ---------------------------------------------------------------
</TABLE>
Consumer loans increased $2.1 billion from December 31, 1997. The
increase is primarily the result of the acquisition of the consumer credit
card portfolio of Advanta.
<TABLE>
<CAPTION>
Nonperforming Assets(a)(b)
- ---------------------------------------------------------------------------
Dollars in millions C&I CRE Consumer Total
- --------------------------------------- ------ ------- ---------- -------
<S> <C> <C> <C> <C>
Nonperforming loans:
Current or less than 90 days past due $ 87 $44 $ 5 $136
Noncurrent 93 31 56 180
OREO 1 4 16 21
- --------------------------------------- ------ ------- ---------- -------
Total NPAs June 30, 1998 $181 $79 $77 $337
- --------------------------------------- ------ ------- ---------- -------
Total NPAs March 31, 1998 $200 $91 $82 $373
- --------------------------------------- ------ ------- ---------- -------
Total NPAs December 31, 1997 $257 $83 $76 $416
- --------------------------------------- ------ ------- ---------- -------
</TABLE>
(a) Throughout this document, NPAs and related ratios do not include loans
greater than 90 days past due and still accruing interest ($208 million,
$225 million, and $202 million at June 30, 1998, March 31, 1998, and
December 31, 1997, respectively). Included in the 90 days past due and still
accruing interest were $183 million, $194 million, and $172 million of
consumer and residential loans at June 30, 1998, March 31, 1998, and
December 31, 1997, respectively.
(b) Nonperforming assets and related ratios at June 30, 1998 and 1997 do not
include $147 million and $249 million, respectively, of nonperforming assets
classified as held for sale or accelerated disposition.
Nonperforming assets (NPAs) decreased $79 million from December 31, 1997 to
$337 million at June 30, 1998. NPAs at June 30, 1998, as a percentage of total
loans and OREO and as a percentage of total assets improved to 0.50% and 0.33%,
respectively, compared to 0.66% and 0.46%, respectively, at December 31, 1997.
This improvement was due primarily to declining levels of nonperforming assets
in the commercial and industrial portfolio.
<TABLE>
<CAPTION>
Reserve for Credit Loss Activity
- ----------------------------------------------------------------
Six months ended June 30
Dollars in millions 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $1,432 $1,488
Provision charged against income 210 148
Loans charged off (274) (262)
Recoveries of loans charged off 64 70
- ----------------------------------------------------------------
Net charge-offs (210) (192)
Acquisitions/Other 119 (1)
- ----------------------------------------------------------------
Balance at end of period $1,551 $1,443
- ----------------------------------------------------------------
Ratio of net charge-offs to average loans .66% .65%
- ----------------------------------------------------------------
Ratio of reserve for credit losses to
period-end loans 2.32 2.44
- ----------------------------------------------------------------
Ratio of reserve for credit losses to
period-end nonperforming loans 491 290
- ----------------------------------------------------------------
</TABLE>
Fleet's reserve for credit losses increased from $1.432 billion at
December 31, 1997 to $1.551 billion at June 30, 1998. The overall increase in
the reserve for credit losses from the second quarter of 1997 is a result of
reserves acquired as part of the acquisition of Advanta. The provision for
credit losses for the first six months of 1998 was $210 million, $62 million
higher than the prior year's first six months. The increase is a result of
increased net charge-offs, principally in the credit card portfolio.
<TABLE>
<CAPTION>
Funding Sources
- ----------------------------------- --------- ---------- ----------
June 30, March 31, Dec. 31,
Dollars in millions 1998 1998 1997
- ----------------------------------- --------- ---------- ----------
<S> <C> <C> <C>
Deposits:
Demand $13,101 $13,006 $13,148
Regular savings, NOW, money market 32,276 31,898 30,485
Time:
Domestic 17,948 19,429 16,258
Foreign 3,667 3,832 3,844
- ----------------------------------- --------- ---------- ----------
Total deposits 66,992 68,165 63,735
- ----------------------------------- --------- ---------- ----------
Short-term borrowed funds:
Federal funds purchased 722 1,456 1,004
Securities sold under agree-
ments to repurchase 2,454 2,451 2,630
Commercial paper 745 834 811
Other 7,226 3,497 3,060
- ----------------------------------- --------- ---------- ----------
Total short-term borrowed
funds 11,147 8,238 7,505
- ----------------------------------- --------- ---------- ----------
Due to brokers/dealers 4,983 4,433 4,316
- ----------------------------------- --------- ---------- ----------
Long-term debt 5,654 5,095 4,500
- ----------------------------------- --------- ---------- ----------
Total $88,776 $85,931 $80,056
- ----------------------------------- --------- ---------- ----------
</TABLE>
Total deposits increased $3.3 billion to $67.0 billion at June 30, 1998
when compared to December 31, 1997 due principally to a $1.9 billion increase
in money market deposits as a result of rates aimed at attracting new sources
of funds as well as time and savings deposits acquired as part of the Advanta
acquisition.
The $3.6 billion increase in short-term borrowings since December 31,
1997 is due to increasing levels of treasury, tax and loan borrowings as the
corporation utilized this favorably priced funding vehicle. Long-term debt
increased $1.2 billion to $5.7 billion at June 30, 1998 when compared to
December 31, 1997 due to the issuance of $1 billion of subordinated debt and
$270 million of trust preferred securities, as the corporation took advantage
of the low interest-rate environment.
ASSET-LIABILITY MANAGEMENT
The goal of asset-liability management is the prudent control of market risk,
liquidity, and capital.
16
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Market Risk
Market risk is the sensitivity of income to variations in interest rates,
foreign exchange rates, commodity prices, and other market-driven rates or
prices. As discussed below, the corporation is exposed to market risk in both
its non-trading and trading operations.
Non-trading Market Risk
Interest-rate risk, including mortgage prepayment risk, is by far the most
significant non-trading market risk to which the corporation is exposed.
Interest-rate risk is the sensitivity of income to variations in interest
rates.
The major source of the corporation's non-trading interest-rate risk is
the difference in the repricing characteristics of the corporation's core
banking assets and liabilities - loans and deposits. This difference or
mismatch is a risk to net interest income.
The corporation's Board 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 subsequent 12 months should decline by
less than 7.5%. The corporation was in compliance with this limit at June 30,
1998. The following table reflects the estimated exposure of the
corporation's net interest income for the next 12 months, assuming an
immediate shift in interest rates.
<TABLE>
<CAPTION>
- ------------------------- ----------------------------
Estimated Exposure to
Rate Change Net Interest Income
(Basis Points) (Dollars in millions)
- ------------------------------------------------------
<S> <C>
+200 $(10)
-200 8
- ------------------------------------------------------
</TABLE>
The most significant factors affecting the estimated risk exposure of
net interest income during the second quarter were the additions of fixed
rate assets and swaps plus modifications of assumptions concerning the
repricing of noncontractual deposits. In its management of these and other
factors influencing the current environment, the corporation has attempted to
maintain a near neutral position.
Gap analysis provides a static view of the maturity and repricing
characteristics of the on- and off-balance sheet positions. The interest-rate
gap is prepared by scheduling all assets, liabilities, and off-balance sheet
positions according to scheduled or anticipated repricing or maturity.
Interest-rate gap analysis can be viewed as a complement to simulation
analysis.
The corporation's Board limits on interest-rate risk specify that the
cumulative one-year gap should be less than 10% of total assets. As of June
30, 1998, the estimated exposure was 0.9% liability-sensitive (see the
following table).
<TABLE>
<CAPTION>
Interest-Rate Gap Analysis
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulatively Repriced Within
June 30, 1998 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 $61,144 $8,077 $5,194 $10,602 $15,696 $100,713
Total liabilities and stockholders' equity 49,964 9,962 6,079 2,702 32,006 100,713
Net off-balance sheet (13,923) 3,762 4,694 3,956 1,511 ---
- -----------------------------------------------------------------------------------------------------------------------------------
Periodic gap (2,743) 1,877 3,809 11,856 (14,799)
Cumulative gap (2,743) (866) 2,943 14,799 ---
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets-June 30, 1998 (2.7)% (0.9)% 2.9% 14.7%
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percent of total assets-March 31, 1998 (4.1) 1.8 3.7 15.4
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A second major source of the corporation's non-trading interest-rate
risk is the sensitivity of its MSRs to prepayments. Since MSRs represent the
right to service mortgage loans, a decline in interest rates and an actual
(or probable) increase in mortgage prepayments shorten the expected life of
the MSR asset and reduce its economic value.
Valuation analysis involves projecting future cash flows from the
corporation's assets, liabilities and off-balance sheet positions over a very
long-term horizon, discounting those cash flows at appropriate interest
rates, and then summing the discounted cash flows. The corporation's
"economic value of equity" (EVE) is the estimated net present value of the
discounted cash flows.
The corporation's Board 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
corporation was in compliance with this limit at June 30, 1998. The following
table reflects the corporation's estimated exposure to economic value
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
<TABLE>
<CAPTION>
- ------------------------- ----------------------------
Estimated Exposure to
Rate Change Economic Value
(Basis Points) (Dollars in millions)
- ------------------------------------------------------
<S> <C>
+200 $(150)
+100 35
-100 (127)
-200 (234)
- ------------------------------------------------------
</TABLE>
Off-balance sheet interest-rate instruments used to manage net interest
income are designated as hedges of specific assets and liabilities. Accrual
accounting is applied to these hedges, and the income or expense is recorded
in the same category as that of the related balance sheet item. The periodic
net settlement of the interest-rate risk-management instruments is recorded
as an adjustment to net interest income. As of June 30, 1998, the corporation
had net deferred income of $15 million relating to terminated interest-rate
swap contracts, which will be amortized over the remaining life of the
underlying terminated interest-rate contracts of approximately 6.5 years.
During the second quarter of 1998, the corporation entered into $1.4
billion of receive-fixed/pay-variable swaps to offset swap run-off and
control asset sensitivity.
Off-balance sheet interest-rate instruments used to manage potential
impairment of MSRs are designated as hedges of the MSRs. Changes in fair
value of the hedges are recorded as adjustments to the carrying value of the
MSRs. At June 30, 1998, net hedge gains of $172 million have been deferred
and recorded as adjustments to the carrying value of the MSRs. Deferred hedge
gains include $4 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, 1998, the carrying value and fair
value of the corporation's MSRs were $1.7 billion and $1.8 billion,
respectively.
During the first half of 1998, the corporation terminated $10.1 billion
of interest-rate floor agreements and added $6.3 billion and $4.3 billion of
interest-rate floors and swap contracts in its management of the mortgage
servicing rights hedge program. These actions were taken to preserve the
value of the option hedge position which had appreciated as interest rates
declined.
<TABLE>
<CAPTION>
Risk-Management Instrument Analysis
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Average
Assets- Average Rate
Notional Liabilities Maturity Fair -----------------
Dollars in millions Value Hedged (Years) Value Receive Pay
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-rate risk-management instruments
Interest-rate swaps:
Receive-fixed/pay-variable $10,980 Variable-rate loans
616 Fixed-rate deposits
2,117 Long-term debt
175 Short-term borrowings
-------------
13,888 2.8 $ 47 6.69% 6.50%
- ---------------------------------------------------------------------------------------------------------------------------------
Basis swaps 2,729 Deposits .8 (1) 5.69 5.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total hedges of net interest income 16,617 2.5 46 6.52 6.37
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage banking risk-management instruments
Interest rate swaps:
Mortgage servicing
Receive-fixed/pay-variable, PO swaps 6,721 rights and escrow deposits 3.9 46 5.96 5.48
Options:
Interest-rate floors, synthetic floors and swaptions
purchased 20,145 Mortgage servicing rights 3.4 131 - (a) - (a)
Interest-rate cap corridors sold 4,309 Mortgage servicing rights 2.0 --- - (a) - (a)
Call options purchased 180 Mortgage servicing rights .3 1 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total options 24,634 132 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total hedges of mortgage servicing rights and
escrow deposits 31,355 3.6 178 5.96 5.48
- ---------------------------------------------------------------------------------------------------------------------------------
Total risk-management instruments $47,972 3.2 $224 6.36 % 6.11 %
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The mortgage-banking risk-management interest-rate floors, synthetic floors
and swaptions purchased, and interest-rate cap corridors sold have weighted
average strike rates of 5.62% and 7.69%, respectively.
Trading Market Risk
The corporation's trading portfolios are exposed to market risk due to
variations in interest rates, currency exchange rates, precious metals
prices, and related market volatilities. This exposure arises in the normal
course of the corporation's business as a financial intermediary.
The corporation uses an "earnings at risk" (EAR) system, based on an
industry-standard risk measurement methodology, to measure the overall market
risk inherent in its trading activities. The average daily
18
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
exposure to this market risk was $8.1 million, and the maximum daily exposure
was $14.7 million during the second quarter of 1998. The increase in EAR from
December 31, 1997 was due principally to the first quarter acquisition of
Quick & Reilly.
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 the ability to take advantage of new
business opportunities. Liquidity is achieved by 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. Liquidity may also be 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. Asset-Liability Management Committee (ALCO) is responsible for
implementing the Board's policies and guidelines governing liquidity.
Liquidity at the bank level is managed through the monitoring of
anticipated changes in loans, core deposits, and wholesale funds.
Diversification of liquidity sources by maturity, market, product, and
counterparty are mandated through ALCO guidelines. The corporation's banking
subsidiaries routinely model liquidity under three economic scenarios, two of
which involve increasing levels of economic difficulty and financial market
strain. Management also maintains a detailed contingency liquidity plan
designed to respond either to an overall decline in the condition of the
banking industry or a problem specific to Fleet. 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 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 bank-note program.
The primary sources of liquidity for the parent company are interest and
dividends from subsidiaries, committed lines of credit and access to the
money and capital markets. Dividends from banking subsidiaries are limited by
various regulatory requirements related to capital adequacy and earning
trends. The corporation's subsidiaries rely on cash flows from operations,
core deposits, borrowings, short-term high-quality liquid assets, and, in the
case of nonbanking subsidiaries, funds from the parent company.
At June 30, 1998 and December 31, 1997, the corporation had commercial
paper outstanding of $745 million and $811 million, respectively. The
corporation has a backup line of credit to ensure that funding is not
interrupted if commercial paper is not available. The total amount of funds
available under this agreement was $1 billion at June 30, 1998, with no
outstanding balance under this line of credit.
Fleet has shelf registration statements that provide for the issuance of
common and preferred stock, senior or subordinated debt securities, and other
securities with total amounts of funds available of approximately $1.087
billion at June 30, 1998. Subsequent to June 30, 1998, the corporation issued
$250 million of subordinated debt, bringing the availability of the shelf
registration to $837 million.
As shown in the consolidated statement of cash flows, cash and cash
equivalents increased by $493 million during the first half of 1998. The
increase was due to cash provided by operating activities of $390 million and
by financing activities of $4.6 billion, offset by cash used in investing
activities of $4.5 billion. Net cash provided by financing activities was
principally due to a net increase in short-term borrowings of $3.1 billion
and a net increase in long-term debt of $1.2 billion. Net cash used in
investing activities was attributable to net purchases of securities and a
net increase in loans resulting primarily from loan growth in the commercial
and industrial and consumer credit card portfolios.
<TABLE>
<CAPTION>
CAPITAL
- ---------------------------------------------------------------
June 30, March 31, June 30,
Dollars in millions 1998 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Risk-adjusted assets $99,464 $100,087 $84,333
Tier 1 risk-based capital
(4% minimum) 6.84% 6.39% 7.28%
Total risk-based capital
(8% minimum) 10.95 10.37 10.76
Leverage ratio
(4% minimum) 7.05 7.19 7.25
Common equity-to-assets 8.11 8.12 7.53
Total equity-to-assets 8.80 8.82 8.48
Tangible common equity-
to-assets 5.53 5.39 5.73
Tangible total equity-to-
assets 6.23 6.12 6.70
- ---------------------------------------------------------------
</TABLE>
At June 30, 1998, the corporation exceeded all regulatory required
minimum capital ratios as Fleet's Tier 1 and Total risk-based capital ratios
were 6.84 percent and 10.95 percent, respectively, compared with 6.39 percent
and 10.37 percent, respectively, at March 31, 1998. The leverage ratio, a
measure of Tier 1 capital to average quarterly assets, was 7.05 percent at
19
<PAGE>
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1998 compared with 7.19 percent at March 31, 1998.
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, risks relating to Year
2000 issues (particularly with respect to compliance by third parties on
which the corporation relies), as well as other risks and uncertainties
detailed from time to time in the filings of the corporation with the
Securities and Exchange Commission.
20
<PAGE>
PART II. OTHER INFORMATION
PART II. ITEM 6.
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
4* Instruments defining the rights of security holders, including Debentures
10(a) Amendment One to Amended and Restated Agreement for Eugene M. McQuade
10(b) Amendment Two to Supplemental Executive Retirement Plan
10(c) Amendment Three to Supplemental Executive Retirement Plan
10(d) Amendment One to Retirement Income Assurance 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.
(b) Six Form 8-K's were filed during the period from April 1, 1998 to the
date of the filing of this report.
- Current Report on Form 8-K dated April 15, 1998 announcing first
quarter earnings.
- Current Report on Form 8-K dated April 28, 1998 reporting the sale of
6,000,000 7.17% Trust Originated Preferred Securities.
- Current Report on Form 8-K dated May 5, 1998 filing the
Restated Audited Financial Statements and Notes thereto as of
December 31, 1997 reflecting the merger of the registrant and
The Quick & Reilly Group, Inc.
- Current Report on Form 8-K dated May 20, 1998 reporting the issuance
of $250 million of 6.375% Subordinated Notes.
- Current Report on Form 8-K dated July 10, 1998 reporting the issuance
of $250 million of 6.70% Subordinated Debentures.
- Current Report on Form 8-K dated July 15, 1998 announcing second
quarter earnings and a two-for-one stock split.
21
<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 12, 1998
22
<PAGE>
EXHIBIT 10(a)
AMENDMENT ONE TO
AMENDED AND RESTATED AGREEMENT
In accordance with a resolution adopted by the Human Resources and Planning
Committee of the Board of Directors of Fleet Financial Group, Inc. on June 17,
1998, Section 6(d)(i)(C) of the Amended and Restated Agreement (the "Agreement")
between Fleet Financial Group, Inc. and Eugene M. McQuade, dated as of October
15, 1997, shall be amended to read as follows:
a lump sum retirement benefit equal to the difference between (a) the
actuarial equivalent of the benefit under the Fleet Financial Group,
Inc. Pension Plan (the "Pension Plan"), as supplemented by the
Retirement Income Assurance Plan or any successor to such plan (the
"RIAP") and the Supplemental Executive Retirement Plan or any
successor to such plan (the "SERP"; and together with the RIAP and the
Pension Plan, collectively referred to as the "Retirement Plans"),
which the Executive would receive if the Executive was fully vested in
the Retirement Plans and the Executive's employment continued at the
compensation level provided for in Sections 4(b)(i) and 4(b)(ii) for
the additional years (if any) from the Date of Termination until he
reached age 52 ("Age 52 Benefit"), and for three additional years from
the later of age 52 and the Date of Termination, and all such
additional years after the Date of Termination shall be credited to
the Executive for purposes of calculating the Executive's age, final
average salary and years of service accrued under the Retirement
Plans, provided, however, that any benefit to the Executive under any
one or more of the Retirement Plans shall be included in the foregoing
calculation only to the extent the Executive participated in such
Retirement Plans immediately prior to the Effective Date and provided,
however, that the Age 52 Benefit shall be offset (but not below 0) by
the actuarial equivalent of the Executive's retirement benefits (paid
or payable) under qualified and nonqualified plans maintained by
Manufacturer's Hanover Trust, and (b) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the
Retirement Plans; and
IN WITNESS WHEREOF, the Executive has executed this Amendment One to the
Agreement ("Amendment One") and the Company has caused this Amendment One to be
executed by its duly authorized officer effective as of June 17, 1998.
/s/ Eugene M. McQuade
---------------------
Eugene M. McQuade
FLEET FINANCIAL GROUP, INC.
By /s/ M. Anne Szostak
----------------------
M. Anne Szostak
Executive Vice President
23
<PAGE>
EXHIBIT 10(b)
AMENDMENT TWO
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(1996 Restatement)
Sections 5.1 and 5.2 are amended effective October 15, 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 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) under Section 5.1(a)(i) of
the Basic Plan, "52.5%" were replaced by "60%", (ii) 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, (iii) the limitations of sections 401(a)(17)
and 415 of the Code (and the provisions of the Basic Plan applying those
limitations) did not exist, and (iv) 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."
Except as otherwise provided herein, the rights of a Participant are
determined based on the terms of the Plan in effect at the time the
Participant terminated employment.
IN WITNESS WHEREOF, this Amendment Two has been adopted by the Human Resources
and Planning Committee on the 15th day of October, 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
Executive Vice President, Secretary
and General Counsel
24
<PAGE>
EXHIBIT 10(c)
AMENDMENT THREE
TO THE
FLEET FINANCIAL GROUP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1. Section 5.1 is amended effective July 1, 1998 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 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) under Section 5.1(a)(i) of
the Basic Plan, "52.5%" were replaced by "60%", (ii) the term
"Compensation" under the Basic Plan included bonus awards (A) paid to the
Participant on or after January 1, 1994 under the Corporate Executive
Incentive Plan or other short-term incentive award program of the Company
and (B) paid while the Employee is a Participant in the Plan, (iii) the
limitations of sections 401(a)(17) and 415 of the Code (and the provisions
of the Basic Plan applying those limitations) did not exist, and (iv) 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).
2. Section 8.8 is added effective July 1, 1998 to read as follows:
8.8 Nonduplication of Benefits. The benefits payable to a Participant
under this Plan shall be reduced on an Actuarial Equivalent basis by the
benefit such Participant earned under any other nonqualified defined
benefit plan, which counts bonuses as part of compensation under the plan
formula, and which does not provide for a reduction of benefits under such
plan, for benefits payable under this Plan, to the extent that the benefits
under such plan were accrued upon the Participant's service that was
included as Credited Service under this Plan.
3. 5.5 Effect of Disregard of Service. To the extent that service for a
calendar year is not taken into account in determining the amount of
benefit under Section 5.1(a), such year shall also be disregarded for
purposes of determining the amount of benefit under Section 5.1(b).
4. Appendix A is added to read as follows:
APPENDIX A
SPECIAL RULES
This Appendix A is part of the Plan and contains special rules applicable
only to the Participants described herein. If provisions of this Appendix A
conflict with any other provisions of the Plan with respect to such
Participants, the provisions of this Appendix A shall govern.
25
<PAGE>
A. Provisions Applicable to Named Fleet Executives
1. Mr. Zucchini: The minutes of the September 14, 1993 meeting of the
Executive Compensation Committee of the Company include the following
statement:
"The Committee approved the crediting of 5 additional years service in 1998
and an additional 5 years of service in 2003 to Michael Zucchini's,
non-qualified retirement plan benefit, based on continuous employment to
the years 1998 and 2003, respectively; and the acceleration of the
additional credited service in the event of a change of control."
2. Mr. Breitman: Leo Breitman shall become a Participant in this Plan
effective January 1, 1997, and bonuses paid to him on or after that date
shall be counted as part of his Compensation. Mr. Breitman's Credited
Service shall be based on an Employment Commencement Date of July 1, 1991.
B. Shawmut National Corporation
1. The Shawmut National Corporation Executive Supplement Retirement Plan
("Shawmut SERP") terminated effective November 30, 1995. This Section B of
Appendix A shall apply solely to former participants in the Shawmut SERP or
the Shawmut National Corporation Excess Benefit Plan ("Shawmut Excess
Plan") who are Participants in this Plan (collectively, "Shawmut
Participants").
2. Unless otherwise provided in this Appendix A or by the Company in
writing, (1) Shawmut Participants shall become Participants in this Plan
effective December 1, 1995, (2) the base compensation, but not bonuses,
paid by Shawmut National Corporation to Shawmut Participants shall be
treated as Compensation under this Plan, and (3) only the Company service
of Shawmut Participants shall be treated as Credited Service under the
Plan.
3. A Participant's benefit under the Shawmut SERP that is attributable to
service that is also treated as Credited Service under this Plan shall be
offset against the benefit otherwise payable under this Plan with respect
to such Credited Service.
4. Mr. Overstrom: For purposes of Section 5.1(a), Mr. Gunnar Overstrom's
Credited Service shall be determined by counting service taken into account
under the Shawmut SERP. Mr. Overstrom's Employment Contract with the
Company has special provisions that must be taken into account in
determining his pension benefit under the combination of this Plan and his
Employment Contract.
5. Mr. Eyles: For purposes of Section 5.1(a), Mr. David Eyles' Credited
Service shall be determined as if he became a Participant on March 2, 1992.
For purposes of the offset under Section 8.8, no amount in excess of the
age 62 Actuarial Equivalent of Mr. Eyles' Shawmut SERP benefit shall be
taken into account if Mr. Eyles begins receiving his Plan benefit after age
62.
6. The liability for the benefits under the Shawmut SERP of the following
former participants, or beneficiary of a former participant, in the Shawmut
SERP shall be transferred to this Plan as of the date of termination of the
Shawmut SERP.
<TABLE>
<CAPTION>
- -------------------------------- ----------------- ------------------------- ------------------------
Name Birth Date Payment Form Annual Benefit
- -------------------------------- ----------------- ------------------------- ------------------------
<S> <C> <C> <C>
Kalchbrenner, Patricia 01/01/33 Single life annuity 1,591.44
- -------------------------------- ----------------- ------------------------- ------------------------
Spencer, Jr. Harry 02/03/25 50% J&S 1,319.04
- -------------------------------- ----------------- ------------------------- ------------------------
</TABLE>
26
<PAGE>
IN WITNESS WHEREOF, this Amendment Three has been adopted by the Human Resources
and Planning Committee on the 17th day of June, 1998 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
Executive Vice President,
Secretary and General Counsel
27
<PAGE>
EXHIBIT 10(d)
AMENDMENT ONE
TO THE
FLEET FINANCIAL GROUP, INC.
RETIREMENT INCOME ASSURANCE PLAN
1. Section 7.8 is added effective January 1, 1997 to read as follows:
7.8 NONDUPLICATION OF BENEFITS
The benefits payable to a Participant under this Plan shall be reduced
on an Actuarial Equivalent basis by the benefit such Participant earned
under any other similar nonqualified excess defined benefit plan that
does not provide for a reduction of benefits under such plan, for
benefits payable under this Plan, to the extent that the benefits under
such plan were accrued upon the Participant's service that was included
as Credited Service under this Plan.
2. Appendix A is added to read as follows:
APPENDIX A
SPECIAL RULES FOR SERVICE WITH ACQUIRED ENTITIES
This Appendix A is part of the Plan and contains special rules
applicable only to the Participants described herein. If provisions of this
Appendix A conflict with any other provisions of the Plan with respect to such
Participants, the provisions of this Appendix A shall govern.
A. SHAWMUT NATIONAL CORPORATION
1. The Shawmut National Corporation Excess Benefit Plan ("Shawmut
Excess Plan") shall merge into the Plan effective as of January 1, 1997. As of
that date, the liabilities of the Shawmut Excess Plan shall become the
liabilities of the Plan and the Shawmut Excess Plan shall cease to exist.
Notwithstanding anything in the Plan to the contrary, the benefit under this
Plan of a Participant who was a former participant in the Shawmut Excess Plan
shall not be less than the benefit such participant would be deemed to have
accrued under the terms of the Shawmut Excess Plan as of the date this Appendix
A was adopted.
2. Each individual who was a participant in the Shawmut Excess Plan or
the Shawmut National Corporation Executive Supplemental Retirement Plan
("Shawmut SERP") immediately prior to the date as of which Shawmut National
Corporation merged with Fleet Financial Group, Inc., and who became an employee
of the Company or a subsidiary or affiliate as of said merger date, shall become
a Participant in the Plan as of January 1, 1997. This Section A of Appendix A
shall apply solely to former participants in the Shawmut Excess Plan or Shawmut
SERP ("Shawmut Participants").
3. The benefits of Shawmut Participants shall be determined by taking
into account the principles and provisions of Specification Schedule J of the
Basic Plan. For Participants who are not Cash Balance Participants, this
includes adjustment of their 12/31/96 benefit, transferred from the Shawmut
Excess Plan, for increases in Average Annual Compensation after 1996.
<PAGE>
4. As of January 1, 1997, the following Cash Balance Participants shall
have the following opening amounts credited to their Cash Balance Accounts under
this Plan, which represents the total value of their benefits under the Shawmut
Excess Plan as of December 31, 1996, reduced by the deemed Shawmut Excess Plan
offset described in Section 5 below, where applicable, expressed as a single
sum:
---------------------- ---------------------- ---------------------------
OPENING CASH
NAME SOC. SEC.# BALANCE
---------------------- ---------------------- ---------------------------
CLAFFEE, JAMES ###-##-#### $ 2,418.50
---------------------- ---------------------- ---------------------------
DELFINO, PAUL ###-##-#### $ 6,747.34
---------------------- ---------------------- ---------------------------
EYLES, DAVID ###-##-#### $ 17,775.70
---------------------- ---------------------- ---------------------------
FALK, MICHAEL ###-##-#### $ 1,509.82
---------------------- ---------------------- ---------------------------
HEDGES JR., ROBERT ###-##-#### $ 3,074.22
---------------------- ---------------------- ---------------------------
HUSTON, JOHN ###-##-#### $ 7,843.30
---------------------- ---------------------- ---------------------------
MALLON, WILLIAM ###-##-#### $ 4,567.26
---------------------- ---------------------- ---------------------------
5. Because participants in the Shawmut SERP were not also participants
in the Shawmut Excess Plan, their benefit under the Plan, which is calculated by
taking into account their service with Shawmut, shall be reduced by the
following amounts, or the Actuarial Equivalent thereof, which are the benefits
that they would have accrued under the Shawmut Excess Plan as of December 31,
1996, with Credited Service frozen as of December 1, 1995, if they had been
participants in the Shawmut Excess Plan:
---------------------- ---------------------- ---------------------------
EXCESS PLAN OFFSET
OF MONTHLY NORMAL
NAME SOC. SEC.# RETIREMENT BENEFIT
---------------------- ---------------------- ---------------------------
BERGER, JOHN ###-##-#### $ 382.62
---------------------- ---------------------- ---------------------------
BROMAGE, WILLIAM ###-##-#### $ 364.00
---------------------- ---------------------- ---------------------------
KRAUS, EILEEN ###-##-#### $ 2,294.25
---------------------- ---------------------- ---------------------------
OVERSTROM, GUNNAR ###-##-#### $ 8,170.96
---------------------- ---------------------- ---------------------------
ROTTNER, SUSAN ###-##-#### $ 565.74
---------------------- ---------------------- ---------------------------
IN WITNESS WHEREOF, this Amendment One has been adopted by the Human Resources
and Planning Committee on the 17th day of June, 1998 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
Executive Vice President,
Secretary and General Counsel
<PAGE>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in millions, except per share data)
<TABLE>
<CAPTION>
For the Three Months ended June 30,
----------------------------------------------------------------------------------------
1998 1997
----------------------------------- ------------------------------------------
BASIC DILUTED BASIC DILUTED
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 284,097,205 284,097,205 275,715,284 275,715,284
Additional shares due to:
Stock options --- 3,966,957 --- 2,782,689
Warrants --- 6,315,931 --- 5,316,725
---------------- ----------------- ---------------- -----------------
Total equivalent shares 284,097,205 294,380,093 275,715,284 283,814,698
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Earnings per share
Net income $ 393 $ 393 $ 347 $ 347
Less: Preferred stock dividends (13) (13) (16) (16)
---------------- ----------------- ---------------- -----------------
Adjusted net income $ 380 $ 380 $ 331 $ 331
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Total equivalent shares 284,097,250 294,380,093 275,715,284 283,814,698
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
Earnings per share on net income $ 1.34 $ 1.29 $ 1.20 $ 1.17
---------------- ----------------- ---------------- -----------------
---------------- ----------------- ---------------- -----------------
</TABLE>
28
<PAGE>
EXHIBIT 11
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS
($ in millions, except per share data)
<TABLE>
<CAPTION>
For the Six Months ended June 30,
----------------------------------------------------------------------------------------
1998 1997
--------------------------------------- ------------------------------------------
BASIC DILUTED BASIC DILUTED
------------------- -------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Equivalent shares:
Average shares outstanding 283,993,709 283,993,709 278,204,190 278,204,190
Additional shares due to:
Stock options --- 3,803,518 --- 2,675,960
Warrants --- 6,202,416 --- 5,187,222
------------------- -------------------- ------------------ --------------------
Total equivalent shares 283,993,709 293,999,643 278,204,190 286,067,372
------------------- -------------------- ------------------ --------------------
------------------- -------------------- ------------------ --------------------
Earnings per share
Net income $ 716 $ 716 $ 681 $ 681
Less: Preferred stock dividends (25) (25) (33) (33)
------------------- -------------------- ------------------ --------------------
Adjusted net income $ 691 $ 691 $ 648 $ 648
------------------- -------------------- ------------------ --------------------
------------------- -------------------- ------------------ --------------------
Total equivalent shares 283,993,709 293,999,643 278,204,190 286,067,372
------------------- -------------------- ------------------ --------------------
------------------- -------------------- ------------------ --------------------
Earnings per share on net income $ 2.43 $2.35 $ 2.33 $ 2.26
------------------- -------------------- ------------------ --------------------
------------------- -------------------- ------------------ --------------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
EXCLUDING INTEREST ON DEPOSITS
(dollars in millions)
Six Three
Months Months
Ended Ended
June 30, June 30, Year ended December 31,
- -------------------------------------------------------------------- -------------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative effect of
accounting changes $1,181 $ 646 $2,294 $2,070 $1,156 $1,460 $1,173
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 497 271 737 813 1,413 1,074 790
(2) 1/3 of rent 27 13 53 55 52 53 54
(b) Preferred dividends 42 21 104 117 62 51 54
---------- ---------- ------- ------- ------- ------- -------
(c) Adjusted earnings $1,747 $ 951 $3,188 $3,055 $2,683 $2,638 $2,071
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Fixed charges and preferred dividends $ 566 $ 305 $ 894 $ 985 $1,527 $1,178 $ 898
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Adjusted earnings/Fixed charges and preferred dividends 3.09x 3.12x 3.57x 3.10x 1.76x 2.24x 2.31x
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
</TABLE>
INCLUDING INTEREST ON DEPOSITS
(dollars in millions)
<TABLE>
<CAPTION>
Six Three
Months Months
Ended Ended
June 30, June 30, Year ended December 31,
- -------------------------------------------------------------------- ---------- -------------------------------------------
1998 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative effect of
accounting changes $ 1,181 $ 646 $ 2,294 $ 2,070 $ 1,156 $ 1,460 $ 1,173
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 497 271 737 813 1,413 1,074 790
(2) 1/3 of rent 27 13 53 55 52 53 54
(3) Interest on deposits 912 474 1,654 1,754 1,726 1,170 1,165
(b) Preferred dividends 42 21 104 117 63 51 54
---------- ---------- ------- ------- ------- ------- -------
(c) Adjusted earnings $2,659 $1,425 $4,842 $4,809 $4,410 $3,808 $3,236
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Fixed charges and preferred dividends $1,478 $ 779 $2,548 $2,739 $3,254 $2,348 $2,063
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Adjusted earnings/Fixed charges and preferred dividends 1.80x 1.83x 1.90x 1.76x 1.36x 1.62x 1.57x
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 12 (continued)
FLEET FINANCIAL GROUP, INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS
(dollars in millions)
Six Three
Months Months
Ended Ended
June 30, June 30, Year ended December 31,
- -------------------------------------------------------------------- ------------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative effect of
accounting changes $ 1,181 $ 646 $ 2,294 $ 2,070 $ 1,156 $ 1,460 $ 1,173
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 497 271 737 813 1,413 1,074 790
(2) 1/3 of rent 27 13 53 55 52 53 54
---------- ---------- ------- ------- ------- ------- -------
(b) Adjusted earnings $ 1,705 $ 930 $ 3,084 $ 2,938 $ 2,621 $ 2,587 $ 2,017
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Fixed charges $ 524 $ 284 $ 790 $ 868 $ 1,465 $ 1,127 $ 844
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Adjusted earnings/Fixed charges 3.27x 3.30x 3.90x 3.38x 1.79x 2.30x 2.39x
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
</TABLE>
INCLUDING INTEREST ON DEPOSITS
(dollars in millions)
<TABLE>
<CAPTION>
Six Three
Months Months
Ended Ended
June 30, June 30, Year ended December 31,
- -------------------------------------------------------------------- ------------------------------------------------------
1998 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes and cumulative effect of
accounting changes $1,181 $ 646 $2,294 $2,070 $1,156 $1,460 $1,173
Adjustments:
(a) Fixed charges:
(1) Interest on borrowed funds 497 271 737 813 1,413 1,074 790
(2) 1/3 of rent 27 13 53 55 52 53 54
(3) Interest on deposits 912 474 1,654 1,754 1,726 1,170 1,165
---------- ---------- ------- ------- ------- ------- -------
(b) Adjusted earnings $2,617 $1,404 $4,738 $4,692 $4,347 $3,757 $3,182
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Fixed charges $1,436 $ 758 $2,444 $2,622 $3,191 $2,297 $2,009
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
Adjusted earnings/Fixed charges 1.83x 1.86x 1.94x 1.79x 1.36x 1.64x 1.58x
---------- ---------- ------- ------- ------- ------- -------
---------- ---------- ------- ------- ------- ------- -------
</TABLE>
31
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE
30, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,567
<INT-BEARING-DEPOSITS> 280
<FED-FUNDS-SOLD> 220
<TRADING-ASSETS> 355
<INVESTMENTS-HELD-FOR-SALE> 10,219
<INVESTMENTS-CARRYING> 1,074
<INVESTMENTS-MARKET> 1,079
<LOANS> 66,754
<ALLOWANCE> (1,551)
<TOTAL-ASSETS> 100,713
<DEPOSITS> 66,992
<SHORT-TERM> 11,147
<LIABILITIES-OTHER> 8,059
<LONG-TERM> 5,654
0
691
<COMMON> 3,302
<OTHER-SE> 4,868
<TOTAL-LIABILITIES-AND-EQUITY> 100,713
<INTEREST-LOAN> 2,858
<INTEREST-INVEST> 342
<INTEREST-OTHER> 110
<INTEREST-TOTAL> 3,310
<INTEREST-DEPOSIT> 911
<INTEREST-EXPENSE> 1,409
<INTEREST-INCOME-NET> 1,900
<LOAN-LOSSES> 210
<SECURITIES-GAINS> 51
<EXPENSE-OTHER> 2,014
<INCOME-PRETAX> 1,180
<INCOME-PRE-EXTRAORDINARY> 716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 716
<EPS-PRIMARY> 2.43
<EPS-DILUTED> 2.35
<YIELD-ACTUAL> 4.60
<LOANS-NON> 316
<LOANS-PAST> 208
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,432
<CHARGE-OFFS> 274
<RECOVERIES> 64
<ALLOWANCE-CLOSE> 1,551
<ALLOWANCE-DOMESTIC> 1,551
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 359
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1998
<CASH> 5,726
<INT-BEARING-DEPOSITS> 216
<FED-FUNDS-SOLD> 220
<TRADING-ASSETS> 279
<INVESTMENTS-HELD-FOR-SALE> 7,665
<INVESTMENTS-CARRYING> 1,039
<INVESTMENTS-MARKET> 1,044
<LOANS> 59,177
<ALLOWANCE> (1,443)
<TOTAL-ASSETS> 87,573
<DEPOSITS> 63,229
<SHORT-TERM> 6,393
<LIABILITIES-OTHER> 5,975
<LONG-TERM> 4,550
0
835
<COMMON> 3,212
<OTHER-SE> 3,379
<TOTAL-LIABILITIES-AND-EQUITY> 87,573
<INTEREST-LOAN> 2,638
<INTEREST-INVEST> 277
<INTEREST-OTHER> 82
<INTEREST-TOTAL> 2,997
<INTEREST-DEPOSIT> 823
<INTEREST-EXPENSE> 1,164
<INTEREST-INCOME-NET> 1,833
<LOAN-LOSSES> 148
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 1,929
<INCOME-PRETAX> 1,144
<INCOME-PRE-EXTRAORDINARY> 681
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 681
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.26
<YIELD-ACTUAL> 5.03
<LOANS-NON> 498
<LOANS-PAST> 252
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,488
<CHARGE-OFFS> (262)
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 1,443
<ALLOWANCE-DOMESTIC> 1,443
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 221
</TABLE>
