-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N9JVWzi3a43/2i/KMde3BC83qcxm+dQlrU7y4ncLvco3L8OPK2mFzbvP20EtHzQ7 AZ9pZ/aCWqxD3jUjfJVLug== 0000912057-00-024516.txt : 20000516 0000912057-00-024516.hdr.sgml : 20000516 ACCESSION NUMBER: 0000912057-00-024516 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEET BOSTON CORP CENTRAL INDEX KEY: 0000050341 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 050341324 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06366 FILM NUMBER: 632912 BUSINESS ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6173464000 MAIL ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: FLEET NORSTAR FINANCIAL GROUP INC DATE OF NAME CHANGE: 19920525 FORMER COMPANY: FORMER CONFORMED NAME: FLEET FINANCIAL GROUP INC DATE OF NAME CHANGE: 19880110 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL NATIONAL CORP DATE OF NAME CHANGE: 19820512 10-Q 1 10-Q ================================================================================ 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 MARCH 31, 2000 [ ] 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 FLEETBOSTON FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0341324 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (Address of principal executive office) (Zip Code) (617) 346-4000 (Registrant's telephone number, including area code) (Former name, if changed since last report) 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 April 30, 2000 was 901,187,960. ================================================================================ FLEETBOSTON FINANCIAL CORPORATION FORM 10-Q FOR QUARTER ENDED MARCH 31, 2000 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE PART I. FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Consolidated Statements of Income Three Months Ended March 31, 2000 and 1999 20 Consolidated Balance Sheets March 31, 2000 and December 31, 1999 21 Consolidated Statements of Changes in Stockholders' Equity Three Months Ended March 31, 2000 and 1999 22 Consolidated Statements of Cash Flows Three Months Ended March 31, 2000 and 1999 23 Condensed Notes to Consolidated Financial Statements 24 PART II. OTHER INFORMATION 28 SIGNATURES 31 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS This discussion and analysis updates, and should be read in conjunction with, Management's Discussion and Analysis included in the 1999 Annual Report on Form 10-K of FleetBoston Financial Corporation (the Corporation). The Corporation's name was changed from "Fleet Boston Corporation" to "FleetBoston Financial Corporation" effective April 18, 2000. All prior period information included in this discussion and analysis has been restated to give retroactive effect to the Corporation's merger with BankBoston Corporation (BankBoston), which was completed in October 1999 and accounted for as a pooling of interests. FINANCIAL SUMMARY =================================================================== Three months ended March 31 2000 1999 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS - ------------------------------------------------------------------- EARNINGS Net interest income (FTE)(a) $ 1,723 $ 1,681 Noninterest income 2,722 1,558 Noninterest expense 2,512 1,935 Provision for credit losses 300 219 Net income 957 661 - ------------------------------------------------------------------- PER COMMON SHARE Basic earnings $ 1.05 $ .70 Diluted earnings 1.03 .68 Cash dividends declared .30 .27 Book value 15.93 15.07 - ------------------------------------------------------------------- RATIOS Return on average assets 1.94% 1.44% Return on average common equity 26.83 18.92 Total equity to assets (period-end) 7.96 8.00 Tangible common equity to assets 5.61 5.43 Tier 1 risk-based capital ratio 6.66 6.83 Total risk-based capital ratio 11.02 11.24 Leverage ratio 6.67 6.99 - ------------------------------------------------------------------- AT MARCH 31 Total assets $ 187,814 $ 181,873 Loans and leases 117,353 116,425 Deposits 109,201 116,101 Stockholders' equity 14,953 14,553 Nonperforming assets 886 662 =================================================================== (a) The fully taxable equivalent (FTE) adjustment included in net interest income was $15 million and $13 million, respectively, for the three months ended March 31, 2000 and 1999. The Corporation recorded net income of $957 million, or $1.03 per diluted share, for the quarter ended March 31, 2000, compared to $661 million, or $.68 per diluted share, in the first quarter of 1999. Return on average assets (ROA) and return on average common equity (ROE) were 1.94% and 26.83%, respectively, for the first quarter of 2000, compared to 1.44% and 18.92%, respectively, for the first quarter of 1999. The first quarter of 2000 included a gain of $366 million ($209 million after-tax) resulting from the Corporation's March 24, 2000 divestiture of 90 branches in Connecticut, Massachusetts and Rhode Island and approximately $4 billion each of loans and deposits to Sovereign Bancorp (Sovereign). This divestiture was the first phase of the Corporation's overall divestiture plan, which was agreed to in connection with obtaining regulatory approvals for the BankBoston merger. The Corporation expects to complete the remaining phases of its divestiture plan during the second and third quarters of 2000. The first quarter results also included approximately $100 million ($60 million after-tax) of merger integration costs incurred in connection with integration efforts following the BankBoston merger. These merger integration costs are being expensed as incurred. Since the completion of the merger, the Corporation has incurred cumulative integration costs of approximately $200 million, and expects to incur an additional $100 million of such costs during the remainder of 2000. Excluding the divestiture gain and merger integration costs, operating net income for the first quarter of 2000 was $808 million, a 22% increase over net income of $661 million in the first quarter of 1999. This increase was largely the result of strong growth in capital markets and investment services revenue at Robertson Stephens and Quick & Reilly, as well as the Corporation's Principal Investing business. RESULTS OF OPERATIONS NET INTEREST INCOME ================================================================== Three months ended March 31 2000 1999 FTE basis IN MILLIONS - ------------------------------------------------------------------ Interest income $3,461 $3,149 Tax-equivalent adjustment 15 13 Interest expense 1,753 1,481 - ------------------------------------------------------------------ Net interest income $1,723 $1,681 ================================================================== Net interest income increased $42 million in the first quarter of 2000 compared to the same period a year ago, primarily the result of loan growth, particularly domestic leases as a result of the acquisition of Sanwa in February 1999, as well as higher average loan yields. These increases were offset in part by higher rates paid to fund asset growth. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS NET INTEREST MARGIN AND INTEREST RATE SPREAD =========================================================================== Three months ended March 31 2000 1999 FTE basis Average Average DOLLARS IN MILLIONS Balance Rate Balance Rate - --------------------------------------------------------------------------- Securities $ 24,237 6.50% $ 23,896 6.36% Loans and leases: Domestic 104,845 8.64 101,543 8.28 International 14,805 13.99 13,593 13.46 Due from brokers/dealers 3,922 5.27 3,404 4.41 Mortgages held for sale 1,198 8.08 3,867 6.86 Other 16,680 5.74 9,901 6.15 - --------------------------------------------------------------------------- Total interest earning assets 165,687 8.43 156,204 8.18 - --------------------------------------------------------------------------- Deposits 88,699 4.07 91,875 3.96 Short-term borrowings 25,990 5.63 21,444 4.92 Due to brokers/dealers 5,062 5.39 3,865 4.12 Long-term debt 25,608 6.65 18,726 6.07 - --------------------------------------------------------------------------- Interest bearing liabilities 145,359 4.85 135,910 4.41 - --------------------------------------------------------------------------- Interest rate spread 3.58 3.77 Interest-free sources of funds 20,328 20,294 - --------------------------------------------------------------------------- Total sources of funds $165,687 4.25 % $156,204 3.83 % - --------------------------------------------------------------------------- Net interest margin 4.18 % 4.35 % =========================================================================== The Corporation's net interest margin for the first quarter of 2000 was 4.18%, compared to 4.35% for the first quarter of 1999. The 17 basis point decrease in net interest margin was primarily attributable to a higher level of low-yielding earning assets necessary to support an expanded investment banking operation, partially offset by increased yields on domestic and international loans, primarily commercial loans. During the current quarter, the Corporation maintained approximately $8 billion of low-yielding assets in its Section 20 subsidiary's "matched book" to accommodate regulatory requirements associated with revenue earned by Robertson Stephens. As a result of recent banking reform legislation, which became effective in March 2000, the Corporation is no longer required to maintain the "matched book" and this will, in turn, benefit net interest margin in future periods. Future levels of net interest income and margin will be negatively impacted by the Corporation's divestiture of loans and deposits to Sovereign and various community banks. The first phase of the divestiture, which was completed on March 24, 2000, had minimal impact on first quarter 2000 net interest income and margin. The remaining divestitures are expected to be completed during the second and third quarters of 2000. The Corporation anticipates that annualized net interest income will be reduced by approximately $500 million as a result of the divestitures. Because the divestitures will be completed in phases, their impact on calendar year 2000 net interest income will be only a portion of the annualized estimate. Average domestic loans and leases increased $3.3 billion to $104.8 billion for the first quarter of 2000 compared with the first quarter of 1999, primarily driven by increases in both consumer margin loans at Quick & Reilly and leases, the latter a result of the acquisition of Sanwa in February 1999. Average international loans and leases increased $1.2 billion to $14.8 billion due to commercial loan growth, primarily in Argentina. The first quarter 2000 average loan and lease balances were not materially affected by the aforementioned divestiture, since it was completed on March 24, 2000. Average mortgages held for resale decreased $2.7 billion compared to the first quarter of 1999, due to lower production volume at Fleet Mortgage caused by a rise in mortgage interest rates. The increase in mortgage rates caused yields on mortgages held for resale to increase 122 basis points. Other interest earning assets increased $6.8 billion to $16.7 billion in the first quarter of 2000, primarily as a result of an increase in money market instruments necessary to support an expanded investment banking operation. The $3.2 billion decrease in average interest bearing deposits compared to the first quarter of 1999 is primarily attributable to decreased retail and wholesale time deposits, as a result of the Corporation utilizing long-term funding vehicles to fund asset growth. The first quarter 2000 average interest bearing deposit balances were not materially affected by the aforementioned divestiture, since it was completed on March 24, 2000. The $4.5 billion increase in average short-term borrowings is mainly attributable to an increase in the availability and use of treasury, tax and loan borrowings. Average long-term debt increased $6.9 billion to $25.6 billion for the first quarter of 2000, due primarily to net increases in senior and subordinated debt and bank notes issued throughout 1999 and in the first quarter of 2000 in order to fund acquisitions and overall asset growth. The 58 basis point increase in the funding rate resulted from a rising interest rate environment. NONINTEREST INCOME ================================================================= Three months ended March 31 2000 1999 IN MILLIONS - ----------------------------------------------------------------- Capital markets revenue $1,059 $ 397 Investment services revenue 500 356 Banking fees and commissions 364 350 Credit card revenue 159 162 Processing-related revenue 156 154 Gain on branch divestitures 366 - Other noninterest income 118 139 - ----------------------------------------------------------------- Total noninterest income $2,722 $1,558 ================================================================= Noninterest income for the first quarter of 2000 increased $1.2 billion to $2.7 billion compared to $1.6 billion for the same period in 1999, an increase of 75%. This increase reflects a significant rise in capital markets and investment services revenue resulting from very strong equity markets and substantial transactional volume, as well as the previously mentioned $366 million gain on branch divestitures. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS CAPITAL MARKETS REVENUE ============================================================= Three months ended March 31 2000 1999 IN MILLIONS - ------------------------------------------------------------- Principal investing $ 312 $ 74 Underwriting revenue 256 61 Market-making revenue 221 91 Advisory fees 162 20 Trading profits and commissions 80 53 Foreign exchange revenue 45 60 Syndication/agency fees 41 35 Securities losses (58) (2) Other - 5 - ------------------------------------------------------------- Total capital markets revenue $1,059 $397 ============================================================= Capital markets revenue showed a significant increase, rising $662 million, or 167%, to $1.1 billion for the first quarter of 2000 compared to $397 million for the first quarter of 1999. This increase was driven by strong principal investing, underwriting and market-making revenue, as well as a significant increase in advisory fees and trading profits and commissions, partially offset by securities losses. The increase in revenues was a result of continued strength in the U.S. capital markets. The Corporation's revenues from its capital markets activities are impacted by a variety of factors, including the condition of the economy, interest rates and equity markets. The equity market for Internet and technology stocks has been subject to significant volatility. Thus, the future level of such revenues cannot be predicted with certainty. Principal investing revenues rose $238 million, or 322%, to $312 million for the quarter ended March 31, 2000. The growth in revenue resulted from liquidations of direct investments and appreciation in the value of fund investments, reflecting effective investment strategies and continued strength in the equity markets. During the first quarter of 2000, the Corporation made new investments of $544 million. As of March 31, 2000, the Corporation's Principal Investing portfolio had an aggregate carrying value of approximately $4.3 billion. The gross pre-tax unrealized gain on the Corporation's direct investments in public companies was approximately $800 million at March 31, 2000. As of April 30, 2000, this unrealized gain was approximately $300 million. The overall portfolio is composed of indirect investments in primary or secondary funds, direct investments in privately held companies and direct investments in companies whose stocks are publicly traded. The direct investments in public companies are carried at fair value, with unrealized gains and losses recorded, net of tax, in other comprehensive income, a component of stockholders' equity. Underwriting revenue increased $195 million, or 320%, from $61 million in the first quarter of 1999, to $256 million in the first quarter of 2000, primarily the result of a 194% increase in transactions at Robertson Stephens. Underwriting revenues are affected by the volume and timing of initial public offerings and other transactions. Robertson Stephens' fees earned from underwriting these transactions mainly resulted from the Internet and technology market sectors. During the first quarter of 2000, 103 transactions, primarily initial and follow-on public offerings, were completed, involving an aggregate market value of approximately $40 billion, versus 35 such transactions involving an aggregate market value of approximately $5 billion in the first quarter of 1999. The $130 million, or 143%, increase in market-making revenue was a result of market volatility and increased transactional volumes at Quick & Reilly and Robertson Stephens. Advisory fees increased $142 million to $162 million for the first quarter of 2000, primarily reflecting an over 130% increase in merger and acquisition (M&A) transactions at Robertson Stephens and an increase in the average fee per transaction. Robertson Stephens' advisory activities were focused mainly in the Internet and technology market sectors. During the quarter, Robertson Stephens advised on 37 M&A transactions involving an aggregate market value of over $26 billion. Trading profits and commissions rose $27 million to $80 million for the quarter ended March 31, 2000 compared to $53 million for the quarter ended March 31, 1999, as the Corporation benefited from increased customer demand for investment and risk management products and from short-term movements in market prices. The Corporation recognized $58 million of securities losses during the first quarter of 2000, primarily as a result of a repositioning of its bond portfolio. INVESTMENT SERVICES REVENUE ================================================================ Three months ended March 31 2000 1999 IN MILLIONS - ---------------------------------------------------------------- Brokerage fees and commissions $262 $137 Investment management revenue 238 219 - ---------------------------------------------------------------- Total investment services revenue $500 $356 ================================================================ Investment services revenue, which includes brokerage fees and commissions as well as investment management revenue, increased $144 million, or 40%, over the first quarter of 1999. BROKERAGE FEES AND COMMISSIONS Brokerage fees and commissions increased $125 million, or 91%, over the first quarter of 1999, driven by the strong equity markets and increased trading volumes on the NASDAQ and NYSE, which benefited the brokerage and clearing units of Quick & Reilly and Robertson Stephens. INVESTMENT MANAGEMENT REVENUE ================================================================ Three months ended March 31 2000 1999 IN MILLIONS - ---------------------------------------------------------------- Private Clients Group $ 93 $ 93 Retail investments 37 29 Columbia Management Company 27 24 Institutional businesses 38 38 International 41 34 Other 2 1 - ---------------------------------------------------------------- Total $238 $219 ================================================================ 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS Investment management revenue increased 9% in the first quarter of 2000 to $238 million, compared to $219 million for the first quarter of 1999. This improvement was largely driven by increased fees resulting from growth in assets under management, as well as increased sales of mutual funds and annuities, in the Corporation's Retail Investments, Columbia Management and International businesses. Assets under management grew to $131 billion at March 31, 2000 from $122 billion at March 31, 1999. BANKING FEES AND COMMISSIONS Banking fees and commissions, which includes fees received for cash management, deposit accounts, electronic banking fees and other fees, increased $14 million to $364 million for the first quarter of 2000, primarily the result of a larger customer base compared to March 31, 1999. Future levels of banking fees and commissions will be negatively impacted by the divestiture of deposits to Sovereign and various community banks during the second and third quarters of 2000. The Corporation anticipates that annualized banking fees and commissions will be reduced by approximately $160 million as a result of the divestitures. Because the divestitures will be completed in phases, their impact on calendar year 2000 banking fees and commissions will be only a portion of the annualized estimate. CREDIT CARD REVENUE Credit card revenue declined $3 million compared to the first quarter of 1999, primarily due to lower securitization income and increased amortization of deferred acquisition costs. These declines were the result of narrower spreads on securitizations, reflecting improving asset quality, and increased marketing activities, respectively. PROCESSING-RELATED REVENUE ============================================================= Three months ended March 31 2000 1999 IN MILLIONS - ------------------------------------------------------------- Mortgage banking revenue, net $ 87 $ 91 Student loan servicing fees 39 34 Other 30 29 - ------------------------------------------------------------- Total processing-related revenue $156 $154 ============================================================= Processing-related revenue increased $2 million compared to the first quarter of 1999, due to increased student loan servicing fees and other processing-related revenue, offset in part by decreased mortgage banking revenue. Net mortgage banking revenue is discussed below. Student loan servicing fees increased $5 million, or 15%, at AFSA Data Corporation (AFSA), the Corporation's student loan servicing subsidiary, as accounts serviced increased approximately 10% from March 31, 1999 to 7.3 million. AFSA is the largest student loan servicer in the United States, with over $66 billion of loans serviced. MORTGAGE BANKING REVENUE, NET ============================================================== Three months ended March 31 2000 1999 IN MILLIONS - -------------------------------------------------------------- Net loan servicing revenue $158 $120 Mortgage production revenue 24 53 Mortgage servicing rights amortization (95) (82) - -------------------------------------------------------------- Total mortgage banking revenue, net $ 87 $ 91 ============================================================== Net mortgage banking revenue decreased $4 million compared to the first quarter of 1999, reflecting lower mortgage production revenue and higher mortgage servicing rights (MSRs) amortization, offset in part by increased loan servicing revenue. The $38 million increase in loan servicing revenue was attributable to a higher servicing spread on mortgage servicing acquired, as well as a 19% increase in the size of the Corporation's servicing portfolio from March 31, 1999 to approximately $151 billion at March 31, 2000. Mortgage production revenue declined $29 million as a result of lower mortgage production volume, driven by the higher mortgage interest rate environment. MSR amortization increased $13 million compared to the first quarter of 1999, the result of the aforementioned increase in the size of the Corporation's servicing portfolio. The Corporation expects to complete the sale of approximately $25 billion of its servicing portfolio during the second quarter of 2000 at close to carrying value. OTHER The $366 million gain on branch divestitures recognized in the first quarter of 2000 resulted from the Corporation's March 24, 2000 divestiture of 90 branches in Connecticut, Massachusetts, and Rhode Island, and approximately $4 billion each of loans and deposits, to Sovereign. Other noninterest income declined $21 million to $118 million for the first quarter of 2000, compared to $139 million for the first quarter of 1999. This decrease was primarily the result of a $17 million writedown of lease residuals. NONINTEREST EXPENSE ==================================================================== Three months ended March 31 2000 1999 IN MILLIONS - -------------------------------------------------------------------- Employee compensation and benefits $1,425 $1,016 Occupancy and equipment 306 269 Intangible asset amortization 88 86 Legal and other professional 82 68 Marketing and public relations 72 61 Printing and mailing 43 41 Telephone 43 43 Other 453 351 - -------------------------------------------------------------------- Total noninterest expense $2,512 $1,935 ==================================================================== Noninterest expense for the first quarter of 2000 totaled $2.5 billion, compared to $1.9 billion for the same period in 1999. This $577 million, or 30%, increase was due primarily to higher compensation and benefit costs directly attributable to higher levels of revenue, particularly 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS from Robertson Stephens and Quick & Reilly, offset in part by approximately $40 million of incremental cost savings realized as a result of merger integration activities. In connection with integration efforts following the BankBoston merger, the Corporation incurred approximately $100 million of merger integration costs during the first quarter of 2000, composed of $18 million of employee compensation and benefits costs, $38 million of occupancy and equipment costs, $10 million of legal and other professional costs, $4 million of marketing and public relations costs, $4 million of printing and mailing costs and $26 million of other costs. Employee compensation and benefits costs increased $409 million compared to the first quarter of 1999, due primarily to increased levels of incentive payments in businesses with strong transactional volumes and revenue growth, such as Robertson Stephens and Quick & Reilly, as well as the merger integration costs previously mentioned. The Corporation's compensation and benefits costs, excluding incentive and merger integration costs, grew only 5%, as a result of a portion of the above-mentioned cost savings and employee reductions realized from merger integration activities. Occupancy and equipment costs rose $37 million, or 14%, to $306 million for the three months ended March 31, 2000, as a result of the above-mentioned merger integration costs of $38 million. Legal and other professional costs, marketing and public relations costs and other noninterest expense all increased compared to the first quarter of 1999, partly the result of $40 million of merger integration costs, offset by a portion of the incremental cost savings discussed above. The Corporation expects to achieve total annual cost savings of approximately $600 million as a result of the BankBoston merger integration. The integration process commenced during the fourth quarter of 1999, and major systems conversions are expected to be completed by the end of the third quarter of 2000. The Corporation expects to complete its actions related to achieving these cost savings by the end of 2000, and as of March 31, 2000 had achieved annualized cost savings of approximately $260 million. In addition, the Corporation expects to achieve total annual cost savings of approximately $400 million as a result of its divestiture of branches, loans and deposits to Sovereign and various community banks during 2000. These cost savings are expected to primarily benefit the second, third and fourth quarters of 2000. Information with respect to anticipated reductions in annualized revenues as a result of the divestitures is included in the "Net Interest Income" and "Noninterest Income-Banking Fees and Commissions'' sections, included on pages 4 and 6, respectively, of this discussion. Because merger integration efforts and the divestitures will proceed throughout 2000, the impact of the resulting cost savings on calendar year 2000 noninterest expense will be only a portion of the annualized estimates. The merger integration and divestiture process could be affected by many factors beyond the control of the Corporation, such as regional and national economic conditions, changes in integration plans and unanticipated changes in business conditions. Thus, the Corporation's ability to achieve its expected cost savings and the periods within which these cost savings may be achieved cannot be predicted with absolute certainty. INCOME TAXES The Corporation recorded income tax expense of $661 million for the first quarter of 2000, compared with $411 million for the same period a year ago. The Corporation's effective tax rate was 40.9% and 38.3% for the first quarters of 2000 and 1999, respectively. LINE OF BUSINESS INFORMATION The Corporation is organized and managed along three lines of business: Global Banking and Financial Services, Commercial and Retail Banking and the National Consumer Group. For additional information concerning these lines of business, including supporting business units and their products and services, refer to the "Line of Business Information" section of Management's Discussion and Analysis, included on pages 17 through 21 of the Corporation's 1999 Annual Report on Form 10-K. The financial performance of these lines of business is monitored by an internal profitability measurement system, which provides line of business results and key performance measures. In connection with the BankBoston merger, a uniform set of management reporting methodologies was developed and implemented effective January 1, 2000. These new management reporting methodologies include allocation of provision for credit losses, credit loss reserves, funds transfer pricing and equity allocations. The following table presents selected line of business results that reflect this new methodology. Prior periods have been restated to conform to these new methodologies. The information is presented on a fully taxable equivalent basis. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS LINE OF BUSINESS EARNINGS SUMMARY
=============================================================================================================== Three months ended March 31 2000 1999 2000 1999 2000 1999 DOLLARS IN MILLIONS Net Income Total Revenue Return on Equity - --------------------------------------------------------------------------------------------------------------- Global Banking and Financial Services(a) $586 $290 $2,281 $1,372 38% 21% Commercial and Retail Banking 320 280 1,448 1,387 21 20 National Consumer Group 50 57 390 437 9 10 All Other 1 34 326 43 - - - --------------------------------------------------------------------------------------------------------------- Total $957 $661 $4,445 $3,239 27% 19% ===============================================================================================================
a) Includes revenue and net income from international operations, principally Argentina and Brazil, of $411 million and $77 million, respectively, for the first quarter of 2000, and $375 million and $61 million, respectively, for the first quarter of 1999. During the first quarter of 2000, both Global Banking and Financial Services and Commercial and Retail Banking posted strong increases in earnings and revenues compared to the first quarter of 1999. Improved results in these business units were driven by strong performance in the Corporation's capital markets businesses, continued growth in many of the Corporation's core businesses, and cost savings from successful merger integration efforts. Earnings of the National Consumer Group, which includes the Corporation's credit card lending, mortgage banking and student loan processing businesses, declined from the same quarter a year ago, reflecting the effects of the rising interest rate environment on the mortgage business. The following discussion by line of business focuses on the components of each of the three major business lines, and explains results in terms of their underlying businesses. GLOBAL BANKING AND FINANCIAL SERVICES ======================================================== Three months ended March 31 2000 1999 DOLLARS IN MILLIONS - -------------------------------------------------------- Income statement data: Net interest income $ 557 $ 489 Noninterest income 1,724 883 Provision 74 70 Noninterest expense 1,233 821 Taxes 388 191 - -------------------------------------------------------- Net income $ 586 $ 290 - -------------------------------------------------------- Balance sheet data: Average assets(a) $90,649 $71,653 Average loans 48,627 45,899 Average deposits 21,030 19,501 - -------------------------------------------------------- Return on equity 38% 21% ======================================================== (a) Includes international average assets of $21 billion and $18 billion for the first quarters of 2000 and 1999, respectively. Global Banking and Financial Services includes Investment Services, Corporate and Investment Banking, International Banking and Principal Investing, as well as the Corporation's retail brokerage and investment banking subsidiaries, Quick & Reilly and Robertson Stephens, respectively. This business line earned $586 million in the first quarter of 2000, a 102% increase from the first quarter of 1999. Increased earnings for Global Banking and Financial Services were driven by capital markets and investment services revenues, as well as earnings growth in the international franchise. Three months ended March 31 2000 1999 % 2000 1999 % DOLLARS IN MILLIONS Net Income Change Total Revenue Change =================================================================== Principal Investing $153 $ 35 337% $ 288 $ 65 343% Robertson Stephens 119 13 815 638 132 383 Corporate and Investment Banking 103 92 12 337 334 1 International Banking 90 69 30 450 411 9 Quick & Reilly 62 47 32 322 213 51 Investment Services 59 34 74 246 217 13 - ------------------------------------------------------------------- Total $586 $ 290 102% $2,281 $1,372 66% =================================================================== Principal Investing provides startup capital and debt financing to new ventures and selected small business ventures that are predominantly privately or closely held companies. The Principal Investing business earned $153 million in the first quarter of 2000, an increase of 337% over the same quarter last year. Increased earnings were driven by realized gains on sales of investments. Principal Investing earnings are affected by the condition of equity markets, the general state of the economy and the timing of sales. Accordingly, earnings for this unit can fluctuate significantly. For the first quarter of 2000, the aggregate carrying value of the Principal Investing investment portfolio averaged $4.2 billion. Robertson Stephens earned $119 million on revenues of $638 million in the first quarter of 2000, compared to net income of $13 million and revenues of $132 million in the first quarter of 1999. Increased earnings were the result of equity underwritings, M&A advisory services and higher trading volumes, focused mainly in the Internet and technology market sectors. The Corporate and Investment Banking unit, which includes specialized industry lending, institutional banking and capital markets activities, recorded earnings of $103 million in the first quarter of 2000, an increase of $11 million, or 12%, compared to the first quarter of 1999. Driving these increased earnings were the combination of higher spreads on increased deposit volumes, higher fee revenues, and declining levels of operating expenses in conjunction with lower levels of employees, as merger integration efforts continue. The International Banking unit includes operations in Brazil, where the Corporation has a franchise with approximately 64 offices and approximately $8 billion of assets, and Argentina, where the Corporation has a market presence of 139 branches and approximately $10 billion of assets. Compared to the first 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS quarter of 1999, International Banking earnings increased $21 million, or 30%, driven primarily by favorable spreads and increased loan and deposit volumes in key Latin American markets. Average deposit balances grew $1.1 billion during the first quarter, while average loan balances closed the first quarter $1.3 billion ahead of the first quarter of 1999. At March 31, 2000, international mutual fund assets under management totaled $9 billion. Quick & Reilly, which offers brokerage, market-making and securities clearing services, earned $62 million in the first quarter of 2000, compared to $47 million in the first quarter of 1999, an increase of $15 million, or 32%. Higher brokerage and market-making revenues, which increased $96 million, or 55%, from the same quarter a year ago, were driven by increased transaction volumes as a result of strong equity markets. The Investment Services unit, which includes the Private Clients Group, Columbia Management, the Retail Investments Group and several businesses which offer retirement planning, large institutional asset management and not-for-profit investment services, earned $59 million in the first quarter of 2000, an increase of $25 million, or 74%, compared to the same period in 1999. This performance was generated by increased fees on a higher level of domestic assets under management, which grew by almost $9 billion to approximately $122 billion at March 31, 2000, as well as increased sales of mutual funds and annuities, which grew 10% from the prior year, reflecting the continued strength of financial markets and increasing customer demand for these products. COMMERCIAL AND RETAIL BANKING =========================================================== Three months ended March 31 2000 1999 IN MILLIONS - ----------------------------------------------------------- Income statement data: Net interest income $ 1,070 $ 1,017 Noninterest income 378 370 Provision 89 85 Noninterest expense 815 822 Taxes 224 200 - ----------------------------------------------------------- Net income $ 320 $ 280 - ----------------------------------------------------------- Balance sheet data: Average assets $70,580 $68,435 Average loans 60,942 57,078 Average deposits 79,393 78,803 - ----------------------------------------------------------- Return on equity 21% 20% =========================================================== Commercial and Retail Banking includes domestic retail banking to consumer and small business customers, community development banking, as well as domestic commercial banking operations, which includes middle market lending, asset-based lending, leasing, cash management, trade finance and government banking services. Operating results reflect growth in commercial banking loan and lease portfolios, as well as ongoing changes to retail banking products and distribution channels, and cost savings resulting from merger integration efforts. Earnings for this unit increased $40 million, or 14%, as strong growth in retail banking was accompanied by relatively slower growth in the commercial banking sectors. Three months ended March 31 2000 1999 % 2000 1999 % DOLLARS IN MILLIONS Net Income Change Total Revenue Change ==================================================================== Retail Distribution $101 $ 79 28% $ 595 $ 559 6% Commercial Finance 90 98 (8) 279 295 (5) Commercial Banking 64 54 19 261 244 7 Small Business 54 37 46 230 200 15 Consumer Lending 11 12 (8) 83 89 (7) - -------------------------------------------------------------------- Total $320 $280 14% $1,448 $1,387 4% ==================================================================== Retail Distribution offers consumer retail services through various delivery channels and includes consumer deposit products and direct banking services. The Corporation distributes consumer retail products and services through a network of branches, ATMs, convenient in-store branches, Internet banking and 24-hour customer call centers. During the first quarter of 2000, Retail Distribution had average deposit balances of $55.7 billion. Retail Distribution earned $101 million, a 28% increase over the first quarter of 1999. Higher earnings were driven by increased spreads on deposits and lower operating expenses related to a lower employee level as a result of merger-related reductions in staff. Core deposit levels declined $852 million, as continued customer migration toward higher-yielding mutual funds was partly offset by the promotion of money market deposit accounts in selected markets. Commercial Finance focuses on the asset financing needs of corporate customers. Commercial Finance earned $90 million in the first quarter of 2000, compared to $98 million a year ago, a decrease of 8%. The lower earnings were primarily driven by aggressive credit actions taken against the lease portfolio in the first quarter of 2000, including writedowns of lease residuals. Commercial Banking provides traditional middle-market commercial lending, government banking services, trade services, and cash management services to customers generally ranging in size from $10 million to $500 million in annual sales, as well as government banking customers. For the first quarter of 2000, this unit's average loan and deposit balances were $16.6 billion and $9.9 billion, respectively. Commercial Banking earned $64 million in the first quarter of 2000, a 19% increase over the $54 million earned in the first quarter of 1999, primarily reflecting higher loan volumes and successful cost saving initiatives related to the BankBoston merger. The Small Business group provides a full range of financial services to businesses with annual sales up to $10 million. The Corporation is widely recognized as the leading small business lender in New England and ranks among the leaders in the Northeast. Earnings for this unit were $54 million for the first quarter of 2000, an increase of 46% over the first quarter a year earlier. Higher deposit spreads and volumes, as well as fee-based revenues, drove increased earnings. Average loan balances were down slightly to $4 billion for the first quarter of 2000, while average deposit balances increased by $749 million compared to the first quarter of 1999, to $11.8 billion for 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS the first quarter of 2000. Consumer Lending offers a convenient and competitive selection of loan products to consumers. Products and services are delivered through the many types of retail distribution channels available to the Corporation's customers. The Consumer Lending business has $10 billion in consumer loan balances, excluding credit card and residential mortgage products, which are managed as part of the National Consumer Group. The Consumer Lending business earned $11 million in the first quarter of 2000, a reduction of 8% from the prior year. Lower earnings were influenced by a slight decline in loan balances, the result of a strategic decision to exit specific segments of the business. NATIONAL CONSUMER GROUP =========================================================== Three months ended March 31 2000 1999 IN MILLIONS - ----------------------------------------------------------- Income statement data: Net interest income $ 99 $ 143 Noninterest income 291 294 Provision 82 99 Noninterest expense 225 244 Taxes 33 37 - ----------------------------------------------------------- Net income $ 50 $ 57 - ----------------------------------------------------------- Balance sheet data: Average assets $13,164 $15,106 Average loans 5,088 5,120 Average deposits 1,936 2,535 - ----------------------------------------------------------- Return on equity 9% 10% =========================================================== The National Consumer Group includes mortgage banking, credit card services and student loan processing. Three months ended March 31 2000 1999 % 2000 1999 % DOLLARS IN MILLIONS Net Income Change Total Revenue Change ====================================================================== Credit Cards $30 $29 3% $261 $283 (8)% Mortgage Banking 11 21 (48) 77 109 (29) Student Loan Processing 9 7 29 52 45 16 - ---------------------------------------------------------------------- Total $50 $57 (12)% $390 $437 (11)% ====================================================================== The Corporation's credit card subsidiary is the eighth largest credit card company in the nation. Fleet Mortgage, with offices located in 15 states, originated approximately $4.3 billion of loans in the first quarter of 2000 and services a mortgage portfolio of $151 billion and 1.6 million loans. Student loan processing, through the Corporation's AFSA subsidiary, services 7.3 million accounts nationwide and is the largest student loan servicer in the nation, with $66 billion of loans serviced. National Consumer Group earnings decreased 12% from the first quarter of 1999 to $50 million for the three months ended March 31, 2000. Favorable earnings at the credit card unit, which increased $1.6 million, combined with increased earnings at AFSA, were offset by a 48% decline in earnings at Fleet Mortgage. Earnings reductions at Fleet Mortgage were driven by lower production revenues, as average mortgage rates increased to 8.5% for the first quarter of 2000 from 7.1% for the first quarter of 1999. ALL OTHER All Other includes certain transactions not allocable to specific business units, the residual impact of methodology allocations such as the provision for credit losses, credit loss reserves and equity allocations, combined with transfer pricing offsets. The business activities of the Treasury unit are also included in All Other. The Treasury unit is responsible for managing the Corporation's securities and residential mortgage portfolios, the asset-liability management function and wholesale funding needs. Earnings in All Other can fluctuate with changes affecting the consolidated provision for credit losses, one-time charges, gains and other actions not driven by specific business units. In the first quarter of 2000, the Corporation recorded a $366 million gain on branch divestitures, which was partially offset by merger integration costs of $100 million and securities losses of $58 million. FINANCIAL CONDITION Total assets were $187.8 billion as of March 31, 2000, a decrease of $2.9 billion from December 31, 1999, reflecting the divestiture of $3.6 billion of loans to Sovereign, offset by growth in domestic loans during the quarter. Total loans and leases at March 31, 2000 were $117.4 billion, a decrease of $2.3 billion compared to $119.7 billion at December 31, 1999. This decrease was due mainly to the divestiture of $3.6 billion of loans and leases to Sovereign in March 2000 in connection with the first phase of the Corporation's divestiture plan, offset in part by domestic loan growth, primarily consumer margin and commercial and industrial (C&I) loans. Total deposits decreased $5.7 billion to $109.2 billion at March 31, 2000, primarily the result of the divestiture of approximately $4 billion of deposits to Sovereign in March 2000 and a decrease in time deposits. Short-term borrowings increased $682 million from December 31, 1999 to March 31, 2000, attributable to the increased availability and use of treasury, tax and loan borrowings, offset in part by decreased federal funds purchased and securities sold under agreements to repurchase. The $998 million increase in long-term debt was due to the issuance of $1.9 billion of medium-term floating rate notes, including $1 billion of bank notes, offset by maturities of medium-term notes during the quarter. The Corporation's investment securities portfolio plays a significant role in the management of the Corporation's balance sheet, as the liquid nature of the securities portfolio enhances the efficiency of the balance sheet. The amortized cost of securities available for sale decreased $1.6 billion to $21.9 billion at March 31, 2000, compared to $23.4 billion at December 31, 1999. This decrease was due in part to the Corporation's repositioning of its bond portfolio. The valuation of securities available for sale decreased $556 million to a net unrealized gain (pre-tax) position of $136 million at March 31, 2000, primarily the result of unrealized 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS depreciation in the market value of securities held by the Corporation's Principal Investing business. The net unrealized (pre-tax) gain related to the Principal Investing portfolio amounted to approximately $800 million at March 31, 2000, and $300 million at April 30, 2000.
SECURITIES ================================================================================================================================= March 31, 2000 December 31, 1999 March 31, 1999 Amortized Market Amortized Market Amortized Market IN MILLIONS Cost Value Cost Value Cost Value - --------------------------------------------------------------------------------------------------------------------------------- Securities available for sale: U.S. Treasury and government agencies $ 1,438 $ 1,388 $ 2,282 $ 2,196 $ 2,167 $ 2,165 Mortgage-backed securities 13,221 12,589 14,157 13,567 15,233 15,302 Other debt securities 4,471 4,469 4,850 4,853 4,397 4,334 - --------------------------------------------------------------------------------------------------------------------------------- Total debt securities 19,130 18,446 21,289 20,616 21,797 21,801 - --------------------------------------------------------------------------------------------------------------------------------- Marketable equity securities 1,027 1,847 977 2,342 652 705 Other equity securities 1,706 1,706 1,173 1,173 894 894 - --------------------------------------------------------------------------------------------------------------------------------- Total securities available for sale 21,863 21,999 23,439 24,131 23,343 23,400 - --------------------------------------------------------------------------------------------------------------------------------- Total securities held to maturity 1,084 1,084 1,081 1,081 1,494 1,502 - --------------------------------------------------------------------------------------------------------------------------------- Total securities $22,947 $23,083 $24,520 $25,212 $24,837 $24,902 =================================================================================================================================
LOANS AND LEASES ========================================================================== March 31, Dec. 31, March 31, IN MILLIONS 2000 1999 1999 - -------------------------------------------------------------------------- Domestic: Commercial and industrial $ 54,711 $ 55,184 $ 55,907 Commercial real estate 7,949 7,945 8,365 Consumer 29,070 30,885 28,220 Lease financing 10,801 10,933 10,102 - -------------------------------------------------------------------------- Total domestic loans and leases 102,531 104,947 102,594 - -------------------------------------------------------------------------- International: Commercial 11,760 11,855 11,092 Consumer 3,062 2,898 2,739 - -------------------------------------------------------------------------- Total international loans and leases 14,822 14,753 13,831 - -------------------------------------------------------------------------- Total loans and leases $117,353 $119,700 $116,425 ========================================================================== The loan and lease portfolio inherently includes credit risk, which is defined as the risk of loss arising from a counterparty's failure or inability to meet payment or performance terms of a contract with the Corporation. The Corporation attempts to control such risk through analysis of credit applications, portfolio diversification and ongoing examinations of outstandings and delinquencies. The Corporation strives to identify potential classified assets as early as possible, to take charge-offs promptly based on realistic assessments of probable losses and to maintain an adequate reserve for credit losses. Total loans and leases at March 31, 2000 decreased $2.3 billion from December 31, 1999. Domestic loans and leases decreased $2.4 billion, or 2%, due primarily to the aforementioned divestiture of $3.6 billion of loans and leases to Sovereign in March 2000, offset by consumer margin and C&I loan growth. The Corporation's international loan portfolio was relatively flat compared to December 31, 1999, reflecting economic slowdowns in Brazil and Argentina. CONSUMER LOANS ==================================================================== March 31, Dec. 31, March 31, IN MILLIONS 2000 1999 1999 - -------------------------------------------------------------------- Domestic: Residential real estate $ 9,519 $10,881 $10,940 Home equity 6,547 7,095 6,473 Credit card 5,032 5,455 4,233 Student loans 1,525 1,407 1,504 Installment/other 6,447 6,047 5,070 - -------------------------------------------------------------------- Total domestic loans 29,070 30,885 28,220 - -------------------------------------------------------------------- International 3,062 2,898 2,739 - -------------------------------------------------------------------- Total consumer loans $32,132 $33,783 $30,959 ==================================================================== Domestic consumer loans decreased $1.8 billion to $29.1 billion at March 31, 2000. This decrease was the result of the divestiture of $1.2 billion of residential mortgage loans and $1.1 billion of other consumer loans to Sovereign in March 2000, as well as the securitization of $750 million of credit card receivables during the quarter. These decreases were offset, in part, by growth in the Corporation's consumer margin loans at Quick & Reilly and growth in the credit card portfolio. CROSS-BORDER OUTSTANDINGS In accordance with bank regulatory rules, cross-border outstandings are amounts payable to the Corporation by residents of foreign countries, regardless of the currency in which the claim is denominated, and local country claims in excess of local country obligations. At March 31, 2000, total cross-border outstandings were $12.7 billion, compared with $12.9 billion at December 31, 1999, which included $5.9 billion and $6.4 billion, respectively, of cross-border outstandings to Latin America. Further information with respect to the Corporation's cross-border outstandings is included on pages 23 and 24 of its 1999 Annual Report on Form 10-K. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. The Corporation manages its cross-border outstandings using country exposure limits established by the Country Exposure Committee. The following table details by country the Corporation's approximate cross-border outstandings that individually amounted to 1% or more of its consolidated total assets at March 31, 2000 and December 31, 1999. SIGNIFICANT CROSS-BORDER OUTSTANDINGS(a)(b) ============================================================= March 31, Dec. 31, DOLLARS IN MILLIONS 2000 (c) 1999(c) - ------------------------------------------------------------- Argentina: Banks $ 410 $ 405 Government entities and agencies 1,210 1,470 Other 720 795 - ------------------------------------------------------------- Total $ 2,340 $ 2,670 - ------------------------------------------------------------- Percentage of total assets 1.2% 1.4% - ------------------------------------------------------------- Commitments(d) $ 11 $ 12 - ------------------------------------------------------------- Brazil: Banks $ 135 $ 170 Government entities and agencies 1,420 1,540 Other 320 210 - ------------------------------------------------------------- Total $ 1,875 $ 1,920 - ------------------------------------------------------------- Percentage of total assets 1.0% 1.0% - ------------------------------------------------------------- Commitments(d) $ 35 $ 30 ============================================================= (a) Cross-border outstandings include deposits in other banks, resale agreements, trading securities, securities available for sale and held to maturity, loans and leases, amounts due from customers on acceptances, accrued interest receivable and revaluation gains on trading derivatives. (b) Excluded from cross-border outstandings are local country claims funded by non-local country obligations where the provider of funds assumes the risk of nonpayment due to currency exchange restrictions in a given country (such outstandings were $2.2 billion and $2.7 billion at March 31, 2000 and December 31, 1999, respectively); and claims reallocated as a result of external guarantees, cash collateral and insurance contracts primarily issued by U.S. government agencies. (c) Cross-border outstandings in countries which totaled between .75% and 1% of consolidated total assets at March 31, 2000 and December 31, 1999 were approximately as follows: March 31, 2000-United Kingdom-$1.4 billion, and December 31, 1999-none. (d) Included within commitments are letters of credit, guarantees and the undisbursed portions of loan commitments. NONPERFORMING ASSETS(a) ================================================================================ IN MILLIONS C&I CRE Consumer Total - -------------------------------------------------------------------------------- Nonperforming loans and leases: Current or less than 90 days past due Domestic $360 $ 2 $ 11 $373 International -- 2 -- 2 Noncurrent Domestic 169 15 65 249 International 94 42 81 217 Other real estate owned (OREO) Domestic 1 17 11 29 International -- 12 4 16 - -------------------------------------------------------------------------------- Total NPAs-Domestic 530 34 87 651 Total NPAs-International 94 56 85 235 - -------------------------------------------------------------------------------- Total NPAs, March 31, 2000 $624 $ 90 $172 $886 - -------------------------------------------------------------------------------- NPAs, December 31, 1999: Total NPAs-Domestic $436 $ 46 $ 99 $581 Total NPAs-International 96 61 103 260 - -------------------------------------------------------------------------------- Total NPAs, December 31, 1999 $532 $107 $202 $841 - -------------------------------------------------------------------------------- NPAs, March 31, 1999: Total NPAs-Domestic $280 $ 61 $125 $466 Total NPAs-International 77 1 118 196 - -------------------------------------------------------------------------------- Total NPAs, March 31, 1999 $357 $ 62 $243 $662 ================================================================================ (a) NPAs do not include loans greater than 90 days past due and still accruing interest ($293 million, $320 million and $291 million at March 31, 2000, December 31, 1999 and March 31, 1999, respectively). Included in the 90 days past due and still accruing interest amounts were $213 million, $251 million and $228 million of consumer loans at March 31, 2000, December 31, 1999 and March 31, 1999, respectively. Nonperforming assets (NPAs) at March 31, 2000 increased $45 million to $886 million when compared with December 31, 1999. The rise in NPAs was due primarily to additions to domestic C&I nonperforming loans (NPLs), offset in part by $73 million of NPLs reclassified to assets held for sale by accelerated disposition during the quarter. NPAs at March 31, 2000, as a percentage of total loans, leases and OREO, and as a percentage of total assets, were .75% and .47%, respectively, compared to .70% and .44%, respectively, at December 31, 1999. Future levels of NPAs will be influenced by the economic environment, interest rates and other internal and external factors existing at the time. As such, no assurance can be given as to future levels of NPAs. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS The following table sets forth the status of impaired loans, which are primarily commercial and commercial real estate loans on nonaccrual status: IMPAIRED LOANS ================================================================= March 31, Dec. 31, IN MILLIONS 2000 1999 - ----------------------------------------------------------------- Impaired loans with a reserve $506 $512 Impaired loans without a reserve 141 60 - ----------------------------------------------------------------- Total impaired loans $647 $572 - ----------------------------------------------------------------- Reserve for impaired loans (a) $209 $163 - ----------------------------------------------------------------- Quarterly average balance of impaired loans $636 $524 ================================================================= (a) The reserve for impaired loans is part of the Corporation's overall reserve for credit losses. Substantially all of the impaired loans presented above were on nonaccrual status and the amount of interest income recognized on impaired loans was not significant. The Corporation had no significant outstanding commitments to lend additional funds to customers whose loans have been placed on nonaccrual status or the terms of which have been modified. At March 31, 2000 and December 31, 1999, the Corporation had assets held for sale by accelerated disposition with a net carrying value of $498 million and $370 million, respectively, of which approximately $320 million and $130 million, respectively, were nonperforming. Transfers to this category are made in accordance with management's intention to focus appropriate resources on the disposition of these assets. Such assets are included in other assets in the Corporation's consolidated balance sheet. RESERVE FOR CREDIT LOSSES ACTIVITY ============================================================================== Three months ended March 31 2000 1999 DOLLARS IN MILLIONS - ------------------------------------------------------------------------------ Balance at beginning of year $ 2,488 $ 2,306 Loans charged off (324) (270) Recoveries of loans charged off 49 54 - ------------------------------------------------------------------------------ Net charge-offs (275) (216) Provision for credit losses 300 219 Acquisitions/Other (36) 172 - ------------------------------------------------------------------------------ Balance at end of period $ 2,477 $ 2,481 - ------------------------------------------------------------------------------ Ratios of net charge-offs to average loans .92% .76% - ------------------------------------------------------------------------------ Ratios of reserve for credit losses to period-end loans 2.11 2.13 - ------------------------------------------------------------------------------ Ratios of reserve for credit losses to period-end NPLs 295 397 ============================================================================== The Corporation's reserve for credit losses at March 31, 2000 was essentially unchanged compared to March 31, 1999, and decreased slightly from December 31, 1999. This decrease was a result of the transfer of reserves related to the divestiture of loans to Sovereign as well as reserves related to loans transferred to assets held for sale by accelerated disposition, partially offset by the provision for credit losses exceeding net charge-offs by $25 million. The provision for credit losses for the first quarter of 2000 was $300 million, $81 million higher than the prior year's first quarter. Further information with respect to the Corporation's reserve for credit losses is included on pages 25-27 of its 1999 Annual Report on Form 10-K. ASSET-LIABILITY MANAGEMENT The goal of asset-liability management is the prudent control of market risk, liquidity and capital. Asset-liability management is governed by policies reviewed and approved annually by the Corporation's Board of Directors (the Board). The Board delegates responsibility for asset-liability management to the corporate Asset, Liability and Capital Committee (ALCCO). ALCCO sets strategic directives that guide the day-to-day asset-liability management activities of the Corporation and approves all major market risk, liquidity, and capital management programs. MARKET RISK Market risk is defined as the sensitivity of income to variations in interest rates, foreign exchange rates, equity prices, 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 activities. Further information with respect to the Corporation's asset-liability management and related policies, including its management of market risk, is included on pages 27-34 of its 1999 Annual Report on Form 10-K. NON-TRADING ACTIVITIES U.S. DOLLAR DENOMINATED RISK U.S. dollar denominated assets and liabilities comprised the majority of the Corporation's balance sheet. Interest rate risk, including mortgage prepayment risk, is by far the most significant non-trading market risk to which the U.S. dollar denominated positions are exposed. Interest rate risk is defined as the sensitivity of income or financial condition to variations in interest rates. This risk arises directly from the Corporation's core banking activities - lending, deposit gathering and loan servicing. A major component of the Corporation's non-trading interest rate risk is the exposure of net interest income to differences in the maturity and repricing characteristics of the Corporation's core banking assets and liabilities - loans and deposits. The Corporation manages this risk using both on-balance sheet instruments, mainly fixed-rate portfolio securities, and off-balance sheet instruments, mainly interest rate swaps. A second major component of non-trading interest rate risk is the sensitivity of MSRs to prepayments. A decline in interest rates and an actual (or probable) increase in mortgage prepayments shorten the expected life of the MSR asset. To mitigate this risk, the Corporation uses a variety of risk management instruments, including futures contracts, interest rate swaps and options, and swaps linked to mortgage assets, such as "principal only" (P.O.) securities. The Corporation's Board-approved limits on interest rate risk specify that if interest rates in the base forecast scenario 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 base scenario, intended to reflect market consensus, currently envisions gradual Federal Reserve Board tightening. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS The limit relates to the impact of an immediate increase or decrease in the forecasted interest rates. The Corporation was in compliance with this limit at March 31, 2000. The following table reflects the estimated exposure of the Corporation's net interest income for the next 12 months due to an immediate shift in forecasted interest rates. ESTIMATED EXPOSURE TO RATE CHANGE NET INTEREST INCOME (BASIS POINTS) (IN MILLIONS) - ------------------------------------------------------ March 31, 2000 Dec. 31, 1999 - ------------------------------------------------------ +200 $(77) $(58) -200 26 (12) ====================================================== Management believes that the exposure of the Corporation's net interest income to gradual and/or modest changes in interest rates, such as tightening by the Federal Reserve Board currently built into the base forecast scenario, is relatively insignificant. As indicated, an immediate 200 basis point increase in interest rates would tend to reduce net interest income, but by an amount that is well within corporate limits. The Corporation also performs valuation analysis, which 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 aggregating the discounted cash flows. The Corporation's "Economic Value of Equity" (EVE) is the estimated net present value of these discounted cash flows. The Corporation's Board-approved limits on interest rate risk specify that if interest rates in the base forecast scenario were to shift immediately up or down 200 basis points, the estimated EVE should decline by less than 10%. The Corporation was in compliance with this limit at March 31, 2000. The following table reflects the Corporation's estimated EVE assuming an immediate shift in interest rates. Exposures are reported for shifts of +/- 100 basis points, as well as +/- 200 basis points because the sensitivity of EVE, in particular the sensitivity of hedged MSRs, to changes in interest rates can be nonlinear. While an immediate shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario, management believes that a shift in interest rates would have a much more modest impact, due partly to anticipated hedge activity. ESTIMATED EXPOSURE TO RATE CHANGE ECONOMIC VALUE (BASIS POINTS) (IN MILLIONS) - --------------------------------------------------------- March 31, 2000 Dec. 31, 1999 - --------------------------------------------------------- +200 $(509) $ 118 +100 (256) 65 -100 75 (539) -200 (485) (1,457) ========================================================= Estimated exposures are more modest and more balanced than at December 31, 1999. In particular, there is reduced exposure to a sharp decline in interest rates. The change in the risk profile was largely related to two factors: first, the sale of mortgage securities and loans and second, the addition of interest rate swaps. Swaps were added to offset the sales of mortgage assets, which reduced exposure to mortgage prepayments. Swaps were also added to reduce the remaining exposure of net interest income and economic value to any possible future decline in interest rates. 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 March 31, 2000, the Corporation had net deferred income of approximately $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 8 years. The derivative 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 and related hedges. During the first quarter of 2000, net hedge losses of $13 million were deferred and recorded as adjustments to the carrying value of the MSRs and related hedges. At March 31, 2000, the carrying value and fair value of the Corporation's MSRs were $3.4 billion and $3.6 billion, respectively. In connection with the Corporation's management of its MSR hedge program, the Corporation terminated (in notional amounts) $17 billion of interest rate floor and option on swap agreements and $2 billion of Treasury and futures options, and added $4 billion and $2 billion of interest rate floor and option on swap agreements and Treasury and futures options, respectively, during the first quarter of 2000. Additionally, the Corporation added $1 billion of swap contracts, and terminated $2 billion of interest rate caps and $2 billion of swap contracts during the first quarter of 2000. NON-U.S. DOLLAR DENOMINATED RISK The Corporation's non-U.S. dollar denominated assets and liabilities are exposed to interest rate and foreign exchange rate risks. The majority of the Corporation's non-U.S. dollar denominated interest rate and foreign exchange rate risk exposure stems from its operations in Latin America, primarily Argentina and Brazil. At March 31, 2000 and December 31, 1999, the Corporation's exposure to interest rate risk in its Latin American operations was not significant. With respect to foreign exchange rate risk, when deemed appropriate, the Corporation will take positions in certain currencies with the intention of taking advantage of movements in currency and interest rates. The Corporation 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS takes currency positions by funding local currency assets with dollars or by funding dollar assets with local currency liabilities. Currency positions expose the Corporation to gains or losses that depend on the relationship between currency price movements and interest rate differentials. These positions are subject to limits established by ALCCO. The majority of the Corporation's non-trading foreign exchange risk is generated by its operations in Argentina and Brazil. The following table represents the Corporation's currency positions in Argentina and Brazil at March 31, 2000 and December 31, 1999, respectively. CURRENCY POSITIONS March 31, 2000 Dec. 31, 1999 Quarter- Quarterly Quarter- Quarterly IN MILLIONS End Average End Average ====================================================================== Argentina(a) $399 $363 $297 $333 Brazil(b) 18 11 35 19 ====================================================================== (a) Positions represent local currency assets funded by U.S. dollars for both periods presented. (b) March 31, 2000 quarterly average position represents dollar assets funded by local currency liabilities; March 31, 2000 quarter-end and December 31, 1999 positions represent local currency assets funded by U.S. dollars. To date, the Corporation's currency positions have been liquid in nature, and management has been able to close and re-open these positions as necessary. The following table summarizes the Corporation's notional amounts and fair values of interest rate and foreign exchange derivatives included in its asset-liability management portfolio discussed earlier.
RISK MANAGEMENT INSTRUMENTS =================================================================================================================================== Weighted Assets- Average Weighted Average March 31, 2000 Notional Liabilities Maturity Fair Rate DOLLARS IN MILLIONS Value Hedged (Years) Value Receive Pay =================================================================================================================================== DOMESTIC INTEREST RATE RISK MANAGEMENT INSTRUMENTS Interest rate swaps: Receive fixed/pay variable $16,572 Variable-rate loans 200 Securities 769 Fixed-rate deposits 55 Short-term debt 5,312 Long-term debt ----------- 22,908 3.8 $(417) 6.53% 6.46 % ----------- Pay fixed/receive variable 7 Fixed-rate loans ----------- 7 3.9 - 5.95 7.45 ----------- Basis swaps 108 Securities 12 Variable rate loans 350 Long-term debt 50 Short-term debt ----------- 520 1.2 (15) 6.00 6.20 - ------------------------------------------------------------------------------------------------------------------------------------ Total domestic interest rate risk management instruments 23,435 3.7 (432) 6.52 6.45 - ------------------------------------------------------------------------------------------------------------------------------------ INTERNATIONAL INTEREST RATE RISK MANAGEMENT INSTRUMENTS Interest rate swaps 936 Short-term assets and liabilities .4 (7) -(a) - (a) Futures 1,318 Short-term assets and liabilities .4 - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total international interest rate risk management instruments 2,254 .4 (7) - - - ------------------------------------------------------------------------------------------------------------------------------------ Total hedges of net interest income $25,689 3.4 $(439) 6.52 6.45 - ------------------------------------------------------------------------------------------------------------------------------------ MORTGAGE BANKING RISK MANAGEMENT INSTRUMENTS Swaps: Interest rate, P.O., and MBS swaps $ 4,221 MSRs 2.5 $ (91) 6.49% 6.28 % Futures 190 MSRs .2 - - - Options: Interest rate floors and options on swaps 19,285 MSRs 4.2 196 -(b) - (b) Interest rate caps 9,400 MSRs 4.2 197 -(b) - (b) Treasury and futures options 200 MSRs .1 - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total options 28,885 4.2 393 - - - ------------------------------------------------------------------------------------------------------------------------------------ Total hedges of mortgage servicing rights $33,296 3.9 $ 302 6.49% 6.28 % - ------------------------------------------------------------------------------------------------------------------------------------ FOREIGN EXCHANGE RISK MANAGEMENT INSTRUMENTS Swaps $ 5,299 Foreign currency denominated .7 $ (97) - - assets and liabilities Spot and forward contracts 422 Foreign currency denominated .2 13 - - assets and liabilities Futures 1,531 Foreign currency denominated .2 - - - assets and liabilities - ------------------------------------------------------------------------------------------------------------------------------------ Total hedges of foreign exchange $ 7,252 .6 $ (84) - - - ------------------------------------------------------------------------------------------------------------------------------------ Total risk management instruments $66,237 3.4 $(221) 6.51% 6.43 % ===================================================================================================================================
(a) These interest rate swaps typically include the exchange of floating rate indices that are indigenous to the Brazilian market and have been excluded from the weighted average rate. (b) The mortgage banking risk management interest rate floors and options on swaps, and interest rate caps, have weighted average strike rates of 5.51% and 6.96%, respectively. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TRADING ACTIVITIES The Corporation's trading activities create exposure to price risk, or the risk of loss of earnings arising from adverse changes in the value of trading portfolios of financial instruments. The Corporation's price risk arises from market-making, dealing and position-taking in interest rate, currency exchange rate, equity and precious metals markets. This exposure mainly arises in the normal course of the Corporation's business as a financial intermediary. The Corporation enters into interest rate, currency exchange rate and precious metals contracts primarily to satisfy the investment and risk management needs of its customers. Equity positions result mainly from the Corporation's market-making and underwriting activities. In addition, the Corporation takes certain proprietary trading positions, including positions in high yield and emerging markets fixed income securities, local currency debt and equity securities, and related derivatives. The Corporation expects these proprietary trading positions to benefit from short-term movements in the prices of securities and from perceived inefficiencies among the prices of various securities issued by the same country or entity. Domestic fixed income trading activities also include position-taking in U.S. Treasury and U.S. government agency securities. The following chart presents the aggregate daily trading-related revenues, in millions of dollars, that resulted from the Corporation's combined trading activities. [GRAPHIC OMITTED BAR CHART REPRESENTATION OF DAILY TRADING-RELATED REVENUES FOR THE FIRST QUARTER OF 2000] Revenues Number (IN MILLIONS) of Days --------------- -------- $(1) - $0 1 $0 - $1 4 $1 - $3 3 $3 - $5 9 $5 - $7 13 $7 - $9 12 $9 - $11 9 $11 - $13 8 $13 - $15 4 $15 - $17 -- > $17 2 Trading-related revenues presented above include trading profits and commissions, foreign exchange revenue and market-making revenue, all components of capital markets revenue, as well as net interest income from these trading positions. During the first quarter of 2000, daily trading-related revenues ranged from losses of $.3 million to profits of $18.3 million. The Corporation has implemented a price risk management process to limit the volatility of these daily earnings results. The Corporation uses a Value-at-Risk (VAR) methodology, based on industry-standard risk measurement techniques, to measure the overall price risk inherent in its trading activities. The system draws on historical and current market data to estimate potential market volatility, and measures the risk to earnings at a 99% confidence level, which means that the Corporation expects daily results to exceed the potential loss as calculated by VAR only occasionally (i.e., no more than one time for at least 100 trading days). The VAR methodology requires a number of other key assumptions, including those related to the holding period, the impact of cross-correlations, and the treatment of event risk. The Corporation's aggregate daily exposure averaged $43 million during the first quarter of 2000, compared to $37 million during the first quarter of 1999. At March 31, 2000, total VAR usage measured $45 million, well within the $88 million risk limit. These calculations do not take into account the potential diversification benefits of positions taken across different trading businesses. The table below presents the Corporation's average exposure with respect to its aggregate trading portfolio: VALUE-AT-RISK (VAR) ======================================================================== IN MILLIONS Average High Low - ------------------------------------------------------------------------ Quarter ended March 31, 2000 $43 $49 $38 Quarter ended March 31, 1999 37 48 30 Quarter ended December 31, 1999 36 56 27 Year ended December 31, 1999 38 56 27 ======================================================================== During the first quarter of 2000, the majority of the price risk in the Corporation's trading activities arose from interest rate and equity components. Interest rate risk, which includes directional and spread components, increased to an average of $22 million, or approximately 50% of aggregate average VAR. Interest rate risk arises primarily from trading activity in the domestic high yield market and the Argentine and Brazilian sovereign and high-end corporate bond markets. The contribution to the Corporation's aggregate average VAR from equity trading activities in the Robertson Stephens and Quick & Reilly units during the first quarter of 2000 was $15 million, or approximately 35% of aggregate average VAR. The individual activities that generate most of this equities risk include the third largest NYSE specialist firm, NASDAQ market-making, equity trading and a convertible bond trading and underwriting business. Foreign exchange risk remained moderate throughout the first quarter of 2000 at an average of $6 million, or approximately 14% of aggregate average VAR. The majority of foreign exchange risk arises from the Corporation's Argentine and Brazilian operations. Commodity risk associated with a small trading activity that supports a precious metals lending business remained modest during the first quarter of 2000. The following table presents the Corporation's aggregate average VAR by risk type for the periods indicated. Average VAR for commodity risk was not significant for the periods presented. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS VAR BY RISK TYPE =========================================================== March 31, 2000 Dec. 31, 1999 Quarterly Quarterly 1999 IN MILLIONS Average Average Average - ----------------------------------------------------------- Interest rate risk $22 $19 $19 Equity risk 15 10 12 Foreign exchange risk 6 7 7 - ----------------------------------------------------------- Aggregate price risk $43 $36 $38 =========================================================== The Corporation's independent Market Risk Management function routinely validates the Corporation's measurement framework by conducting backtests, which compare the actual daily trading-related revenues against the estimated VAR with a one-day holding period. The graph below presents this comparison for the most recent 12 months. No daily aggregate trading losses exceeded the one-day aggregate VAR measure associated with that date, which compares favorably with the Corporation's expectation for 3 such breaches. [GRAPHIC OMITTED] LINE GRAPH REPRESENTATION OF DAILY TRADING-RELATED REVENUES AND VAR MEASURES WITH A ONE-DAY HOLDING PERIOD FOR THE 12 MONTHS ENDED MARCH 31, 2000] The daily trading-related revenues include daily trading profits and commissions and foreign exchange revenues, as well as daily trading-related net interest income. During the 12 months ended March 31, 2000, the daily trading-related revenues ranged from losses of $2.7 million per day to profits of $18.4 million per day. VAR includes all trading portfolios and the foreign exchange portfolio. During the 12 months ended March 31, 2000, VAR with a one-day holding period ranged from $18 million per day to $40 million per day. In addition to the VAR framework, the Corporation employs other risk measurement tools to evaluate and control price risk. These tools include cumulative loss limits and overall portfolio size limits, as well as regular stress tests and scenario analyses. Stress testing employs a VAR calculation based on a ten standard deviation change in the prices of underlying risk factors. Scenario analyses apply actual market conditions experienced in the past against current positions. While the VAR framework and the additional risk measurement tools effectively ensure that exposures remain within the Corporation's expressed tolerance for price risk, they do not guarantee the avoidance of trading losses during periods of extreme volatility. TRADING INSTRUMENTS WITH OFF-BALANCE SHEET RISK Derivatives not used for asset-liability management are included in the derivative trading portfolio, and principally relate to providing risk management products to the Corporation's customers. The following table represents the notional, or contractual, amount of the Corporation's off-balance sheet interest rate, foreign exchange and equity trading instruments and related credit exposure at March 31, 2000: ============================================================== Contract or March 31, 2000 Notional Credit IN MILLIONS Amount Exposure - -------------------------------------------------------------- Interest rate contracts $144,106 $ 768 Foreign exchange contracts 73,287 1,657 Equity contracts 2,822 460 ============================================================== All of the Corporation's trading positions are carried at fair value, with realized and unrealized gains and losses reflected in trading profits and commissions, a component of capital markets revenue. Notional principal amounts are a measure of the volume of agreements transacted, but the level of credit exposure is significantly less. The amount of credit exposure can be estimated by calculating the cost to replace, on a present value basis and at current market rates, all profitable contracts outstanding at period-end. Credit exposure relates to accounting losses that would be recognized if the counterparties completely failed to perform their obligations. To manage its level of credit exposure, the Corporation deals with counterparties of good credit standing, establishes counterparty credit limits, in certain cases has the ability to require securities collateral, and enters into netting agreements whenever possible. The amounts disclosed below represent the end-of-period fair values of derivative financial instruments held or issued for trading purposes and the quarterly average aggregate fair values for those instruments: FAIR VALUES AND AVERAGE FAIR VALUES OF TRADING INSTRUMENTS =============================================================== Fair Value Average March 31, 2000 (Carrying Fair IN MILLIONS Amount) Value - --------------------------------------------------------------- Interest rate contracts: Assets $ 768 $ 1,227 Liabilities (801) (1,135) Foreign exchange contracts: Assets $ 1,657 $ 1,752 Liabilities (1,645) (1,698) Equity contracts: Assets $ 460 $ 431 Liabilities (308) (232) =============================================================== 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS LIQUIDITY RISK The objective of liquidity risk management is to assure the ability of the Corporation and its subsidiaries to meet their financial obligations. These obligations are the payment 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 commercial and consumer receivables. Further information with respect to the Corporation's liquidity risk management is included on page 35 of its 1999 Annual Report on Form 10-K. 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 retained earnings. The Corporation's subsidiaries rely on cash flows from operations, core deposits, borrowings, short-term high-quality liquid assets, and, in the case of non-banking subsidiaries, funds from the parent company. Wholesale funding sources include large certificates of deposit, foreign branch deposits, federal funds, collateralized borrowings and a $10 billion bank note program. Another important source of bank funding is the securitization market. Additionally, the Corporation and its banking subsidiaries have access to the Euro market under a $3 billion Euro note program. At March 31, 2000, the Corporation's parent company had commercial paper outstanding of $1.4 billion, compared with $1.6 billion at December 31, 1999. The Corporation's parent company had excess funds at March 31, 2000 of $603 million compared to $1.5 billion at December 31, 1999. The Corporation has backup lines of credit totaling $1 billion to ensure funding is not interrupted if commercial paper is not available. At March 31, 2000 and December 31, 1999, the Corporation had no outstanding balances under these lines of credit. The parent company currently has $1 billion available for the issuance of senior or subordinated debt securities and other debt securities, common stock, preferred stock or trust preferred securities, under a currently effective shelf registration filed with the Securities and Exchange Commission (the SEC). Management believes the Corporation has sufficient liquidity to meet its liabilities to customers and debt holders. CAPITAL CAPITAL RATIOS ======================================================================= March 31, Dec. 31, March 31, 2000 1999 1999 - ----------------------------------------------------------------------- Risk-adjusted assets (in millions) $194,594 $189,488 $183,403 Tier 1 risk-based capital ratio (4% minimum) 6.66% 6.82% 6.83% Total risk-based capital ratio (8% minimum) 11.02 11.50 11.24 Leverage ratio(a) 6.67 6.81 6.99 Common equity-to-assets ratio 7.66 7.66 7.62 Total equity-to-assets ratio 7.96 8.03 8.00 Tangible common equity- to-assets ratio 5.61 5.60 5.43 Tangible common equity-to- managed assets ratio 5.21 5.20 5.05 Tangible total equity-to- assets ratio 5.91 5.97 5.82 ======================================================================= (a) The Corporation was subject to a 3% minimum at March 31, 2000 and December 31, 1999, and a 4% minimum at March 31, 1999. At March 31, 2000, the Corporation exceeded all regulatory required minimum capital ratios, as the Corporation's Tier 1 and Total risk-based capital ratios were 6.66 percent and 11.02 percent, respectively, compared with 6.82 percent and 11.50 percent, respectively, at December 31, 1999. The leverage ratio, a measure of Tier 1 capital to average quarterly assets, was 6.67 percent at March 31, 2000 compared with 6.81 percent at December 31, 1999. On April 30, 2000, the Corporation called for redemption $186 million of floating-rate subordinated notes due 2001, and will redeem these notes on May 31, 2000. On April 18, 2000, the Corporation's Board approved a plan to repurchase up to $2 billion of the Corporation's common stock from time to time, as market conditions permit. On January 15, 2000, the Corporation redeemed all of the outstanding shares of its 9.35% cumulative preferred stock at its aggregate carrying value of $125 million. FORWARD-LOOKING STATEMENTS 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 contemplated as a result of certain risks and uncertainties, including, but not limited to, changes in general political and economic conditions, either domestically or internationally or in the states in which the Corporation conducts its business; interest rate and currency fluctuations; competitive product and pricing pressures within the Corporation's market; equity and bond market fluctuations and perceptions; the level of personal and corporate customers' bankruptcies; inflation; technological changes, including the impact of the Internet; lower than expected cost savings or higher than expected costs associated with acquisitions and integrations of acquired 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIION AND RESULTS OF OPERATIONS businesses, including the BankBoston merger; greater than expected negative impact of required divestitures completed or to be completed in connection with the BankBoston merger; adverse legislation or regulatory developments affecting the businesses in which the Corporation is engaged; as well as other risks and uncertainties detailed from time to time in the filings of the Corporation with the SEC. RECENT ACCOUNTING DEVELOPMENTS SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes comprehensive accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The standard requires that all derivative instruments be recorded in the balance sheet at fair value. However, the accounting for changes in fair value of the derivative instrument depends on whether the derivative instrument qualifies as a hedge. If the derivative instrument does not qualify as a hedge, changes in fair value are reported in earnings when they occur. If the derivative instrument qualifies as a hedge, the accounting treatment varies based on the type of risk being hedged. The Corporation intends to adopt SFAS No. 133 as of January 1, 2001. The adoption of this Standard may cause volatility in both the income statement as well as the equity section of the balance sheet. The impact of this Standard cannot be currently estimated and will be dependent upon the fair value, nature and purpose of the derivative instruments held by the Corporation as of January 1, 2001. 19 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited) ================================================================================ Three months ended March 31 2000 1999 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS - ------------------------------------------------------------------------------- Interest income: Interest and fees on loans and leases $2,794 $2,593 Interest on securities and trading assets 435 402 Other 232 154 - ------------------------------------------------------------------------------- Total interest income 3,461 3,149 - ------------------------------------------------------------------------------- Interest expense: Deposits of domestic offices 601 612 Deposits of international offices 297 285 Short-term borrowings 363 260 Long-term debt 424 285 Other 68 39 - ------------------------------------------------------------------------------- Total interest expense 1,753 1,481 - ------------------------------------------------------------------------------- Net interest income 1,708 1,668 - ------------------------------------------------------------------------------- Provision for credit losses 300 219 - ------------------------------------------------------------------------------- Net interest income after provision for credit losses 1,408 1,449 - ------------------------------------------------------------------------------- Noninterest income: Capital markets revenue 1,059 397 Investment services revenue 500 356 Banking fees and commissions 364 350 Credit card revenue 159 162 Processing-related revenue 156 154 Gain on branch divestitures 366 - Other 118 139 - ------------------------------------------------------------------------------- Total noninterest income 2,722 1,558 - ------------------------------------------------------------------------------- Noninterest expense: Employee compensation and benefits 1,425 1,016 Occupancy 160 139 Equipment 146 130 Intangible asset amortization 88 86 Legal and other professional 82 68 Marketing and public relations 72 61 Other 539 435 - ------------------------------------------------------------------------------- Total noninterest expense 2,512 1,935 - ------------------------------------------------------------------------------- Income before income taxes 1,618 1,072 Applicable income taxes 661 411 - ------------------------------------------------------------------------------- Net income $ 957 $ 661 ================================================================================ Diluted weighted average common shares outstanding 919.7 942.1 (in millions) Net income applicable to common shares $ 947 $ 645 Basic earnings per share 1.05 .70 Diluted earnings per share 1.03 .68 Dividends declared .30 .27 ================================================================================ SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 20 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)
=================================================================================== March 31, December 31, DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS 2000 1999 - ----------------------------------------------------------------------------------- ASSETS Cash, due from banks and interest-bearing deposits $ 8,901 $10,627 Federal funds sold and securities purchased under agreements to resell 3,177 2,353 Trading assets 8,020 7,849 Securities (market value: $23,083 and $25,212) 23,083 25,212 Loans and leases 117,353 119,700 Reserve for credit losses (2,477) (2,488) - ----------------------------------------------------------------------------------- Net loans and leases 114,876 117,212 - ----------------------------------------------------------------------------------- Due from brokers/dealers 4,252 3,003 Mortgages held for resale 904 1,244 Premises and equipment 2,742 2,794 Mortgage servicing rights 3,365 3,325 Intangible assets 4,087 4,164 Other assets 14,407 12,909 - ----------------------------------------------------------------------------------- Total assets $187,814 $190,692 =================================================================================== LIABILITIES Deposits: Domestic: Noninterest bearing $24,921 $24,773 Interest bearing 67,023 73,428 International: Noninterest bearing 1,486 1,532 Interest bearing 15,771 15,163 - ----------------------------------------------------------------------------------- Total deposits 109,201 114,896 - ----------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 6,810 9,529 Other short-term borrowings 11,978 8,577 Trading liabilities 3,329 3,807 Due to brokers/dealers 5,561 4,468 Long-term debt 26,347 25,349 Accrued expenses and other liabilities 9,635 8,759 - ----------------------------------------------------------------------------------- Total liabilities 172,861 175,385 - ----------------------------------------------------------------------------------- Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock 566 691 Common stock, par value $.01 (917,536,415 shares issued in 2000 and 917,061,055 shares issued in 1999) 9 9 Common surplus 4,148 4,150 Retained earnings 10,797 10,129 Accumulated other comprehensive income 56 387 Treasury stock, at cost (14,623,135 shares in 2000 and 1,401,453 shares in 1999) (623) (59) - ----------------------------------------------------------------------------------- Total stockholders' equity 14,953 15,307 - ----------------------------------------------------------------------------------- Total liabilities and stockholders' equity $187,814 $190,692 =================================================================================== SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
=================================================================================================================== Accumulated Other Three months ended March 31 Preferred Common Common Retained Comprehensive Treasury DOLLARS IN MILLIONS, EXCEPT Stock Stock Surplus Earnings Income Stock Total PER SHARE AMOUNTS - ------------------------------------------------------------------------------------------------------------------- 1999 Balance at December 31, 1998 $ 691 $ 9 $4,706 $9,210 $ 95 $(507) $14,204 Net income 661 661 Other comprehensive income, net of tax: Adjustment to unrealized gain on securities available for sale, net of taxes (74) Change in translation adjustment - ---------- Other comprehensive income (74) (74) -------- Total comprehensive income 587 Cash dividends declared on common stock ($.27 per share) (154) (154) Cash dividends declared by pooled company prior to merger (95) (95) Cash dividends declared on preferred stock (13) (13) Common stock issued in connection with dividend reinvestment and employee benefit plans (6) (46) 103 51 Treasury stock purchased (24) (24) Other, net 1 (4) (3) - -------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1999 $ 691 $ 9 $4,701 $9,563 $ 21 $ (432) $14,553 - -------------------------------------------------------------------------------------------------------------------- 2000 Balance at December 31, 1999 $ 691 $ 9 $4,150 $10,129 $ 387 $ (59) $15,307 Net income 957 957 Other comprehensive income, net of tax: Adjustment to unrealized gain on securities available for sale, net of taxes (331) Change in translation adjustment - ---------- Other comprehensive income (331) (331) -------- Total comprehensive income 626 Cash dividends declared on common stock ($.30 per share) (271) (271) Cash dividends declared on preferred stock (10) (10) Common stock issued in connection with dividend reinvestment and employee benefit plans (2) (8) 22 12 Redemption of preferred stock (125) (125) Settlement of forward purchase contracts (585) (585) Other, net (1) (1) - ---------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2000 $ 566 $ 9 $4,148 $10,797 $ 56 $ (623) $14,953 =================================================================================================================== SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
=================================================================================================== Three months ended March 31 2000 1999 IN MILLIONS - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 957 $ 661 Adjustments for noncash items: Depreciation and amortization of premises and equipment 148 109 Amortization of mortgage servicing rights 95 82 Amortization of other intangible assets 88 86 Provision for credit losses 300 219 Deferred income tax expense 122 99 Securities losses 58 2 Gain on branch divestitures (366) -- Originations and purchases of mortgages held for resale (3,508) (10,383) Proceeds from sales of mortgages held for resale 3,848 12,263 Increase in trading assets (171) (492) (Decrease)/increase in trading liabilities (478) 8 (Increase)/decrease in due from brokers/dealers (1,249) 874 (Increase)/decrease in accrued receivables, net (4) 21 Increase/(decrease) in due to brokers/dealers 1,093 (152) Increase/(decrease) in accrued liabilities, net 1,323 (146) Other, net (2,276) (246) - --------------------------------------------------------------------------------------------------- Net cash flow (used in)/provided by operating activities (20) 3,005 - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in federal funds sold and securities purchased under agreements to resell (824) (1,094) Purchases of securities available for sale (2,560) (5,599) Proceeds from sales of securities available for sale 3,748 2,834 Proceeds from maturities of securities available for sale 388 1,168 Purchases of securities held to maturity (165) (207) Proceeds from maturities of securities held to maturity 164 240 Net cash and cash equivalents paid for businesses acquired -- (613) Proceeds from sale of loan portfolio by banking subsidiary 750 -- Net (increase)/decrease in loans and leases (2,307) 907 Net cash and cash equivalents received from branch divestitures 55 -- Purchases of premises and equipment (141) (124) Purchases of mortgage servicing rights (35) (406) - --------------------------------------------------------------------------------------------------- Net cash flow used in investing activities (927) (2,894) - --------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (1,486) (2,077) Net increase/(decrease) in short-term borrowings 682 (1,886) Proceeds from issuance of long-term debt 2,187 2,593 Repayments of long-term debt (1,189) (434) Proceeds from the issuance of common stock 12 51 Repurchase of common stock -- (24) Settlement of forward purchase contracts (585) -- Redemption of preferred stock (125) -- Cash dividends paid (282) (256) - --------------------------------------------------------------------------------------------------- Net cash flow used in financing activities (786) (2,033) - --------------------------------------------------------------------------------------------------- Effect of foreign currency translation on cash 7 (54) - --------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (1,726) (1,976) - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 10,627 10,941 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 8,901 $ 8,965 ===================================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 23 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 1. BASIS OF PRESENTATION The unaudited interim consolidated financial statements of FleetBoston Financial Corporation (the Corporation) included herein have been prepared on a basis consistent with the audited consolidated financial statements of the Corporation included in its 1999 Annual Report on Form 10-K, and should be read in conjunction with that report. Prior period financial statements have been restated to give retroactive effect to the merger with BankBoston Corporation (BankBoston) completed in October 1999, which was accounted for as a pooling of interests. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information presented herein have been made. Certain prior period amounts have been reclassified to conform to current period classification. NOTE 2. MERGER AND DIVESTITURE ACTIVITIES In connection with the BankBoston merger, the Corporation recorded merger- and restructuring-related charges and merger integration costs of $850 million and $102 million, respectively, during the fourth quarter of 1999. The Corporation incurred an additional $100 million of merger integration costs during the first quarter of 2000. These charges and costs are more fully discussed in Note 5. In connection with obtaining regulatory approvals for the merger, the Corporation signed definitive agreements to divest approximately $13 billion of deposits and $9 billion of loans. The Corporation completed the first phase of these divestitures on March 24, 2000, divesting $4.2 billion of deposits, $3.6 billion of loans and 90 branches in Rhode Island, Connecticut and Massachusetts to Sovereign Bancorp (Sovereign). In connection with this divestiture, the Corporation recorded a $366 million ($209 million after-tax) gain. The remaining divestitures to Sovereign and various community banks are expected to occur during the second and third quarters of 2000. NOTE 3. LOANS AND LEASES The following table presents details of loan and lease financing balances: ============================================================ March 31, Dec. 31, IN MILLIONS 2000 1999 - ------------------------------------------------------------ Domestic: Commercial and industrial $ 54,711 $ 55,184 Commercial real estate 7,949 7,945 Residential real estate 9,519 10,881 Credit card 5,032 5,455 Other consumer 14,519 14,549 Lease financing 10,801 10,933 - ------------------------------------------------------------ Total domestic loans and leases 102,531 104,947 - ------------------------------------------------------------ International loans and leases 14,822 14,753 - ------------------------------------------------------------ Total loans and leases $117,353 $119,700 ============================================================ NOTE 4. RESERVE FOR CREDIT LOSSES An analysis of the reserve for credit losses follows: ========================================================== Three months ended March 31 2000 1999 IN MILLIONS - ---------------------------------------------------------- Balance at beginning of year $ 2,488 $ 2,306 Gross charge-offs: Domestic: Commercial and industrial 156 68 Commercial real estate 1 11 Residential real estate 1 3 Credit card 92 105 Other consumer 30 40 Lease financing 6 6 International 38 37 - ---------------------------------------------------------- Total gross charge-offs 324 270 - ---------------------------------------------------------- Recoveries: Domestic: Commercial and industrial 16 22 Commercial real estate 2 5 Residential real estate -- 2 Credit card 9 8 Other consumer 10 10 Lease financing 1 -- International 11 7 - ---------------------------------------------------------- Total recoveries 49 54 - ---------------------------------------------------------- Net charge-offs 275 216 Provision for credit losses 300 219 Acquired/other (36) 172 - ---------------------------------------------------------- Balance at end of period $ 2,477 $ 2,481 ========================================================== 24 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 5. MERGER- AND RESTRUCTURING-RELATED CHARGES In the fourth quarter of 1999, the Corporation recorded $850 million of merger- and restructuring-related charges in connection with its merger with BankBoston, composed of $383 million of merger-related charges and $467 million of restructuring charges. In addition to the merger- and restructuring-related charges, the Corporation incurred $102 million of integration costs. These integration costs, which are being expensed as incurred, resulted from the merger integration process the Corporation began in the fourth quarter of 1999 and expects to complete by the end of 2000. The Corporation incurred an additional $100 million of merger integration costs during the first quarter of 2000. RESTRUCTURING-RELATED CHARGES Of the $467 million charge, $357 million related to personnel, $77 million related to technology and operations, $28 million related to facilities and $5 million related to other restructuring expenses. Management expects to complete implementation of the restructuring plan by the end of 2000. Personnel-related costs of $357 million related to severance, benefit program changes and outplacement services for approximately 4,000 employees that the Corporation identified in 1999 for termination in connection with the restructuring, principally as a result of duplicate functions within the combined company. Substantially all of the affected employees will have been notified by September 30, 2000. The Corporation anticipates that approximately 88% of terminated employees will leave the Corporation by the end of the third quarter of 2000, and that the remaining employees will leave the Corporation by December 31, 2000. During the first quarter of 2000, $44 million of personnel benefits were paid and approximately 1,125 employees were terminated and left the Corporation, bringing total personnel benefits paid through March 31, 2000 to $71 million. To date, approximately 1,900 employees have been terminated and have left the Corporation. Technology and operations costs of $77 million included $37 million of liabilities incurred for contract cancellation penalties resulting from duplicate or incompatible systems, and $40 million of write-offs of certain capitalized assets, including business projects in process that will not be completed by the Corporation, and losses incurred from the write-off of computer hardware and software held for disposition. During the first quarter of 2000, $8 million in contract cancellation penalties were paid, bringing total contract cancellation penalties paid to date to $21 million. Facilities charges of $28 million represented the present value of future lease obligations and lease cancellation penalties recorded in connection with vacating duplicate headquarters, banking operations facilities and branch offices. During the first quarter of 2000, approximately $1 million in facilities charges were paid. The following table presents activity in the restructuring-related accrual during the quarter ended March 31, 2000. RESTRUCTURING ACCRUAL ACTIVITY ======================================== IN MILLIONS - ---------------------------------------- Balance at December 31, 1999 $387 Cash payments (53) - ---------------------------------------- Balance at March 31, 2000 $334 ======================================== INTEGRATION COSTS Integration costs, which are being expensed as incurred, include the costs of converting duplicate computer systems, training and relocation of employees and departments, consolidation of facilities and customer communications. Certain assets, principally computer hardware and software, banking operations and administrative facilities, will be used during 2000 until the integration of computer systems and banking operations has been completed, and will then be disposed. Approximately $37 million of the total integration costs incurred in the first quarter of 2000 related to the incremental depreciation on those assets, which was calculated based on the assets' shortened useful lives, over the depreciation that would otherwise have been recorded. NOTE 6. TRUST SECURITIES The Corporation has nine statutory business trusts, of which the Corporation owns all of the common securities. These trusts have no independent assets or operations, and exist for the sole purpose of issuing trust securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Corporation. The junior subordinated debentures, which are the sole assets of the trusts, are unsecured obligations of the Corporation, and are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Corporation. The principal amount of subordinated debentures held by each trust equals the aggregate liquidation amount of its trust securities and its common securities. The subordinated debentures bear interest at the same rate, and will mature on the same date, as the corresponding trust securities. The Corporation fully and unconditionally guarantees each trust's obligations under the trust securities. 25 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 A summary of the trust securities issued and outstanding at March 31, 2000 and December 31, 1999 follows. These trust securities are included in long-term debt in the accompanying consolidated balance sheet.
Amount Earliest Distribution Liquidation Outstanding Original Prepayment Stated Payment Preference per (IN MILLIONS) Issue Date Rate Option Date Maturity Frequency Trust Security ================================================================================================================================== BankBoston Capital Trust I $ 250 11/26/96 8.25% 12/15/2006 12/15/2026 semi-annually $1,000 Fleet Capital Trust I 84 2/4/97 8.00% 4/15/2001 2/15/2027 quarterly 25 BankBoston Capital Trust II 250 12/10/96 7.75% 12/15/2006 12/15/2026 semi-annually 1,000 Fleet Capital Trust II 250 12/11/96 7.92% 12/15/2006 12/11/2026 semi-annually 1,000 BankBoston Capital Trust III 248 6/4/97 LIBOR + .75% 6/15/2007 6/15/2027 quarterly 1,000 Fleet Capital Trust III 120 1/29/98 7.05% 3/31/2003 3/31/2028 quarterly 25 BankBoston Capital Trust IV 247 6/8/98 LIBOR + .60% 6/08/2003 6/08/2028 quarterly 1,000 Fleet Capital Trust IV 150 4/28/98 7.17% 3/31/2003 3/31/2028 quarterly 25 Fleet Capital Trust V 250 12/18/98 LIBOR + 1.00% 12/18/2003 12/18/2028 quarterly 1,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total trust securities $1,849 ==================================================================================================================================
All of the trust securities may be prepaid at the option of the trusts, in whole or in part, on or after the prepayment option dates listed above. At March 31, 2000, the interest rates on the BankBoston Capital Trust III and IV and Fleet Capital Trust V floating-rate trust securities were 6.90%, 6.72% and 7.19%, respectively. NOTE 7. LINE OF BUSINESS INFORMATION Information about the Corporation's operating segments for the quarters ended March 31, 2000 and 1999 is included in the "Line of Business Information" section of Management's Discussion and Analysis of Financial Condition and Results of Operations (pages 7-10) of this Form 10-Q. NOTE 8. EARNINGS PER SHARE A summary of the Corporation's calculation of earnings per common share follows:
======================================================================================================================== Three months ended March 31 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS BASIC DILUTED BASIC DILUTED - ------------------------------------------------------------------------------------------------------------------------ Average shares outstanding 903,905,926 903,905,926 919,051,555 919,051,555 Additional shares due to: Stock options -- 5,287,037 -- 10,373,416 Warrants -- 10,539,820 -- 12,663,411 - ------------------------------------------------------------------------------------------------------------------------ Total equivalent shares 903,905,926 919,732,783 919,051,555 942,088,382 - ------------------------------------------------------------------------------------------------------------------------ Earnings per share: Net income $ 957 $ 957 $ 661 $ 661 Less preferred stock dividends and other (10) (10) (16) (16) - ------------------------------------------------------------------------------------------------------------------------ Net income available to common stockholders $ 947 $ 947 $ 645 $ 645 - ------------------------------------------------------------------------------------------------------------------------ Total equivalent shares 903,905,926 919,732,783 919,051,555 942,088,382 - ------------------------------------------------------------------------------------------------------------------------ Earnings per share $ 1.05 $ 1.03 $ .70 $ .68 ========================================================================================================================
26 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 9. CONTINGENCIES The Corporation and its subsidiaries are involved in various legal proceedings arising out of, and incidental to, their respective businesses. Management of the Corporation, based on its review with counsel of the development of these matters to date, considers that the aggregate loss resulting from the final outcome, if any, of these proceedings should not be material to the Corporation's financial condition or results of operations. NOTE 10. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS CASH FLOW DISCLOSURE ===================================================================== Three months ended March 31 2000 1999 IN MILLIONS - --------------------------------------------------------------------- Supplemental disclosure for cash paid During the period for: Interest $ 1,755 $ 1,430 Income taxes, net of refunds 75 169 - --------------------------------------------------------------------- Assets acquired and liabilities assumed in business combinations: Assets acquired, net of cash and cash equivalents received -- 6,073 Net cash and cash equivalents paid -- (613) Liabilities assumed -- 5,460 - --------------------------------------------------------------------- Divestitures: Assets sold 3,920 -- Net cash received for divestitures 55 -- Liabilities sold 4,231 -- ===================================================================== 27 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) The Corporation held its Annual Meeting of Stockholders on April 18, 2000. (b) Not applicable. (c) A brief description of each matter voted upon at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each such matter, follows. A separate tabulation with respect to each nominee for office is also included. Four matters were voted on at the Annual Meeting. 1. ELECTION OF DIRECTORS All eight nominees for election as directors were elected. There were no abstentions or broker non-votes for any of the nominees. NAME OF DIRECTOR FOR AUTHORITY WITHHELD TERM EXPIRATION William Barnet, III 780,133,157 12,242,037 2003 John T. Collins 780,078,210 12,296,984 2003 William F. Connell 776,416,749 15,958,445 2003 Gary L. Countryman 778,852,281 13,522,913 2003 Charles K. Gifford 772,560,436 19,814,758 2003 Marian L. Heard 779,737,451 12,637,743 2003 Thomas J. May 772,919,419 19,455,775 2003 Terrence Murray 773,715,472 18,659,722 2003 The following directors will continue in office and were not up for re-election. NAME OF DIRECTOR TERM EXPIRATION Joel B. Alvord 2001 Daniel P. Burnham 2001 James F. Hardymon 2001 Robert J. Higgins 2001 Henrique C. Meirelles 2001 Thomas C. Quick 2001 Paul R. Tregurtha 2001 Thomas R. Piper 2001 Paul J. Choquette, Jr. 2002 Alice F. Emerson 2002 Robert M. Kavner 2002 Donald F. McHenry 2002 Michael B. Picotte 2002 Francene S. Rodgers 2002 John W. Rowe 2002 Thomas M. Ryan 2002 2. APPROVAL OF AN AMENDMENT TO THE CORPORATION'S RESTATED ARTICLES OF INCORPORATION TO CHANGE ITS NAME TO "FLEETBOSTON FINANCIAL CORPORATION" The second proposal voted on by stockholders of the Corporation was to approve an Amendment to the Corporation's Restated Articles of Incorporation to change its name to "FleetBoston Financial Corporation." This proposal was approved with 787,379,034 votes cast for, 2,071,056 votes cast against and 2,925,104 abstentions. There were no broker non-votes on this proposal. 28 3. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS The third proposal voted on by stockholders of the Corporation, to ratify the selection of PricewaterhouseCoopers LLP to serve as the Corporation's independent accountants for 2000, was approved with 787,367,639 votes cast for, 2,154,073 votes cast against and 2,853,482 abstentions. There were no broker non-votes on this proposal. 4. STOCKHOLDER PROPOSAL REGARDING DATE OF ANNUAL STOCKHOLDERS' MEETING The fourth proposal voted on by stockholders of the Corporation, to change the date that the Annual Stockholders' Meeting is held, was rejected with 29,409,177 votes cast for, 647,978,197 votes cast against, 17,861,019 abstentions and 97,126,801 broker non-votes. (d) Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit Index EXHIBIT NUMBER 3(a) Restated Articles of Incorporation of the Corporation, as amended through November 5, 1999, incorporated by reference to Exhibit 3 of the Corporation's Form 10-Q for the quarter ended September 30, 1999. 3(b) Amendment, dated April 18, 2000, to the Corporation's Restated Articles of Incorporation. 10(a) Form of Letter Agreement for certain officers, together with Schedule of Executive Officers who have entered into such agreements. 10(b) Amendment to Employment Agreement between the Corporation and Charles K. Gifford. 10(c) Amendment to Employment Agreement between the Corporation and Henrique C. Meirelles, with related side letter. 10(d) Amendment to Employment Agreement between the Corporation and Paul F. Hogan, with related side letter. 10(e) Amendment to Employment Agreement between the Corporation and Bradford H. Warner, with related side letter. 10(f) Retention and Deferred Compensation Agreement between the Corporation and John L. Mastromarino. 12 Computation of Consolidated Ratios of Earnings to Fixed Charges 27 March 31, 2000 Financial Data Schedule 27(a) March 31, 1999 Restated Financial Data Schedule (b) Current Reports on Form 8-K The Corporation filed four Current Reports on Form 8-K during the period from January 1, 2000 to the date of the filing of this report. - Current Report on Form 8-K dated December 23, 1999, reporting the establishment of a $2 billion medium-term note program under the Corporation's shelf registration statement. - Current Report on Form 8-K dated January 19, 2000, as amended by a Form 8-K/A dated March 9, 2000, announcing the Corporation's fourth quarter and fiscal 1999 earnings. 29 - Current Report on Form 8-K dated March 5, 2000, announcing that the Corporation had entered into an agreement to invest $250 million in North Fork Bancorporation in connection with North Fork Bancorporation's proposed exchange offer to Dime Bancorp. - Current Report on Form 8-K dated April 13, 2000, announcing the Corporation's first quarter earnings. 30 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. FleetBoston Financial Corporation --------------------------------- (Registrant) /s/ Eugene M. McQuade --------------------- Eugene M. McQuade Vice Chairman and Chief Financial Officer /s/ Erich Schumann ------------------ Erich Schumann Senior Vice President and Chief Accounting Officer DATE: May 12, 2000 31 EX-3.(B) 2 EXHIBIT 3(B) EXHIBIT 3(b) FILING FEE $50.00 ID NUMBER: 6486 ------- STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS OFFICE OF THE SECRETARY OF STATE CORPORATIONS DIVISION 100 NORTH MAIN STREET PROVIDENCE, RHODE ISLAND 02903-1335 BUSINESS CORPORATION ---------- ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION (TO BE FILED IN DUPLICATE ORIGINAL) PURSUANT TO THE PROVISIONS OF SECTION 7-1.1-56 OF THE GENERAL LAWS, 1956, AS AMENDED, THE UNDERSIGNED CORPORATION ADOPTS THE FOLLOWING ARTICLES OF AMENDMENT TO ITS ARTICLES OF INCORPORATION: 1. THE NAME OF THE CORPORATION IS FLEET BOSTON CORPORATION --------------------------------------------- 2. THE SHAREHOLDERS OF THE CORPORATION (OR, WHERE NO SHARES HAVE BEEN ISSUED, THE BOARD OF DIRECTORS OF THE CORPORATION) --------------------------------------------------------------------------- ON APRIL 18, 2000, IN THE MANNER PRESCRIBED BY CHAPTER 7-1.1 OF THE GENERAL LAWS, 1956, AS AMENDED, --------------------------------------------------------------------------- ADOPTED THE FOLLOWING AMENDMENT(S) TO THE ARTICLES OF INCORPORATION: [INSERT AMENDMENT(S)] (IF ADDITIONAL SPACE IS REQUIRED, PLEASE LIST ON SEPARATE ATTACHMENT) THAT THE NAME OF THE CORPORATION BE CHANGED TO FLEETBOSTON FINANCIAL CORPORATION. THAT ARTICLE FIRST OF THE RESTATED ARTICLES OF INCORPORATION OF FLEET BOSTON CORPORATION IS HEREBY AMENDED IN ITS ENTIRELY TO READ AS FOLLOWS: "FIRST: THE NAME OF THE CORPORATION IS FLEETBOSTON FINANCIAL CORPORATION." 3. THE NUMBER OF SHARES OF THE CORPORATION OUTSTANDING AT THE TIME OF SUCH ADOPTION WAS 904,365,508; AND THE NUMBER OF SHARES ENTITLED TO VOTE THEREON WAS 902,100,498. 4. THE DESIGNATION AND NUMBER OF OUTSTANDING SHARES OF EACH CLASS ENTITLED TO VOTE THEREON AS A CLASS WERE AS FOLLOWS: (IF INAPPLICABLE, INSERT "NONE.")
CLASS NUMBER OF SHARES ---------------------------------------------------------------------------- COMMON 902,100,498
5. THE NUMBER OF SHARES VOTED FOR SUCH AMENDMENT WAS 787,379,034 ; AND THE NUMBER OF SHARES VOTED AGAINST SUCH AMENDMENT WAS 2,071,056 . 6. THE NUMBER OF SHARES OF EACH CLASS ENTITLED TO VOTE THEREON AS A CLASS VOTED FOR AND AGAINST SUCH AMENDMENT, RESPECTIVELY, WAS: (IF INAPPLICABLE, INSERT "NONE.") NUMBER OF SHARES VOTED --------------------------------------------------
CLASS FOR AGAINST - -------------------------------------------------------------------------------- COMMON 787,379,034 2,071,056
7. THE MANNER, IF NOT SET FORTH IN SUCH AMENDMENT, IN WHICH ANY EXCHANGE, RECLASSIFICATION, OR CANCELLATION OF ISSUED SHARES PROVIDED FOR IN THE AMENDMENT SHALL BE EFFECTED, IS AS FOLLOWS: (IF NO CHANGE, SO STATE) NO CHANGE 8. THE MANNER IN WHICH SUCH AMENDMENT EFFECTS A CHANGE IN THE AMOUNT OF STATED CAPITAL, AND THE AMOUNT (EXPRESSED IN DOLLARS) OF STATED CAPITAL AS CHANGED BY SUCH AMENDMENT, ARE AS FOLLOWS: (IF NO CHANGE, SO STATE) NO CHANGE 9. AS REQUIRED BY SECTION 7-1.1-57 OF THE GENERAL LAWS, THE CORPORATION HAS PAID ALL FEES AND FRANCHISE TAXES. 10. DATE WHEN AMENDMENT IS TO BECOME EFFECTIVE UPON THE FILING OF THESE ARTICLES OF AMENDMENT. (not prior to, nor more than 30 days after, the filing of these articles of amendment) DATE: APRIL 18, 2000 FLEET BOSTON CORPORATION ---------------------------------------- PRINT CORPORATE NAME BY /s/ WILLIAM C. MUTTERPERL ------------------------------------- [ ] PRESIDENT OR [X] VICE PRESIDENT (CHECK ONE) William C. Mutterperl BY /s/ JANICE B. LIVA ------------------------------------- [ ] SECRETARY OR [X] SECRETARY (CHECK ONE) Janice B. Liva STATE OF MASSACHUSETTS ------------------ COUNTY OF SUFFOLK ------------------ IN BOSTON , ON THIS 18TH DAY OF APRIL, 2000, PERSONALLY APPEARED BEFORE ME WILLIAM C. MUTTERPERL WHO, BEING BY ME FIRST DULY SWORN, DECLARED THAT HE/SHE IS THE VICE PRESIDENT OF THE CORPORATION AND THAT HE/SHE SIGNED THE FOREGOING DOCUMENT AS SUCH OFFICER OF THE CORPORATION, AND THAT THE STATEMENTS HEREIN CONTAINED ARE TRUE. /s/ PATRICK D. GANNON ----------------------------------- NOTARY PUBLIC PATRICK D. GANNON MY COMMISSION EXPIRES: 10-11-2002 ------------- EX-10.(A) 3 EXHIBIT 10(A) EXHIBIT 10(a) FLEET BOSTON CORPORATION Schedule of Executive Officers Who Have Entered into Certain Letter Agreements Terrence Murray Eugene M. McQuade H. Jay Sarles Anne M. Finucane Brian T. Moynihan William C. Mutterperl M. Anne Szostak [Fleet Letterhead] August 24 1999 [ ] Dear [ ]: On behalf of the Human Resources and Planning Committee, I am pleased to tell you that, in consideration of future service as an Executive Officer of Fleet Boston, and in recognition of your past years of dedicated service, Fleet Boston will provide you with an enhanced severance benefit equal to continuation of your base salary for two years (the "Severance Period") if your employment is terminated by Fleet without Cause, or by you for Good Reason (a "Covered Termination"). During the Severance Period, you will continue to be deemed an active employee for purposes of all qualified and/or non-qualified retirement and savings plans offered to similarly-situated executives, health and welfare programs, equity-based incentive plans and your existing change in control agreement (provided that, in the event of a change in control of Fleet Boston, any benefits to which you are entitled under that agreement are not duplicative with benefits provided by this letter). [In addition, if your employment should cease due to a Covered Termination prior to your having reached age fifty-five, you will be deemed to be vested in the deferred compensation plan, allowing your account balance to be distributed according to your valid distribution election form (as opposed to an immediate lump sum payment upon termination). Further, while your funds remain in the account, they will earn the highest crediting rate as in effect for active employees.] "Good Reason" is defined as: 1) the assignment of any duties and responsibilities inconsistent in any material respect with those customarily associated with your position (including status, office, title and reporting relationship), or any other action that results in a diminution of duties or other material adverse change in your position; 2) any failure by Fleet Boston to provide base salary, annual bonus, incentive, savings and retirement plans, and welfare benefit plans as are provided generally to similarly-situated executives; or 3) any requirement by the Company that your principal work location be other than Boston, Massachusetts or Providence, Rhode Island. "Cause" is defined as fraud, intentional wrong-doing, malfeasance that is harmful to Fleet Boston or a material violation of Fleet Boston's Code of Ethics. Please keep a copy of this letter for your records. If you have any questions, please call me. Sincerely, [ ] EX-10.(B) 4 EXHIBIT 10(B) Exhibit 10(b) AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- The Employment Agreement by and between FLEET FINANCIAL GROUP, INC., a Rhode Island corporation (the "Company"), and CHARLES K. GIFFORD (the "Executive"), dated as of March 14, 1999 (the "Agreement") is hereby amended, effective as of February 7 , 2000, as set forth below. 1. Section 5(a)(i)(A) of the Agreement is hereby restated in its entirety to read as follows: (A) the "Severance Payments" as defined in Section 6.1 of the Prior Agreement (including without limitation payment to the Executive on account of the items described in paragraph (C) of such Section 6.1), representing the amounts and benefits to which the Executive would have been entitled under the Prior Agreement, as determined by the Auditor no later than 30 days after the execution of this Agreement, plus interest from the Effective Date to the date of the payment of such Severance Payments (the "Interest Term"), at an annual rate equal to the "prime" rate as in effect from time to time (subject to the limitation that the average interest rate used during the Interest Term shall in no event exceed 10%), compounded daily (the "New Severance Payment"), provided that the Executive may elect to reduce the Severance Payments by the amount described in paragraph (B) of Section 6.1 of the Prior Agreement and, in lieu thereof, receive for a period of three years following the Date of Termination the continuation of the benefits described in Section 3(f)(ii); and 2. The following new Section 5(e) is hereby added immediately following Section 5(d) of the Agreement. (e) Notwithstanding anything contained in this Agreement to the contrary, the Executive shall not be entitled to receive any of the payments set forth in this Section 5 until the earlier of (i) such time as the limitations on deductibility imposed by Section 162(m) of the Code are no longer applicable to remuneration paid by the Company to the Executive and (ii) three (3) months following the Date of Termination. IN WITNESS WHEREOF, the Executive and the Company have caused this Amendment to the Agreement to be entered into, as of the day and year set forth above. /s/ CHARLES K. GIFFORD ------------------------------------------------ CHARLES K. GIFFORD FLEET BOSTON CORPORATION By: /s/ EUGENE M. MCQUADE -------------------------------------------- Title: Vice Chairman and Chief Financial Officer ----------------------------------------- EX-10.(C) 5 EXHIBIT 10(C) EXHIBIT 10(c) AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- The Employment Agreement by and between FLEET FINANCIAL GROUP, INC., a Rhode Island corporation (the "Company"), and HENRIQUE DE CAMPOS MEIRELLES (the "Executive"), dated as of March 14, 1999 (the "Agreement") is hereby amended, effective as of March 14, 2000, as set forth below. 1. Section 5(a)(i)(A) of the Agreement is hereby restated in its entirety to read as follows: (A) the "Severance Payments" as defined in Section 6.1 of the Prior Agreement (including without limitation payment to the Executive on account of the items described in paragraph (C) of such Section 6.1), representing the amounts and benefits to which the Executive would have been entitled under the Prior Agreement, as determined by the Auditor (as defined in Section 5(d)) no later than 30 days after the execution of this Agreement, plus interest from the Effective Date to the date of the payment of such Severance Payments (the "Interest Term"), at an annual rate equal to the "prime" rate as in effect from time to time (subject to the limitation that the average interest rate used during the Interest Term shall in no event exceed 10%), compounded daily (the "New Severance Payment"), provided that, notwithstanding the foregoing, if the Executive's employment is terminated other than by the Company without Cause or by the Executive for Good Reason prior to the second anniversary of the Effective Date, the Executive shall not be entitled to receive the New Severance Payment and shall instead be entitled to receive the Severance Payments as defined in Section 6.1 of the Prior Agreement without interest thereon and, provided, further that the Executive may elect to reduce the Severance Payments by the amount described in paragraph (B) of Section 6.1 of the Prior Agreement and, in lieu thereof, receive for a period of three years following the Date of Termination the continuation of the benefits described in Section 3(f)(ii); and 2. Section 5(b) of the Agreement is hereby amended by adding the following sentence at the end thereof. Notwithstanding anything contained in this Agreement to the contrary, if the Executive voluntarily terminates employment, other than for Good Reason, prior to the second anniversary of the Effective Date, the Executive shall not be entitled to receive the New Severance Payment and shall instead be entitled to receive the Severance Payments as defined in Section 6.1 of the Prior Agreement without interest thereon. IN WITNESS WHEREOF, the Executive and the Company have caused this Amendment to the Agreement to be entered into, as of the day and year set forth above. /s/ HENRIQUE DE CAMPOS MEIRELLES -------------------------------- HENRIQUE DE CAMPOS MEIRELLES FLEET BOSTON CORPORATION By: /s/ EUGENE M. MCQUADE --------------------------- Title: VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER ----------------------------------------- [FleetBoston Financial Letterhead] March 6, 2000 Henrique de Campos Meirelles President of Global Banking and Financial Services Fleet Boston Corporation One Federal Street Boston, Massachusetts 02110 Dear Henrique: This letter is to confirm our understanding that, in the event of a termination of your employment with Fleet Boston Corporation prior to the second anniversary of the Effective Date (as defined in Section 1 of the Employment Agreement between you and Fleet Boston Corporation (formerly Fleet Financial Group, Inc.), dated March 14, 1999, as amended (the "Employment Agreement")) due to your death or Disability (as defined in Section 4(a) of the Employment Agreement) that entitles you to receive the payments set forth in Section 5(a)(i) of the Employment Agreement, you, or in the event of your death your legal representative, will be entitled to receive the New Severance Payment (as defined in Section 5(a)(i)(A) of the Employment Agreement), notwithstanding anything to the contrary contained in Section 5(a)(i)(A) of the Employment Agreement. As acknowledgement of this understanding, please return a signed copy of this letter to Jannene Wagner. Sincerely, /s/ EUGENE M. MCQUADE Eugene M. McQuade Acknowledged and Agreed: /s/ HENRIQUE DE CAMPOS MEIRELLES Dated: March 14, 2000 - -------------------------------- EX-10.(D) 6 EXHIBIT 10(D) Exhibit 10(d) AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- The Employment Agreement by and between FLEET FINANCIAL GROUP, INC., a Rhode Island corporation (the "Company"), and PAUL F. HOGAN (the "Executive"), dated as of March 14, 1999 (the "Agreement") is hereby amended, effective as of March 17 , 2000, as set forth below. 1. Section 5(a)(i)(A) of the Agreement is hereby restated in its entirety to read as follows: (A) the "Severance Payments" as defined in Section 6.1 of the Prior Agreement (including without limitation payment to the Executive on account of the items described in paragraph (C) of such Section 6.1), representing the amounts and benefits to which the Executive would have been entitled under the Prior Agreement, as determined by the Auditor (as defined in Section 5(d)) no later than 30 days after the execution of this Agreement, plus interest from the Effective Date to the date of the payment of such Severance Payments (the "Interest Term"), at an annual rate equal to the "prime" rate as in effect from time to time (subject to the limitation that the average interest rate used during the Interest Term shall in no event exceed 10%), compounded daily (the "New Severance Payment"), provided that, notwithstanding the foregoing, if the Executive's employment is terminated other than by the Company without Cause or by the Executive for Good Reason prior to the second anniversary of the Effective Date, the Executive shall not be entitled to receive the New Severance Payment and shall instead be entitled to receive the Severance Payments as defined in Section 6.1 of the Prior Agreement without interest thereon and, provided, further that the Executive may elect to reduce the Severance Payments by the amount described in paragraph (B) of Section 6.1 of the Prior Agreement and, in lieu thereof, receive for a period of three years following the Date of Termination the continuation of the benefits described in Section 3(d)(ii); and 2. Section 5(b) of the Agreement is hereby amended by adding the following sentence at the end thereof. Notwithstanding anything contained in this Agreement to the contrary, if the Executive voluntarily terminates employment, other than for Good Reason, prior to the second anniversary of the Effective Date, the Executive shall not be entitled to receive the New Severance Payment and shall instead be entitled to receive the Severance Payments as defined in Section 6.1 of the Prior Agreement without interest thereon. IN WITNESS WHEREOF, the Executive and the Company have caused this Amendment to the Agreement to be entered into, as of the day and year set forth above. /s/ PAUL F. HOGAN ------------------------------------------------- PAUL F. HOGAN FLEET BOSTON CORPORATION By: /s/ EUGENE M. MCQUADE -------------------------------------------- Title: Vice Chairman and Chief Financial Officer ------------------------------------------ [FleetBoston Financial Letterhead] March 6, 2000 Paul F. Hogan Vice Chairman, Corporate/Investment Banking Fleet Boston Corporation One Federal Street Boston, Massachusetts 02110 Dear Paul: This letter is to confirm our understanding that, in the event of a termination of your employment with Fleet Boston Corporation prior to the second anniversary of the Effective Date (as defined in Section 1 of the Employment Agreement between you and Fleet Boston Corporation (formerly Fleet Financial Group, Inc.), dated March 14, 1999, as amended (the "Employment Agreement")) due to your death or Disability (as defined in Section 4(a) of the Employment Agreement) that entitles you to receive the payments set forth in Section 5(a)(i) of the Employment Agreement, you, or in the event of your death your legal representative, will be entitled to receive the New Severance Payment (as defined in Section 5(a)(i)(A) of the Employment Agreement), notwithstanding anything to the contrary contained in Section 5(a)(i)(A) of the Employment Agreement. As acknowledgement of this understanding, please return a signed copy of this letter to Jannene Wagner. Sincerely, /s/ EUGENE M. MCQUADE Eugene M. McQuade Acknowledged and Agreed: /s/ PAUL F. HOGAN Dated: March 17 , 2000 - ------------------------------ ---- EX-10.(E) 7 EXHIBIT 10(E) Exhibit 10(e) AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- The Employment Agreement by and between FLEET FINANCIAL GROUP, INC., a Rhode Island corporation (the "Company"), and BRADFORD H. WARNER (the "Executive"), dated as of March 14, 1999 (the "Agreement") is hereby amended, effective as of March 30 , 2000, as set forth below. 1. Section 5(a)(i)(A) of the Agreement is hereby restated in its entirety to read as follows: (A) the "Severance Payments" as defined in Section 6.1 of the Prior Agreement (including without limitation payment to the Executive on account of the items described in paragraph (C) of such Section 6.1), representing the amounts and benefits to which the Executive would have been entitled under the Prior Agreement, as determined by the Auditor (as defined in Section 5(d)) no later than 30 days after the execution of this Agreement, plus interest from the Effective Date to the date of the payment of such Severance Payments (the "Interest Term"), at an annual rate equal to the "prime" rate as in effect from time to time (subject to the limitation that the average interest rate used during the Interest Term shall in no event exceed 10%), compounded daily (the "New Severance Payment"), provided that, notwithstanding the foregoing, if the Executive's employment is terminated other than by the Company without Cause or by the Executive for Good Reason prior to the second anniversary of the Effective Date, the Executive shall not be entitled to receive the New Severance Payment and shall instead be entitled to receive the Severance Payments as defined in Section 6.1 of the Prior Agreement without interest thereon and, provided, further that the Executive may elect to reduce the Severance Payments by the amount described in paragraph (B) of Section 6.1 of the Prior Agreement and, in lieu thereof, receive for a period of three years following the Date of Termination the continuation of the benefits described in Section 3(d)(ii); and 2. Section 5(b) of the Agreement is hereby amended by adding the following sentence at the end thereof. Notwithstanding anything contained in this Agreement to the contrary, if the Executive voluntarily terminates employment, other than for Good Reason, prior to the second anniversary of the Effective Date, the Executive shall not be entitled to receive the New Severance Payment and shall instead be entitled to receive the Severance Payments as defined in Section 6.1 of the Prior Agreement without interest thereon. IN WITNESS WHEREOF, the Executive and the Company have caused this Amendment to the Agreement to be entered into, as of the day and year set forth above. /s/ BRADFORD H. WARNER ------------------------------------------------- BRADFORD H. WARNER FLEET BOSTON CORPORATION By: /s/ EUGENE M. MCQUADE --------------------------------------------- Title: Vice Chairman and Chief Financial Officer ------------------------------------------ [FleetBoston Financial Letterhead] March 6, 2000 Bradford H. Warner Vice Chairman, Investment Services Fleet Boston Corporation One Federal Street Boston, Massachusetts 02110 Dear Brad: This letter is to confirm our understanding that, in the event of a termination of your employment with Fleet Boston Corporation prior to the second anniversary of the Effective Date (as defined in Section 1 of the Employment Agreement between you and Fleet Boston Corporation (formerly Fleet Financial Group, Inc.), dated March 14, 1999, as amended (the "Employment Agreement")) due to your death or Disability (as defined in Section 4(a) of the Employment Agreement) that entitles you to receive the payments set forth in Section 5(a)(i) of the Employment Agreement, you, or in the event of your death your legal representative, will be entitled to receive the New Severance Payment (as defined in Section 5(a)(i)(A) of the Employment Agreement), notwithstanding anything to the contrary contained in Section 5(a)(i)(A) of the Employment Agreement. As acknowledgement of this understanding, please return a signed copy of this letter to Jannene Wagner. Sincerely, /s/ EUGENE M. MCQUADE Eugene M. McQuade Acknowledged and Agreed: /s/ BRADFORD H. WARNER Dated: March 30, 2000 - ----------------------------- ---- EX-10.(F) 8 EXHIBIT 10(F) Exhibit 10(f) EXECUTION COPY RETENTION AND DEFERRED COMPENSATION AGREEMENT THIS RETENTION AND DEFERRED COMPENSATION AGREEMENT ("Agreement"), dated February 28, 2000 and effective as of October 1, 1999 (the "Effective Date"), by and between Fleet Boston Corporation, a corporation organized under the laws of Rhode Island (the "Company") and John L. Mastromarino (the "Executive"). WITNESSETH: WHEREAS, the Company has determined that appropriate steps should be taken to encourage the Executive to remain employed by the Company by providing for certain benefits; NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree to the following: 1. DEFINITIONS. The following terms shall have the meanings ascribed to them below. (a) "Cause," for termination of the Executive's employment by the Company, shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a notice of termination for Good Reason by the Executive) after a written demand for substantial performance is delivered to the Executive by the Board, which demand specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in gross misconduct which is demonstrably and materially injurious to the Company or any of its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company. A termination of the Executive's employment for Cause shall not be effective for purposes of this Agreement unless there is delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Company's Board of Directors ("Board") at a meeting of the Board that was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. (b) "Change in Control" shall mean (i) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"); provided, however, that any acquisition by the Company or its subsidiaries, or any employee benefit plan (or related trust) of the Company or its subsidiaries, of 25% or more of the Outstanding Company Common Stock shall not constitute a Change of Control; and provided, further, that any acquisition by a corporation with respect to which, following such acquisition, more than 50% of the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock immediately prior to such acquisition in substantially the same proportion as their ownership immediately prior to such acquisition of the Outstanding Company Common Stock, shall not constitute a Change of Control; or (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption 2 of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Consummation of a reorganization, merger, consolidation, sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock immediately prior to such Business Combination do not, following such Business Combination, beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock of the corporation resulting from such a Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries). (iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. Anything in this Agreement to the contrary notwithstanding, if an event that would, but for this paragraph, constitute a Change of Control results from or arises out of a purchase or other acquisition of the Company, directly or indirectly, by a corporation or other entity in which the Executive has a greater than ten percent (10%) direct or indirect equity interest, such event shall not constitute a Change of Control. (c) "Date of Termination," with respect to termination of employment by reason of death, shall mean the date of death, and with respect to any other termination of employment, shall mean the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than thirty (30) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than sixty (60) days, respectively, from the date such Notice of Termination is given). "Notice of Termination" shall mean a notice that shall indicate the specific termination provision in this Agreement relied upon, shall (if applicable) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and shall specify the date on which the termination of employment shall be effective. 3 (d) "Good Reason" shall mean (i) a meaningful alteration, adverse to the Executive, in the nature or status of the Executive's position (including duties and reporting responsibilities) from the position offered to the Executive by Fleet Financial Group, Inc. (a predecessor of the Company) in an offer letter (the "Offer Letter") dated May 7, 1999, and thereafter accepted by the Executive; (ii) a reduction in the Executive's annual base salary set forth in the Offer Letter; or (iii) requiring the Executive to be based anywhere other than the Boston Metropolitan Area except for required travel to an extent substantially consistent with the Executive's present business travel obligations. Notwithstanding the foregoing, a termination by the Executive for Good Reason shall not be effective unless (x) the Executive has delivered to the Company a notice of termination for Good Reason; and (y) the Company has not cured such event or circumstance within 10 business days of its receipt of such notice of termination. 2. RETENTION PAYMENT. (a) The Executive shall be entitled to receive on the Distribution Date (as defined in Section 3) an amount equal to $2,320,000 (the "Retention Payment") if any of the following events shall occur: (i) the Executive's employment with the Company continues through the second anniversary of the Effective Date of this Agreement (the "Retention Date"), or (ii) the Executive's employment with the Company is terminated prior to the Retention Date by the Company without Cause, or (iii) the Executive's employment with the Company is terminated prior to the Retention Date by the Executive for Good Reason, or (iv) the Executive's employment with the Company is terminated prior to the Retention Date by reason of death or disability; or (v) a Change in Control occurs prior to the Retention Date. If the Executive's employment is terminated prior to the Retention Date (i) by the Company for Cause or (ii) by the Executive other than for Good Reason, the Executive shall not be entitled to any portion of the Retention Payment. 4 (b) The Retention Payment shall accrue interest at an annual rate equal to the "prime rate," as in effect from time to time, compounded daily, during the period (the "Interest Term") commencing on the Effective Date of this Agreement and ending on the Distribution Date, as defined in Section 3 (subject to the limitation that the average interest rate used in each full or partial calendar year during the Interest Term shall in no event exceed 10%). If the Executive's employment is terminated prior to the Retention Date (i) by the Company for Cause or (ii) by the Executive other than for Good Reason, the Executive shall not be entitled to any portion of such accrued interest. 3. DISTRIBUTION OF RETENTION PAYMENT. (a) No portion of the Retention Payment may be distributed to the Executive during the period that the Executive is employed by the Company. If the Executive becomes entitled to the Retention Payment pursuant to Section 2(a), the Executive may elect to have the Retention Payment distributed in any of the following forms: (i) in a cash lump sum no later than the fifth business day following the Date of Termination; or (ii) in periodic instalments for a period of 5, 10 or 15 years following the Date of Termination; PROVIDED, HOWEVER, if the Executive is less than 55 years old when the Executive becomes entitled to distribution of the Retention Payments, only the lump sum payment option described in (i) above shall be available to the Executive. The term "Distribution Date," with respect to a lump-sum payment or one in a series of periodic payments, shall mean the date on which such payment is made. (b) The Executive may designate a beneficiary who will be entitled to any portion of the Retention Payment to which the Executive is entitled in the event of his death. The beneficiary may be designated or changed by the Executive (without the consent of any prior beneficiary) on a form provided by the Company and delivered to the Company before his death. If no such beneficiary shall have been designated, or if no designated beneficiary shall survive the Executive, the Retention Payment, if not previously paid, shall be paid to the Executive's estate. (c) On the Effective Date of this Agreement, the Executive shall make an initial written election as to the form and time of the distribution of the Retention Payment, in the space provided on the signature page of this Agreement. At any time after the initial election, the Executive may change his election by delivering to the Company written notice of such change; PROVIDED, HOWEVER, that no 5 such subsequent election shall be effective unless such notice is delivered to the Company at least 12 months prior to the Executive's (i) reasonably anticipated retirement from the Company or (ii) termination of employment. 4. ADDITIONAL PAYMENT. It is the intention of the parties hereto that no part of the Retention Payment will be treated as an "excess parachute payment" for purposes of the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). If, however, an Excise Tax is imposed upon the Retention Payment or any other payment or deemed payment made to the Executive, then the Company shall make an additional payment to the Executive in accordance with the terms and conditions set forth on Appendix I hereto. 5. LEGAL FEES. The Company also shall pay to the Executive all legal fees and expenses that may be incurred in good faith by the Executive in seeking to obtain or enforce any benefit or right provided by this Agreement. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6. NO EFFECT ON OTHER CONTRACTUAL RIGHTS. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights (or rights which would accrue solely as a result of the passage of time) under any employee benefit plan or employment agreement or other contract, plan or arrangement nor shall any amounts payable hereunder be considered in determining the amount of benefits payable to the Executive under any such plan, agreement or contract. 7. NONALIENATION OF BENEFITS. The right of the Executive or any other person to the payment of deferred compensation or other benefits under this Agreement shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Executive or the Executive's beneficiary or estate. 8. SUCCESSORS; BINDING AGREEMENT. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to 6 perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that becomes bound by the terms and provisions of this Agreement, by operation of law or otherwise. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, legatees and beneficiaries. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 9. NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address printed on the signature page of this Agreement, and if to the Company, to its headquarters, attention: General Counsel, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of Massachusetts without regard to its conflicts of law principles. 7 11. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein, and shall be deemed to supersede the agreement entered into between the Executive and BankBoston Corporation, dated June 25, 1998, as amended (the "Severance Agreement"), and any promises, covenants, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto with respect to the subject matter contained herein. 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. FLEET BOSTON CORPORATION /s/ M. ANNE SZOSTAK --------------------------------------- By: M. Anne Szostak Title: Executive Vice President /s/ JOHN L. MASTROMARINO --------------------------------------- Name: John L. Mastromarino Address: [ ] I hereby elect to receive the Retention Payment as follows: [x] In one lump-sum payment, within five days following the Date of Termination. [ ] In a series of quarterly payments, commencing on the Date of Termination and ending on the ______anniversary thereof (select 5th, 10th or 15th anniversary). /s/ JOHN L. MASTROMARINO --------------------------- John L. Mastromarino 9 Appendix I Procedures for Determination of Additional Payment -------------------------------------------------- (a) Subject to the limitations set forth in paragraph (e) of this Appendix, if the Executive becomes subject to the excise tax (the "Excise Tax") imposed under section 4999 of the Internal Revenue Code of 1986, as amended(the "Code"), upon "excess parachute payments" (as defined in section 280G of the Code), the Company shall promptly pay the Executive the amount or amounts (a "Gross-Up Payment") that are necessary to place the Executive in the same after-tax (taking into account federal, state, local income, excise, unemployment and other taxes) financial position that he would have been in if he had not incurred any tax liability under section 4999 of the Code, but only to the extent that the Excise Tax results in a payment to the Internal Revenue Service. (b) If the Company has determined that no Gross-Up Payment is necessary, then in no case will the Executive file a tax return which takes a position that any Excise Tax is payable, unless he receives a written opinion from his tax advisor that it is more likely than not that such Excise Tax is due and payable. Upon receipt of such written opinion, the Executive shall communicate such written opinion to the Company not less than 30 days prior to filing the tax return to which the opinion refers. Prior to the due date for the filing of such tax return, the Company shall pay to the Executive the Gross-Up Payment described above. (c) Each party will notify the other in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. (d) The Company shall bear and pay directly all costs and expenses (including legal fees and additional interest and penalties) incurred in connection with any such claim or proceeding, to the extent related to the Excise Tax, and shall indemnify and hold the Executive harmless, on an after-tax basis, as provided in paragraph (a) of this Appendix, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. (e) In the event that all "parachute payments," as defined in section 280G of the Code, payable to the Executive (after deduction of the net amount of federal, state and local income and employment taxes and the amount of Excise Tax to which the Executive would be subject in respect of such "parachute payments") does not equal or exceed 110% of the largest amount of "parachute payments" that would result in no portion thereof being subject to the Excise Tax (after deduction of the net amount of federal, state and local income and employment taxes on such reduced payments), then paragraph (a) of this Appendix shall not apply 10 and the Retention Payment shall be reduced as necessary to ensure that no portion of the "parachute payments" is subject to the Excise Tax. (f) If it is finally determined that the Excise Tax is less than the amount taken into account in calculating the Gross-Up Payment under paragraph (a) hereof, and/or the Retention Payment is to be reduced or further reduced pursuant to paragraph (e) hereof, then the Executive shall promptly repay to the Company (x) the portion of the Gross-Up Payment attributable to the excess Excise Tax and/or (y) the excess Retention Payment, as applicable, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code, but such repayment plus interest thereon shall be required only to the extent that such repayment results (1) (in the case of any repayment in the Gross-Up Payment) in a reduction in the Excise Tax and (2) (in the case of any repayment in the Gross-Up Payment or the Retention Payment) a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes. If it is finally determined that the Excise Tax exceeds the amount taken into account in calculating the Gross-Up Payment under paragraph (a) hereof and/or the Retention Payment should not have been reduced to the extent that it was, the Company shall promptly make an additional Gross-Up Payment to the Executive and/or pay the Executive any portion of the Retention Payment incorrectly reduced, as appropriate (plus any interest, penalties or additions payable by the Executive with respect to such excess and such portion), plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. 11 EX-12 9 EXHIBIT 12 EXHIBIT 12 FLEETBOSTON FINANCIAL CORPORATION COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS)
Three months ended March 31, Year ended December 31, - ------------------------------------------------------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes $1,618 $1,073 $3,426 $3,776 $3,762 $3,185 $2,354 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 855 584 2,794 2,240 1,788 1,686 2,492 (2) 1/3 of rent 21 26 103 96 92 95 90 (b) Preferred dividends 16 20 85 97 157 183 129 ------ ------ ------ ------ ------ ------ ------ (c) Adjusted earnings $2,510 $1,703 $6,408 $6,209 $5,799 $5,149 $5,065 ====== ====== ====== ====== ====== ====== ====== Fixed charges and preferred dividends $ 892 $ 630 $2,982 $2,433 $2,037 $1,964 $2,711 ====== ====== ====== ====== ====== ====== ====== Adjusted earnings/fixed charges 2.81x 2.70x 2.15x 2.55x 2.85x 2.62 x 1.87x ====== ====== ====== ====== ====== ====== ====== INCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS) Three months ended March 31, Year ended December 31, - ------------------------------------------------------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes $1,618 $1,073 $3,426 $3,776 $3,762 $3,185 $2,354 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 855 584 2,794 2,240 1,788 1,686 2,492 (2) 1/3 of rent 21 26 103 96 92 95 90 (3) Interest on deposits 898 897 3,516 3,706 3,339 3,433 3,517 (b) Preferred dividends 16 20 85 97 157 183 129 ------ ------ ------ ------ ------ ------ ------ (c) Adjusted earnings $3,408 $2,600 $9,924 $9,915 $9,138 $8,582 $8,582 ====== ====== ====== ====== ====== ====== ====== Fixed charges and preferred dividends $1,790 $1,527 $6,498 $6,139 $5,376 $5,397 $6,228 ====== ====== ====== ====== ====== ====== ====== Adjusted earnings/fixed charges 1.90x 1.70x 1.53x 1.62x 1.70x 1.59x 1.38x ====== ====== ====== ====== ====== ====== ======
EXHIBIT 12 (CONTINUED) FLEETBOSTON FINANCIAL CORPORATION COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS)
Three months ended March 31, Year ended December 31, - ------------------------------------------------------------------------------------------------------------ 2000 1999 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Earnings: Income before income taxes $1,618 $1,073 $3,426 $3,776 $3,762 $3,185 $2,354 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 855 584 2,794 2,240 1,788 1,686 2,492 (2) 1/3 of rent 21 26 103 96 92 95 90 ------ ------ ------ ------ ------ ------ ------ (b) Adjusted earnings $2,494 $1,683 $6,323 $6,112 $5,642 $4,966 $4,936 ====== ====== ====== ====== ====== ====== ====== Fixed charges $ 876 $ 610 $2,897 $2,336 $1,880 $1,781 $2,582 ====== ====== ====== ====== ====== ====== ====== Adjusted earnings/fixed charges 2.85x 2.76x 2.18x 2.62x 3.00x 2.79x 1.91x ====== ====== ====== ====== ====== ====== ====== INCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS) Three months ended March 31, Year ended December 31, - ------------------------------------------------------------------------------------------------------------ 2000 1999 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ Earnings: Income before income taxes $1,618 $1,073 $3,426 $3,776 $3,762 $3,185 $2,354 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 855 584 2,794 2,240 1,788 1,686 2,492 (2) 1/3 of rent 21 26 103 96 92 95 90 (3) Interest on deposits 898 897 3,516 3,706 3,339 3,433 3,517 ------ ------ ------ ------ ------ ------ ------ (b) Adjusted earnings $3,392 $2,580 $9,839 $9,818 $8,981 $8,399 $8,453 ====== ====== ====== ====== ====== ====== ====== Fixed charges $1,774 $1,507 $6,413 $6,042 $5,219 $5,214 $6,099 ====== ====== ====== ====== ====== ====== ====== Adjusted earnings/fixed charges 1.91x 1.71x 1.53x 1.62x 1.72x 1.61x 1.39x ====== ====== ====== ====== ====== ====== ======
EX-27 10 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 2000 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. 1,000,000 3-MOS DEC-31-2000 MAR-31-2000 7,072 1,829 3,177 8,020 21,999 1,084 1,084 117,353 2,477 187,814 109,201 18,788 18,525 26,347 0 566 9 14,378 187,814 2,794 435 232 3,461 898 1,753 1,708 300 (58) 2,512 1,618 1,618 0 0 957 1.05 1.03 4.18 841 293 0 0 2,488 324 49 2,477 1,948 364 165
EX-27.(A) 11 EXHIBIT 27(A)
9 THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1999 MAR-31-1999 7,245 1,720 3,660 4,856 23,400 1,494 1,502 116,425 2,481 181,873 116,101 17,648 12,371 21,200 0 691 9 13,853 181,873 2,593 402 154 3,149 897 1,481 1,668 219 (2) 1,935 1,072 1,072 0 0 661 .70 .68 4.35 625 291 1 0 2,306 270 54 2,481 2,035 273 173
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