-----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, GUZmjpnJnlOX48naAT7cQJWoCHVz8mL9qt9G25creUeoR6hYCWG1cTrfxL01FNp7 r7BtIKxUJgxwkTC820L15Q== 0000912057-97-017640.txt : 19970515 0000912057-97-017640.hdr.sgml : 19970515 ACCESSION NUMBER: 0000912057-97-017640 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEET FINANCIAL GROUP INC 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: 1934 Act SEC FILE NUMBER: 001-06366 FILM NUMBER: 97605063 BUSINESS ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02211 BUSINESS PHONE: 6172922000 MAIL ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02211 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 FORM 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, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD TO --------- -------- COMMISSION FILE NUMBER 1-6366 FLEET FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0341324 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) ONE FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (Address of principal executive office) (Zip Code) (617) 346-4000 Registrant's telephone number, including area code Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---------- ---------- The number of shares of common stock of the Registrant outstanding as of March 31, 1997 was 255,826,379. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FLEET FINANCIAL GROUP, INC. FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE ---- PART I. ITEM 1. FINANCIAL INFORMATION Consolidated Statements of Income Three Months Ended March 31, 1997 and 1996 3 Consolidated Balance Sheets March 31, 1997 and December 31, 1996 4 Consolidated Statements of Changes in Stockholders' Equity Three Months Ended March 31, 1997 and 1996 5 Consolidated Statements of Cash Flows Three Months Ended March 31, 1997 and 1996 6 Condensed Notes to Consolidated Financial Statements 7 PART I. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 22 SIGNATURES 25 EXHIBITS 26 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 - ------------------------------------------------------------------------------- Interest and fees on loans and leases $1,287 $1,144 Interest on securities 150 193 - ------------------------------------------------------------------------------- Total interest income 1,437 1,337 - ------------------------------------------------------------------------------- Interest expense: Deposits 416 402 Short-term borrowings 39 106 Long-term debt 89 105 - ------------------------------------------------------------------------------- Total interest expense 544 613 - ------------------------------------------------------------------------------- Net interest income 893 724 - ------------------------------------------------------------------------------- Provision for credit losses 65 35 - ------------------------------------------------------------------------------- Net interest income after provision for credit losses 828 689 - ------------------------------------------------------------------------------- Noninterest income: Service charges, fees and commissions 157 108 Mortgage banking revenue, net 104 83 Investment services revenue 103 87 Student loan servicing fees 26 22 Venture capital revenue 18 27 Securities gains 13 18 Gain on sale of branch divestitures --- 60 Other 105 73 - ------------------------------------------------------------------------------- Total noninterest income 526 478 - ------------------------------------------------------------------------------- Noninterest expense: Employee compensation and benefits 425 348 Occupancy 75 61 Equipment 70 57 Intangible asset amortization 39 25 Legal and other professional 28 23 Telephone 20 16 Printing and mailing 19 16 Marketing 18 22 Other 146 149 - ------------------------------------------------------------------------------- Total noninterest expense 840 717 - ------------------------------------------------------------------------------- Income before income taxes 514 450 Applicable income taxes 203 186 Net income $ 311 $ 264 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Net income applicable to common shares $ 294 $ 251 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Fully diluted weighted average common 267,479,414 268,376,014 shares outstanding: Fully diluted earnings per share: 1.10 $0.94 Dividends declared 0.45 0.43 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 FLEET FINANCIAL GROUP, INC. CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS 1997 1996 - ------------------------------------------------------------------------------- ASSETS Cash, due from banks and interest-bearing deposits $5,047 $7,243 Federal funds sold and securities purchased under agreements to resell 262 1,772 Securities available for sale 7,465 7,503 Securities held to maturity (market value: $1,095 and $1,172) 1,092 1,177 Loans and leases 59,054 58,844 Reserve for credit losses (1,462) (1,488) - ------------------------------------------------------------------------------- Net loans and leases 57,592 57,356 - ------------------------------------------------------------------------------- Mortgage servicing rights 1,861 1,566 Mortgages held for resale 1,334 1,560 Premises and equipment 1,328 1,347 Intangible assets 1,663 1,699 Other assets 4,048 4,295 - ------------------------------------------------------------------------------- Total assets $81,692 $85,518 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LIABILITIES Deposits: Demand $16,089 $17,903 Regular savings, NOW, money market 27,738 27,976 Time 20,312 21,192 - ------------------------------------------------------------------------------- Total deposits 64,139 67,071 - ------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 2,764 2,871 Other short-term borrowings 815 756 Accrued expenses and other liabilities 2,260 2,291 Long-term debt 4,617 5,114 - ------------------------------------------------------------------------------- Total liabilities 74,595 78,103 - ------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock 869 953 Common stock (shares issued: 263,384,372 in 1997 and 263,395,054 in 1996; shares outstanding: 255,826,379 in 1997 and 261,992,124 in 1996) 3 3 Common surplus 3,137 3,145 Retained earnings 3,513 3,342 Net unrealized gain (loss) on securities available for sale (32) 31 Treasury stock, at cost (7,557,993 shares in 1997 and 1,402,930 shares in 1996) (393) (59) - ------------------------------------------------------------------------------- Total stockholders' equity 7,097 7,415 - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $81,692 $85,518 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4
FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------------------- NET UNREALIZED COMMON GAIN(LOSS) STOCK AT ON SECURITIES THREE MONTHS ENDED MARCH 31 PREFERRED $.01 COMMON RETAINED AVAILABLE TREASURY DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS STOCK PAR SURPLUS EARNINGS FOR SALE STOCK TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- 1996 - ---- Balance at December 31, 1995 $399 $ 3 $3,149 $2,768 $ 52 $ (6) $ 6,365 Net income 264 264 Cash dividends declared on common stock ($0.43 per share) (113) (113) Cash dividends declared on preferred stock (13) (13) Issuance of preferred stock 425 (11) 414 Common stock issued in connection with: Employee benefit and stock option plans 8 (6) 15 17 Warrants 15 15 Adjustment of valuation reserve for securities available for sale (51) (51) Other items, net (39) (6) (9) (54) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1996 $824 $ 3 $3,122 $2,894 $ 1 $ --- $6,844 - ---------------------------------------------------------------------------------------------------------------------------------- 1997 - ---- Balance at December 31, 1996 $953 $ 3 $3,145 $3,342 $ 31 $ (59) $7,415 Net income 311 311 Cash dividends declared on common stock ($0.45 per share) (115) (115) Cash dividends declared on preferred stock (17) (17) Common stock issued in connection with Employee benefit and stock option plans (6) (8) 42 28 Treasury stock purchased (376) (376) Adjustment of valuation reserve for securities available for sale (63) (63) Exchange of Series V preferred stock for trust preferred securities (84) (84) Other items, net (2) (2) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 $869 $ 3 $3,137 $3,513 $ (32) $ (393) $7,097 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1997 1996 - --------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 311 $ 264 Adjustments for noncash items: Depreciation and amortization of premises and equipment 53 41 Amortization of mortgage servicing rights and other intangible assets 96 66 Provision for credit losses 65 35 Deferred income tax expense 50 62 Securities gains (13) (18) Gain from branch divestitures --- (60) Originations and purchases of mortgages held for sale (4,589) (4,900) Proceeds from sales of mortgages held for sale 4,815 4,507 (Increase) decrease in accrued receivables, net (147) 109 Increase (decrease) in accrued liabilities, net (31) 71 Other, net 173 96 - --------------------------------------------------------------------------- Net cash flow provided by operating activities 783 273 - --------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale (983) (3,331) Proceeds from maturities of securities available for sale 763 2,891 Proceeds from sales of securities available for sale 196 10,171 Purchases of securities held to maturity (147) (171) Proceeds from maturities of securities held to maturity 193 125 Loans made to customers, nonbanking subsidiaries (620) (274) Principal collected on loans made to customers, nonbanking subsidiaries 412 178 Divestiture of loans --- 1,773 Net (increase) decrease in loans and leases, banking subsidiaries (144) 1,589 Purchases of premises and equipment (40) (43) Purchases of mortgage servicing rights (73) (79) - --------------------------------------------------------------------------- Net cash flow (used) provided by investing activities (443) 12,829 - --------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (2,932) (4,652) Divestiture of deposits --- (2,349) Net decrease in short-term borrowings (48) (5,395) Proceeds from issuance of long-term debt --- 342 Repayments of long-term debt (587) (823) Proceeds from the issuance of common stock 28 32 Proceeds from the issuance of preferred stock --- 414 Repurchase of common stock (376) (10) Cash dividends paid (131) (114) - --------------------------------------------------------------------------- Net cash flow used by financing activities (4,046) (12,555) - --------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (3,706) 547 - --------------------------------------------------------------------------- Cash and cash equivalents at beginning of the period 9,015 4,566 - --------------------------------------------------------------------------- Cash and cash equivalents at end of the period $ 5,309 $ 5,113 - --------------------------------------------------------------------------- - --------------------------------------------------------------------------- SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 NOTE 1. FINANCIAL STATEMENTS The unaudited consolidated financial information included herein has been prepared in conformity with the accounting principles and practices in Fleet Financial Group, Inc.'s ("Fleet", "FFG", or "corporation") consolidated financial statements included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year ended December 31, 1996. The accompanying interim consolidated financial statements contained herein are unaudited. However, in the opinion of the corporation, all adjustments consisting of normal recurring items necessary for a fair statement of the operating results for the periods shown have been made. The results of operations for the three months ended March 31, 1997 may not be indicative of operating results for the year ending December 31, 1997. Certain prior period amounts have been reclassified to conform to current classifications. NOTE 2. ACQUISITIONS AND DIVESTITURES On May 1, 1996, the corporation acquired from National Westminster Plc, substantially all of the net assets of the three main operating subsidiaries of NatWest Bancorp ("NatWest Bank"). NatWest Bank continues its existence as part of Fleet Bank, National Association. In accordance with the NatWest merger agreement, Fleet paid a purchase price at closing of $2.7 billion. Subject to the level of earnings of Fleet Bank, National Association, Fleet may be required to make additional payments (the "Earnout") of up to $560 million over the next eight years, commencing in the third quarter of 1997. The acquisition of NatWest Bank contributed approximately $13 billion and $18 billion of loans and deposits, respectively, and approximately 300 branches in New York and New Jersey. The transaction was accounted for using the purchase method of accounting. Accordingly, the corporation's financial statements include the effect of NatWest only for the period subsequent to the May 1, 1996 acquisition date. Goodwill of approximately $660 million was recorded in connection with this transaction and is being amortized on a straight-line basis over 15 years. Additional goodwill will be recorded for any payments under the earnout. The information below presents, on a pro forma basis, certain historical financial information for the corporation, adjusted for the NatWest transaction as if the transaction had been consummated on January 1, 1996. PRO FORMA RESULTS - ------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31 (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1996 - ------------------------------------------------------------------------ PRO FORMA-FLEET AND NATWEST Net income $302 Net income applicable to common stockholders 282 Net income per common share 1.05 - ------------------------------------------------------------------------ CORPORATION AS REPORTED Net income $264 Net income applicable to common stockholders 251 Net income per common share 0.94 - ------------------------------------------------------------------------ The corporation has reached definitive agreements to sell Option One, a subsidiary that originates and services residential loans, the corporate trust business, and 18 branches located in Upstate New York. The corporation anticipates that these sales will be completed during the second quarter of 1997. NOTE 3. PREFERRED STOCK During the first quarter of 1997, the corporation issued 3.4 million shares of trust preferred securities with a liquidation value of $84 million in exchange for 3.4 million depository shares (335 thousand shares) of Series V preferred stock. The trust preferred securities are classified as long-term debt. NOTE 4. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES On January 1, 1997, the corporation adopted Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement requires that, after a transfer of financial assets, an entity recognize the financial and servicing assets it controls and the liabilities it has incurred, and derecognize financial assets when control has been surrendered. In December 1996, the Financial Accounting Standards Board (FASB) issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS Statement No. 125," which delays for one year the effective date of the provisions of SFAS Statement No. 125 relating to repurchase agreements, dollar-rule, securities lending and similar transactions. The adoption of these statements has not had a material impact on the corporation or its results of operations. NOTE 5. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS CASH-FLOW DISCLOSURE - ---------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1997 1996 - ---------------------------------------------------------------------------- Supplemental disclosure for cash paid during the period for: Interest expense $530 $670 Income taxes, net of refunds 18 24 Supplemental disclosure of noncash investing and financing activities: Transfer of loans to foreclosed property and repossessed equipment 9 7 Securitization of residential loans --- 498 Exchange of Series V preferred stock for trust preferred securities 84 --- Adjustment to unrealized gain/(loss) on securities available for sale (63) (51) Retirement of common stock --- 34 Divestitures: Assets sold --- 1,773 Net cash paid for divestitures --- (576) Liabilities sold --- 2,349 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERALL PERSPECTIVE - ------------------------------------------------------- Three months ended March 31 Dollars in millions except per share data 1997 1996 - ------------------------------------------------------- Earnings Net income $ 311 $ 264 Net interest income (FTE) (a) 902 732 - ------------------------------------------------------- Per Common Share Fully diluted earnings 1.10 0.94 Cash dividends declared 0.45 0.43 Book value 24.34 22.90 - ------------------------------------------------------- Operating Ratios Return on average assets 1.52% 1.41% Return on common equity 18.82 16.96 Efficiency ratio 58.8 59.3 Equity to assets (period-end) 8.69 9.49 - ------------------------------------------------------- At March 31 Total assets $81,692 $72,123 Stockholders' equity 7,097 6,844 Nonperforming assets(b) 704 553 - ------------------------------------------------------- - ------------------------------------------------------- (a) The FTE adjustment included in net interest income was $9 million and $8 million for the three months ended March 31, 1997 and 1996, respectively. (b) Nonperforming assets and related ratios at March 31, 1997 and 1996 do not include $253 million and $307 million, respectively, of nonperforming assets classified as held for sale or accelerated disposition. Fleet reported net income of $311 million, or $1.10 per fully diluted share, for the quarter ended March 31, 1997, compared to $264 million, or $.94 per fully diluted share, in the first quarter of 1996, an increase of 18%. Return on average assets and return on equity improved to 1.52% and 18.82%, respectively, for the first quarter of 1997, from 1.41% and 16.96%, respectively, for the first quarter of 1996. First quarter 1997 results reflect the impact of the corporation's acquisition of NatWest Bank, National Association ("NatWest") which was acquired on May 1, 1996, while the first quarter of 1996 includes a $24 million (post-tax) gain related to branch divestitures. The improved results reflect the impact of the NatWest acquisition as the corporation has experienced substantial growth in its core revenue categories, including mortgage banking revenue and investment services revenue, combined with expense savings attributable to the integration of the NatWest and Shawmut acquisitions. During the quarter, the corporation also repurchased 6.9 million shares of common stock as part of a program to manage capital levels as the corporation generates capital through continued earnings growth. INCOME STATEMENT ANALYSIS Net Interest Income - ------------------------------------------ -------- --------- Three months ended March 31 FTE Basis Dollars in millions 1997 1996 - ------------------------------------------ -------- --------- Interest income $1,437 $1,337 Tax-equivalent adjustment 9 8 Interest expense 544 613 - ------------------------------------------ -------- --------- Net interest income $ 902 $ 732 - ------------------------------------------ -------- --------- Net interest income on a fully taxable equivalent basis totaled $902 million for the quarter ended March 31, 1997, compared to $732 million for the same period in 1996. The $170 million increase was principally related to the NatWest acquisition, offset in part by a balance sheet restructuring program and divestitures of $2.4 billion in deposits and $1.8 billion in loans as a result of Fleet's merger with Shawmut National Corporation in November 1995. In anticipation of the NatWest acquisition, the corporation underwent a major balance sheet restructuring during early 1996 that reduced the corporation's net interest income but improved its earning asset mix by selling lower-yielding securities and paying down higher-cost funding. Net Interest Margin and Interest-Rate Spread - --------------------------- -------------- -- --------------- -- Three months ended March 31 1997 1996 - --------------------------- -------- ----- -- -------- ------ -- FTE Basis Average Average Dollars in millions Balance Rate Balance Rate - --------------------------- -------- ----- -- -------- ------ -- Securities $ 8,580 6.67 % $12,130 6.24 % Loans and leases 58,669 8.63 49,497 8.61 Mortgages held for sale 1,686 7.59 2,085 7.48 Other 1,575 4.91 2,549 9.13 - ---------------------------------------------------------------- Total interest-earning assets 70,510 8.29 66,261 8.15 - ---------------------------------------------------------------- Deposits 48,494 3.44 41,249 3.92 Short-term borrowings 3,608 4.91 8,059 5.30 Long-term debt 5,003 7.27 6,080 6.92 - ---------------------------------------------------------------- Interest-bearing liabilities 57,105 3.87 55,388 4.45 - ---------------------------------------------------------------- Interest-rate spread 4.42 3.70 Interest-free sources of funds 13,405 10,873 - ---------------------------------------------------------------- Total sources of funds $70,510 3.13 % $66,261 3.72 % - ---------------------------------------------------------------- Net interest margin 5.16 % 4.43 % - ---------------------------------------------------------------- The net interest margin for the first quarter of 1997 increased 73 basis points to 5.16% from the first quarter of 1996. The increase in net interest margin is primarily attributable to a more favorable mix of interest-earning assets and interest-bearing liabilities as lower-yielding average securities decreased $3.6 billion and higher-cost average short-term borrowings decreased $4.5 billion. The securities and short-term borrowings were replaced by more favorable yielding loans and lower-cost core deposits acquired from 9 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NatWest and was part of the aforementioned corporation's balance sheet restructuring program. Average loans and leases increased $9.2 billion to $58.7 billion for the first quarter of 1997, when compared with the first quarter of 1996, due to the NatWest acquisition, partially offset by the divestiture of loans in the first quarter of 1996. Average loans and leases as a percentage of interest-earning assets has increased to 83% in the first quarter of 1997 from 75% during the first quarter of 1996. Average interest-bearing deposits increased $7.3 billion to $48.5 billion for the first quarter of 1997 due to the NatWest acquisition, offset by divestiture of deposits of $2.4 billion in the first quarter of 1996. The net interest rate paid on average deposits decreased to 3.44% for the first quarter of 1997 compared to 3.92% for the same period of 1996. The decrease in cost of deposits reflects the NatWest acquisition which increased the level of lower-cost core deposits for the first three months of 1997 in comparison to the same period in 1996. Average core deposits as a percentage of interest-bearing liabilities has increased to 77% from 60% during the same time period. The $4.5 billion decrease in average short-term borrowings is attributable to the use of proceeds from the sales of securities to pay down short-term borrowings coupled with the acquisition of NatWest, which enabled the corporation to replace short-term borrowings with lower-cost core deposits. The $1.1 billion decrease in long-term debt and 35 basis point increase in the funding rate was due to scheduled maturities of lower-rate instruments and the issuance of higher-rate instruments which include the trust preferred securities issued by the corporation's trust subsidiary. The contribution to the net interest margin of interest-free sources of funds during the first quarter of 1997 remained consistent with the first quarter of 1996 at 74 basis points and 73 basis points, respectively. Noninterest Income - ----------------------------------------- --------- --------- Three months ended March 31 Dollars in millions 1997 1996 - ----------------------------------------- --------- --------- Service charges, fees and commissions $157 $108 Mortgage banking revenue, net 104 83 Investment services revenue 103 87 Student loan servicing fees 26 22 Venture capital revenue 18 27 Securities gains 13 18 Gain from branch divestitures --- 60 Other noninterest income 105 73 - ----------------------------------------- --------- --------- Total noninterest income $526 $478 - ----------------------------------------- --------- --------- Noninterest income for the first quarter of 1997 totaled $526 million compared to $478 million for the same period of 1996. Excluding NatWest's contribution of $75 million in the first quarter of 1997 and the $60 million gain from branch divestitures in the first quarter of 1996, noninterest income increased by $33 million, or 8%, over the first quarter of 1996. Increases were noted in various categories, including investment services revenue, mortgage banking revenue and student loan servicing fees. Service charges, fees and commissions totaled $157 million for the first quarter of 1997 compared to $108 million for the first quarter of 1996, an increase of 45% related directly to the addition of NatWest. Included in service charges, fees and commissions are service charges on deposits, electronic banking and network fees, safe deposit income and other fees. Mortgage Banking Revenue, Net - ------------------------------------------------------------ Three months ended March 31 Dollars in millions 1997 1996 - ------------------------------------------------------------ Net loan servicing revenue $111 $94 Mortgage production revenue 40 26 Gains on sales of mortgage servicing 10 4 Mortgage servicing rights amortization (57) (41) - ------------------------------------------------------------ Total mortgage banking revenue, net $104 $83 - ------------------------------------------------------------ Net mortgage banking revenue of $104 million in the first quarter of 1997 increased $21 million over the $83 million recorded in the same period of 1996. Loan servicing revenue represents fees received for servicing residential mortgage loans. The 18% increase in loan servicing revenue is directly attributable to the $7 billion increase in the corporation's servicing portfolio from $116 billion at March 31, 1996 to $123 billion at March 31, 1997. Mortgage production revenue, which includes income derived from the loan origination process and net gains on sales of mortgage loans, has been positively impacted by increased gains on the sale of loans, partially offset by lower loan 10 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS origination fees in the first quarter of 1997 when compared with the same period of 1996. As previously discussed, the corporation has entered into a definitive agreement to sell Option One, which contributed $20 million of mortgage banking revenue during the first quarter of 1997, the majority of which was mortgage production revenue. The corporation sold mortgage servicing rights (MSRs) of approximately $1.3 billion and $1.0 billion in the first quarter of 1997 and 1996, respectively, resulting in pre-tax gains of $10 million and $4 million, respectively. The corporation's decision to sell MSRs and mortgage loans depends on a variety of factors, including the available markets and current market prices for such assets and the working capital requirements of the corporation. Thus, the likelihood or profitability of any such sales in the future cannot be predicted. MSR amortization increased $16 million to $57 million for the first quarter of 1997 as compared to $41 million for the same period of 1996. The level of amortization increased as the first quarter of 1996 included the recovery of a valuation reserve that was partially offset in 1996 by higher levels of amortization relating to the investment in interest-rate contracts that are purchased to hedge the prepayment risk associated with the mortgage servicing portfolio. At March 31, 1997, the carrying value and fair value of the corporation's MSRs were $1.9 billion and $2.0 billion, respectively. Investment Services Revenue - --------------------------------- ------------- ------------ Three months ended March 31 Dollars in millions 1997 1996 - --------------------------------- ------------- ------------ Private clients group $ 49 $ 45 Retirement plan services 16 14 Retail investments 16 8 Not-for-profit institutional services 11 10 Corporate trust 4 4 Investment management 3 2 Other 4 4 - --------------------------------- ------------- ------------ Total investment services revenue $103 $ 87 - --------------------------------- ------------- ------------ Investment services revenue increased 18% in the first quarter of 1997 to $103 million. The increase was due to continued strong sales of mutual funds and annuity products and an increase in the overall value of assets under management and administration due to growth aided by a strong equity market. Assets under management increased from $45 billion at March 31, 1996 to $48 billion at March 31, 1997. As previously discussed, the corporation has entered into a definitive agreement to sell the corporate trust unit which generated $4 million of revenue during the first quarter of 1997. The $4 million increase in student loan servicing fees from 1996 to 1997 is attributable to increased levels of servicing and originations over the prior year period at AFSA Data Corporation (AFSA), the corporation's student loan servicing subsidiary. AFSA services 4.7 million accounts nationwide and is the largest third-party student loan servicer in the United States, with over $23 billion in loans serviced. Venture capital revenue decreased $9 million to $18 million for the quarter ended March 31, 1997 when compared to the same quarter of 1996 as Fleet Private Equity, the corporation's venture capital business, did not experience the same level of appreciation when compared with the first quarter of 1996. The corporation's ability to continue to experience increases in the value of these investments depends on a variety of factors, including the state of the economy and equity markets. Thus, the likelihood of such gains in the future cannot be predicted. As a condition to the regulatory approval of the merger with Shawmut National Corp., (Shawmut Merger) the corporation divested certain branches, loans and deposits. The corporation realized $60 million of gains from these divestitures during the first quarter of 1996. Other noninterest income increased $32 million to $105 million due primarily to higher corporate finance fees, trading and foreign exchange gains and increased credit card revenue. Noninterest Expense - -------------------------------------- --------- ---------- Three months ended March 31 Dollars in millions 1997 1996 - -------------------------------------- --------- ---------- Employee compensation and benefits $425 $348 Occupancy 75 61 Equipment 70 57 Intangible asset amortization 39 25 Legal and other professional 28 23 Telephone 20 16 Printing and mailing 19 16 Marketing 18 22 Other 146 149 - -------------------------------------- --------- ---------- Total noninterest expense $840 $717 - -------------------------------------- --------- ---------- Noninterest expense for the first quarter of 1997 totaled $840 million compared to $717 million for the same period of 1996. The increase of $123 million over the prior year quarter was due primarily to the 11 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS acquisition of NatWest. Excluding NatWest, noninterest expense and operating noninterest expense (defined as total noninterest expense less intangible asset amortization and integration costs) declined $50 million and $57 million, respectively, from the first quarter of 1996. These decreases were primarily the result of ongoing integration of the Shawmut Merger. Excluding NatWest, employee compensation and benefits remained consistent with the March 31, 1996 level. Occupancy expense, excluding NatWest, decreased $6 million from the prior year's quarter due primarily to ongoing successful integration from the Shawmut Merger, as well as branch divestitures. Equipment expense, excluding NatWest, increased $2 million from the prior year's quarter primarily as a result of technological upgrades and improvements, as well as to support the integration of acquired companies. Intangible asset amortization increased to $39 million in the first quarter of 1997 from $25 million in the first quarter of 1996, primarily as a result of the NatWest acquisition. Additional goodwill related to the NatWest acquisition may be recognized in future periods based on an earnout calculation. The contingent earnout provision stipulates that additional payments be made annually based upon a percentage of the level of earnings from the NatWest franchise, not to exceed $560 million during an eight-year period. Legal and other professional expense increased $4 million over the first quarter of 1996, excluding NatWest, due to merger integration expenses as a result of the Shawmut Merger, as well as various strategic initiatives. In connection with the NatWest purchase price, the corporation recorded a restructuring liability of $250 million during the second quarter of 1996. The following table presents a summary of activity with respect to the corporation's merger-related charges pertaining to Shawmut, in addition to the NatWest related restructuring liability for the three months ended March 31, 1997. Merger and Restructuring-Related Liabilities - ------------------------------------------------------------- Three Months Ended March 31, 1997 Dollars in millions Shawmut NatWest Total - ------------------------------------------------------------- Balance at December 31, 1996 $158 $ 89 $247 Cash outlays (91) (25) (116) - ------------------------------------------------------------- Balance at March 31, 1997 $ 67 $ 64 $131 - ------------------------------------------------------------- The cash outlays made during the first three months of 1997 relate primarily to severance costs. The corporation's liquidity has not been significantly affected by these cash outlays, and future cash outlays are not anticipated to significantly impact the corporation's liquidity. During the first three months of 1997, $3 million of incremental costs have been incurred relating to the NatWest acquisition and have not been charged against the merger accrual. It is anticipated that approximately $10 million of additional incremental costs will be incurred in 1997. The corporation expects that the remaining accrual balance of $131 million at March 31, 1997 will be sufficient to absorb the remaining merger-related costs. Income Taxes For the first quarter of 1997, the corporation recognized income tax expense of $203 million, an effective tax rate of 39.5%. Tax expense for the same period of 1996 was $186 million, an effective tax rate of 41.4%. The first quarter of 1996 was impacted by a higher effective rate due to a greater level of nondeductible goodwill which was written off in conjunction with branch divestitures. 12 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Lines of Business The financial performance of the corporation is monitored by an internal profitability measurement system, which provides line of business results and key performance measures. The corporation is managed along the following business lines: Consumer Banking, Commercial Financial Services, Investment Services, Financial Services and National Consumer, Fee-Based Business, Treasury and All Other. Management accounting policies are in place for assigning expenses that are not directly incurred by businesses, such as overhead, operations and technology expense. Additionally, equity, loan loss provision and loan loss reserves are assigned on an economic basis. The corporation has developed a risk-adjusted methodology that quantifies risk types (e.g., credit, operating, market, fiduciary) within business units and assigns capital accordingly. Within business units, assets and liabilities are match-funded utilizing similar maturity, liquidity and repricing information. Management accounting concepts are periodically refined and results may be restated to reflect methodological refinements and/or management organization changes. The results for the first quarter of 1997 reflect the integration of NatWest into Fleet's existing management reporting structure. Results by lines of business for the first quarter of 1997 and 1996 are presented below.
Selected Financial Highlights by Lines of Business - ---------------------------------------------------------------------------------------------------------------------- Financial Commercial Services and Consumer Financial Investment National Fee-Based Dollars in millions Banking Services Services Consumer Business Treasury All Other Total - ---------------------------------------------------------------------------------------------------------------------- Three months ended March 31, 1997 - ---------------------------------------------------------------------------------------------------------------------- Income Statement Data Net Interest Income (FTE) $ 555 $ 247 $ 26 $ 48 $ 5 $ 42 $(21) $ 902 Noninterest Income 141 61 106 80 106 25 7 526 Noninterest Expense 400 131 83 84 76 17 49 840 Net Income 130 73 27 25 21 29 6 311 - ---------------------------------------------------------------------------------------------------------------------- Balance Sheet Data Average Loans and Leases 16,315 31,688 1,955 1,178 143 7,413 (23) 58,669 Average Deposits 44,897 5,230 2,303 5,953 1,527 4,378 403 64,691 ROE 31% 15% 60% 61% 14% 38% NM 19% - ---------------------------------------------------------------------------------------------------------------------- Three months ended March 31, 1996 - ---------------------------------------------------------------------------------------------------------------------- Income Statement Data Net Interest Income (FTE) $ 392 $ 196 $ 25 $ 44 $ 28 $ 69 $(22) $ 732 Noninterest Income 90 46 90 56 72 22 102 478 Noninterest Expense 331 117 73 71 43 22 60 717 Net Income 63 51 22 16 35 38 39 264 - ---------------------------------------------------------------------------------------------------------------------- Balance Sheet Data Average Loans and Leases 12,469 24,359 1,407 933 67 10,142 120 49,497 Average Deposits 35,703 3,588 2,079 4,796 778 5,042 442 52,428 ROE 17% 15% 55% 56% 14% 28% NM 17% - ----------------------------------------------------------------------------------------------------------------------
Consumer Banking Consumer Banking includes Retail Banking, Small Business Banking and Direct Financial Services. Consumer Banking financial results for the first quarter of 1997 were $130 million, compared to $63 million for the same period last year. The increase in income is primarily the result of lower operating costs and the acquisition of NatWest. In addition, during 1996, Consumer Banking made significant investments in people and technology in Direct Banking, the Credit Card business, and the Insurance business. Commercial Financial Services Commercial Financial Services provides a full range of credit and banking services to its corporate, middle market, real estate and leasing customers. This group contributed $73 million of earnings in the first quarter of 1997, as compared to $51 million in the prior year quarter. The 43% increase is due principally to the acquisition of NatWest and higher revenues generated from corporate finance activities, as well as cost savings. 13 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investment Services Investment Services is comprised of Private Clients Group, Retirement Plan Services, Fleet Brokerage Securities, Retail Investment Services, Not-for-Profit Institutional Services and Fleet Investment Advisors. Investment Services earned $27 million and had an ROE of 60% in the first quarter of 1997 compared to $22 million and an ROE of 55% in the first quarter of 1996. The increase in earnings is primarily attributable to a 55% increase in mutual fund and annuity sales over the first quarter of 1996. Financial Services and National Consumer Financial Services and National Consumer is composed of Fleet's Government Banking, Global Services, Option One and Student Loan Services businesses. This group earned $25 million in the first quarter of 1997 compared to $16 million in the prior year quarter. The 56% increase in net income is primarily due to stronger loan sales at Option One, servicing a higher level of student loan accounts and the assimilation of NatWest Government Banking into the organization. Fee-Based Business Fee-Based Business is composed of Fleet Private Equity, Mortgage Banking and Home Equity USA. Fee-Based Business earned $21 million in the first quarter of 1997 compared to net income of $35 million in the first quarter of 1996. Fleet Private Equity, the corporation's venture capital finance subsidiary, earned $8 million in the first quarter as compared to $15 million earned in the prior year quarter. The decrease in earnings resulted from a $9 million decrease in venture capital revenue as the corporation did not experience the same level of appreciation when compared with the first quarter of 1996. Fleet Mortgage Group, the corporation's mortgage banking subsidiary earned $11 million in the first quarter as compared to $17 million in the prior year quarter. The decrease in earnings is due to the first quarter of 1996 including a recovery of a valuation reserve that was partially offset by higher levels of amortization relating to the investment in interest-rate contracts that are purchased to hedge the prepayment risk associated with the mortgage servicing portfolio. The $25 million increase in MSR amortization was partially offset by higher levels of loan servicing revenue and gains on sales of mortgage servicing rights, coupled with decreased operating costs. Treasury Treasury is responsible for managing the corporation's securities and residential mortgage portfolios, trading operations, asset/liability management function and wholesale funding needs. The Treasury unit earned $29 million in the first quarter as compared to $38 million in the prior year quarter. The decrease in earnings is due primarily to the reduction of investment securities and residential mortgages as part of the restructuring of the balance sheet, as well as lower levels of gains in 1997, partially offset by higher foreign exchange trading gains in the first quarter of 1997. All Other All Other includes the parent company and certain transactions not allocable to any specific business activity. In addition, the impact of methodology allocations, such as loan loss provision, credit reserve, equity and the offsets to transfer pricing are reported in this unit. All Other earned $6 million in the first quarter of 1997 compared to net income of $39 million in the first quarter of 1996. This unit's earnings include branch divestitures gains of $24 million (post-tax) in the first quarter of 1996. 14 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BALANCE SHEET ANALYSIS Total assets decreased from $85.5 billion at December 31, 1996 to $81.7 billion at March 31, 1997, due primarily to lower levels of cash and short-term investments, which were utilized to fund anticipated demand and time deposit runoff, long-term debt maturities and common share repurchases. Securities
- --------------------------------------- ---------------------------- ---------------------------- ---------------------------- March 31, 1997 December 31, 1996 March 31, 1996 -------------- ----------------- -------------- Amortized Market Amortized Market Amortized Market Dollars in millions Cost Value Cost Value Cost Value - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- Securities available for sale: US Treasury and government agencies $1,058 $1,053 $1,077 $1,083 $ 1,722 $ 1,703 Mortgage-backed securities 6,022 5,961 5,987 6,006 7,011 7,005 Other debt securities 31 31 --- --- 1 1 - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- Total debt securities 7,111 7,045 7,064 7,089 8,734 8,709 - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- Marketable equity securities 201 213 229 255 359 389 Other securities 207 207 159 159 145 145 - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- Total securities available for sale 7,519 7,465 7,452 7,503 9,238 9,243 - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- Total securities held to maturity 1,092 1,095 1,177 1,172 848 824 - --------------------------------------- ------------- -------------- ------------- -------------- ------------- -------------- Total securities $8,611 $8,560 $8,629 $8,675 $10,086 $10,067 - --------------------------------------- ------------- -------------- ------------- -------------- ------------- --------------
The amortized cost of securities available for sale remained consistent at $7.5 billion at December 31, 1996 and March 31, 1997. The valuation reserve on securities available for sale declined to an unrealized loss position of $54 million at March 31, 1997 from an unrealized gain position of $51 million at December 31, 1996, due to an overall increase in interest rates during the quarter. Loans and Leases - --------------------------- ---------- ---------- ---------- March 31, Dec. 31, March 31, Dollars in millions 1997 1996 1996 - --------------------------- ---------- ---------- ---------- Commercial and industrial $30,267 $29,278 $21,931 Lease financing 2,602 2,611 2,282 Commercial real estate: Construction 1,023 1,074 645 Interim/permanent 5,126 5,379 4,007 Residential real estate 7,921 8,048 9,370 Consumer 12,115 12,454 9,324 - --------------------------- ---------- ---------- ---------- Total loans and leases $59,054 $58,844 $47,559 - --------------------------- ---------- ---------- ---------- Total loans and leases increased $210 million from $58.8 billion at December 31, 1996 to $59.1 billion at March 31, 1997 due primarily to an increase in the commercial and industrial portfolio, partially offset by decreases in the consumer and commercial real estate portfolios. Commercial and industrial (C&I) loans increased $989 million from December 31, 1996 to March 31, 1997, due primarily to increases in corporate finance, specialized lending and national banking. Commercial real estate (CRE) loans decreased $304 million from December 31, 1996 to March 31, 1997 due to the syndication of several loans in the first quarter, coupled with expected pay-downs. Outstanding residential real estate loans secured by one- to four-family residences decreased $127 million to $7.9 billion at March 31, 1997, compared to $8.0 billion at December 31, 1996. Consumer Loans - ---------------------------- ---------- ----------- ---------- March 31, Dec. 31, March 31, Dollars in millions 1997 1996 1996 - ---------------------------- ---------- ----------- ---------- Home equity $ 4,987 $ 5,061 $4,467 Credit card 3,050 3,227 1,674 Student loans 1,301 1,255 1,226 Installment/Other 2,777 2,911 1,957 - ---------------------------- ---------- ----------- ---------- Total $12,115 $12,454 $9,324 - ---------------------------- ---------- ----------- ---------- Consumer loans of $12.1 billion at March 31, 1997 decreased $339 million when compared to a portfolio of $12.5 billion at December 31, 1996. The decrease from December 31, 1996 is principally attributed to decreased credit card loans of $177 million due to a high level of balance pay-offs. In addition, other consumer loans decreased $134 million to $2.8 billion at March 31, 1997 from $2.9 billion at December 31, 1996, due primarily to an approximately $100 million decrease in the indirect lending portfolio. On January 15, 1997, the corporation announced its intention to sell its indirect auto lending operation, a business unit with approximately $2 billion in loans, that provides new and used car financing originated by 15 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS auto dealers in New England, New York and New Jersey. Nonperforming Assets(a) - -------------------------- ------ ------- ---------- ------- Dollars in millions C&I CRE Consumer Total - -------------------------- ------ ------- ---------- ------- Nonperforming loans and leases: Current or less than 90 days past due $187 $ 58 $ 12 $257 Noncurrent 156 99 162 417 OREO 1 7 22 30 - -------------------------- ------ ------- ---------- ------- Total NPAs March 31, 1997 $344 $164 $196 $704 - -------------------------- ------ ------- ---------- ------- Total NPAs December 31, 1996 $351 $166 $206 $723 - -------------------------- ------ ------- ---------- ------- Total NPAs March 31, 1996 $267 $126 $160 $553 - -------------------------- ------ ------- ---------- ------- (a) Throughout this document, NPAs and related ratios do not include loans greater than 90 days past due and still accruing interest ($226 million, $247 million and $180 million at March 31, 1997, December 31, 1996, and March 31, 1996, respectively). Included in the 90 days past due and still accruing interest were $186 million, $192 million and $132 million of consumer loans at March 31, 1997, December 31, 1996 and March 31, 1996, respectively. Nonperforming assets (NPAs) decreased $19 million from December 31, 1996 to $704 million at March 31, 1997. NPAs at March 31, 1997, as a percentage of total loans, leases and OREO, and as a percentage of total assets were 1.19% and .86%, respectively, compared to 1.23% and .85%, respectively, at December 31, 1996. The relative improvement was due primarily to declining levels of nonperforming assets in the C&I and consumer portfolios. NPAs may increase during 1997 as the region in which Fleet operates has experienced slower growth than the nation as a whole, and this trend is expected to continue. Activity in Nonperforming Assets - ------------------------------------------------------------ 1st Qtr. 4th Qtr. 1st Qtr. Dollars in millions 1997 1996 1996 - ------------------------------------------------------------ Balance at beginning of $723 $759 $499 period Additions 172 280 221 Reductions: Payments/interest applied (98 ) (110 ) (88 ) Returned to accrual (15 ) (12 ) (17 ) Charge-offs/writedowns (53 ) (71 ) (37 ) Sales/other (25 ) (26 ) (25 ) NPAs reclassified as held for accelerated --- (97 ) --- disposition - ------------------------------------------------------------ Total reductions (191 ) (316 ) (167 ) - ------------------------------------------------------------ Balance at end of period $704 $723 $553 - ------------------------------------------------------------ The $280 million of additions to nonperforming assets in the fourth quarter of 1996 primarily relate to the extensive review of the acquired NatWest portfolio. Nonperforming assets and related ratios do not include NPAs classified as held for sale or accelerated disposition as disclosed by loan category in the following table. Nonperforming Assets Held for Sale or Accelerated Disposition - ------------------- ---------- ---------- ---------- -------- Dollars in millions C&I CRE Consumer Total - ------------------- ---------- ---------- ---------- -------- Nonaccrual loans and leases $ 82 $141 $ 16 $239 OREO 5 1 8 14 - ------------------- ---------- ---------- ---------- -------- March 31, 1997 $ 87 $142 $ 24 $253 - ------------------- ---------- ---------- ---------- -------- December 31, 1996 $ 93 $147 $ 25 $265 - ------------------- ---------- ---------- ---------- -------- March 31, 1996 $ 46 $ 63 $198 $307 - ------------------- ---------- ---------- ---------- -------- Reserve for Credit Loss Activity - --------------------------------------------------------------- Three months ended March 31 Dollars in millions 1997 1996 - --------------------------------------------------------------- Balance at beginning of year $1,488 $1,321 Provision charged against income 65 35 Loans and leases charged off (127 ) (83 ) Recoveries of loans and leases charged off 37 23 - --------------------------------------------------------------- Net charge-offs (90 ) (60 ) Other (1 ) (9 ) - --------------------------------------------------------------- Balance at end of period $1,462 $1,287 - --------------------------------------------------------------- Ratios of net charge-offs to average loans and leases 0.61 % 0.49 % - --------------------------------------------------------------- Ratios of reserve for credit losses to period-end loans and leases 2.48 % 2.71 % - --------------------------------------------------------------- Ratio of reserve for credit losses to period-end NPAs 208 % 233 % - --------------------------------------------------------------- Ratio of reserve for credit losses to period-end non- performing loans and leases 217 % 258 % - --------------------------------------------------------------- Fleet's reserve for credit losses increased from $1,287 million at March 31, 1996, to $1,462 million at March 31, 1997, which included reserves related to NatWest. The first quarter 1997 provision for credit losses was $65 million, $30 million higher than the prior year's first quarter. The increase is due to $27 million of provision for credit losses related to the NatWest franchise and higher provision being recorded primarily as a result of increased net charge-offs in the credit card portfolio. The provision for credit losses is expected to increase in 1997 as the gap between the provision for credit losses and charge-offs is expected to narrow. 16 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net Charge-Offs - ------------------------------------------- -------- -------- Three months ended March 31 Dollars in millions 1997 1996 - ------------------------------------------- -------- -------- Commercial and industrial $ 8 $13 Commercial real estate 9 11 Credit card 44 18 Residential 7 6 Other consumer 22 12 - ------------------------------------------- -------- -------- Total $90 $60 - ------------------------------------------- -------- -------- Net charge-offs were $90 million in the first quarter of 1997 compared to $60 million in the first quarter of 1996 as a result of the addition of the NatWest franchise, coupled with increasing charge-offs in the credit card portfolio. Net charge-offs from the credit card portfolio increased from $18 million in the first quarter of 1996 to $44 million in the first quarter of 1997 as the average portfolio grew from $1.6 billion to $3.2 billion over the same periods. The corporation expects credit card delinquencies and net charge-offs to increase slightly above current levels. Funding Sources - ---------------------------- ---------- --------- ----------- March 31, Dec. 31, March 31, Dollars in millions 1997 1996 1996 - ---------------------------- ---------- --------- ----------- Deposits: Demand $16,089 $17,903 $10,485 Regular savings, NOW, money market 27,738 27,976 21,783 Time: Domestic 17,545 18,583 16,163 Foreign 2,767 2,609 1,690 - ---------------------------- ---------- --------- ----------- Total deposits 64,139 67,071 50,121 - ---------------------------- ---------- --------- ----------- Short-term borrowed funds: Federal funds purchased $ 588 $ 488 $ 552 Securities sold under agreements to repurchase 2,176 2,382 3,258 Commercial paper 660 676 1,399 Other 155 81 1,964 - ---------------------------- ---------- --------- ----------- Total short-term borrowed funds 3,579 3,627 7,173 - ---------------------------- ---------- --------- ----------- - ---------------------------- ---------- --------- ----------- Long-term debt 4,617 5,114 6,000 - ---------------------------- ---------- --------- ----------- Total $72,335 $75,812 $63,294 - ---------------------------- ---------- --------- ----------- Total deposits decreased $2.9 billion to $64.1 billion at March 31, 1997, when compared to December 31, 1996, due primarily to deposit runoff. Demand deposits decreased $1.8 billion primarily due to seasonal increases in year-end balances for quarterly and annual service charges, tax payments and higher balances related to corporate customer accounts. Time deposits decreased $880 million due to decreases in retail certificates of deposit and individual retirement accounts. Long-term debt decreased $497 million to $4.6 billion at March 31, 1997, when compared to December 31, 1996, due to $573 million in scheduled maturities, partially offset by $84 million of trust preferred securities issued in exchange for Series V preferred stock. ASSET-LIABILITY MANAGEMENT The goal of asset-liability management is to ensure that liquidity, capital and market risk are prudently managed. Asset-liability management is governed by policies reviewed and approved annually by the corporation's Board of Directors (Board). The Board delegates responsibility for asset-liability management to the corporate Asset-Liability Management Committee (ALCO). ALCO sets strategic directives that guide the day-to-day asset-liability management activities of the corporation. ALCO also reviews and approves all major funding, capital and market risk-management programs. Interest-Rate Risk Interest-rate risk is the sensitivity of income to variations in interest rates over both short-term and long-term time horizons. The primary goal of interest-rate risk management is to control this risk within limits approved by the Board and narrower guidelines approved by ALCO. These limits and guidelines reflect the corporation's tolerance for interest-rate risk. The corporation attempts to control interest-rate risk by identifying exposures, quantifying and hedging them. The corporation quantifies its interest-rate risk exposures using sophisticated simulation and valuation models, as well as simpler gap analyses. The corporation manages its interest-rate exposures using a combination of on- and off-balance sheet instruments, primarily fixed-rate portfolio securities, interest-rate swaps and options. The corporation's limits on interest-rate risk specify that if interest rates were to shift immediately up or down 200 basis points, estimated net interest income for the next 12 months should decline by less than 7.5%. The following table reflects the corporation's estimated exposure, as a percentage of estimated net interest income for the next 12 months, assuming an immediate shift in interest rates: 17 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------ --- ------------------------------ Rate Change Estimated Exposure as a % of (Basis Points) Net Interest Income - ------------------ --- ------------------------------ +200 0.8% -200 (1.6) - ------------------ --- ------------------------------ The corporation uses valuation analysis to provide insight into the exposure of earnings and equity to changes in interest rates over a relatively long (i.e., >2 year) time horizon. Valuation analysis involves projecting future cash flows from the corporation's assets, liabilities and off-balance sheet positions and then discounting such cash flows at appropriate interest rates. The corporation's economic value of equity is the estimated net present value of its assets, liabilities and off-balance sheet positions. The interest sensitivity of economic value of equity is a measure of the sensitivity of long-term earnings. The corporation's limits on interest-rate risk specify that if interest rates were to shift immediately up or down 200 basis points, the estimated economic value of equity should decline by less than 10%. The following table reflects the corporation's estimated exposure as a percentage of estimated economic value of equity assuming an immediate shift in interest rates: - ------------------ --- ------------------------------ Rate Change Estimated Exposure as a (Basis Points) % of Economic Value - ------------------ --- ------------------------------ +200 (2.0)% -200 (3.9) - ------------------ --- ------------------------------ Interest-rate gap analysis provides a static view of the maturity and repricing characteristics of the on- and off-balance sheet positions. The interest-rate gap analysis is prepared by scheduling all assets, liabilities and off-balance sheet positions according to scheduled repricing or maturity. Interest-rate gap analysis can be viewed as a short-hand complement to simulation and valuation analysis. The corporation's limits on interest-rate risk specify that the cumulative one-year gap should be less than 10% of total assets. As of March 31, 1997, the estimated exposure was 0.7% asset-sensitive (see the following table): Interest-Rate Gap Analysis
- ------------------------------------------------------------------------------------------------------------------------ Repriced Within - ------------------------------------------------------------------------------------------------------------------------ March 31, 1997 3 months 4 to 12 12 to 24 2 to 5 After 5 Dollars in millions by repricing date or less months months years years Total - ------------------------------------------------------------------------------------------------------------------------ Total assets $45,547 $ 8,527 $5,409 $8,996 $13,213 $81,692 Total liabilities and stockholders' equity (30,057 ) (14,924 ) (8,280 ) (7,754 ) (20,677 ) (81,692 ) Net off-balance sheet (9,870 ) 1,374 4,325 3,506 665 --- - ------------------------------------------------------------------------------------------------------------------------ Periodic gap 5,620 (5,023 ) 1,454 4,748 (6,799 ) Cumulative gap 5,620 597 2,051 6,799 --- Cumulative gap as a percent of total assets at March 31, 1997 6.9 % 0.7 % 2.5 % 8.3 % - ------------------------------------------------------------------------------------------------------------------------ Cumulative gap as a percent of total assets at December 31, 1996 1.8 % 2.4 % 0.7 % 9.1 % - ------------------------------------------------------------------------------------------------------------------------
The most significant factors affecting the interest-rate risk position in the first quarter were the planned reduction in time deposit balances and the aging of the interest-rate swap and securities portfolio. In its management of these and other factors influencing the current environment, the corporation has attempted to maintain a moderately asset sensitive position. 18 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risk-Management Instrument Analysis - --------------------------------------------------------------------------------------------------------------------------- Weighted Assets/ Average Weighted Average March 31, 1997 Notional Liabilities Maturity Fair Rate Dollars in millions Value Hedged (Years) Value Receive Pay - --------------------------------------------------------------------------------------------------------------------------- Interest-rate swaps: Receive fixed/pay variable $ 8,015 Variable rate loans 895 Fixed rate deposits 850 Escrow deposits 765 Long-term debt 375 Short-term borrowings ---------- 10,900 2.4 $(129 ) 6.94 % 6.64 % - --------------------------------------------------------------------------------------------------------------------------- Basis swaps 2,729 Deposits 299 Securities 30 Long-term debt ---------- 3,058 2.0 --- 5.62 5.52 - --------------------------------------------------------------------------------------------------------------------------- Interest-rate floors-purchased $21,431 Mortgage servicing rights 4.0 3 --- (a) --- (a) Interest-rate caps-purchased 4,309 Mortgage servicing rights 3.6 53 --- (a) --- (a) Interest-rate caps-sold 4,309 Mortgage servicing rights 3.6 (142 ) --- (a) --- (a) Call options-purchased 1,235 Mortgage servicing rights 0.3 1 --- --- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Total risk-management instruments $45,242 3.3 $(214 ) 6.65 % 6.39 % - ---------------------------------------------------------------------------------------------------------------------------
(a) The mortgage-banking risk-management interest-rate floors-purchased, caps-purchased and caps-sold have weighted average strike rates of 5.27%, 7.69%, and 6.41%, respectively. Fleet uses derivative instruments primarily to manage interest-rate risk associated with interest-earning assets and interest-bearing liabilities, as well as prepayment risk associated with the corporation's mortgage servicing portfolio, within management guidelines designed to limit risk to the corporation's earnings. At March 31, 1997, derivative instruments totaling $45.2 billion (notional amount) were being used for interest-rate and mortgage-banking risk-management purposes. At March 31, 1997, the corporation had net deferred income of $24.9 million relating to terminated interest-rate swaps, which is being amortized over the remaining life of the underlying interest-rate contracts of approximately 2.5 years. Risk-management instruments are also used to protect the value of the corporation's mortgage banking assets, particularly MSRs, which are a very interest-rate sensitive asset due to the mortgage borrower's option to prepay the mortgage loan. To mitigate the prepayment risk of declining long-term interest rates, higher than expected mortgage prepayments, and a potential impairment to MSRs, the corporation uses combinations of purchased interest-rate floors together with purchased and sold interest-rate caps with strike rates tied to yields on the 3-, 5- and 10-year "constant maturity" Treasury notes. Combination of these instruments result in a net purchased option position. At March 31, 1997, the corporation had approximately $21.4 billion of purchased interest-rate floor agreements outstanding in combination with $4.3 billion of purchased and sold interest-rate cap agreements. The corporation also buys and sells call option contracts on long-term U.S. Treasury securities. These instruments when combined are structured such that they gain value as interest rates decline, mitigating the impairment of MSRs. These risk-management instruments are designated as hedges. Changes in the value are recorded as adjustments to the carrying value of the MSRs. At March 31, 1997, net hedge losses of $128 million have been deferred and recorded as adjustments to the carrying value of MSRs. Deferred hedge losses include $41 million of realized hedge losses related to the termination of certain risk management instruments during the first quarter of 1997. Amounts paid for interest-rate contracts are amortized over the life of the contracts and are included as a component of MSR amortization. At March 31, 1997, the carrying value and fair value of the corporation's MSRs were $1.9 billion and $2.0 billion, respectively. 19 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Risk-Management Instrument Activity The risk-management instrument activity for the three months ended March 31, 1997 is summarized in the following table (all amounts are notional amounts):
Risk-Management Instrument Activity - ------------------------------------------------------------------------------------------------------------------------------- Interest-Rate Swaps Interest-Rate Options ------------------------------------- ----------------------------------------------------- Call Call Receive- Pay- Index- Floors Caps Caps Options Options Dollars in millions Fixed Fixed Basis Amortizing Other Purchased Purchased Sold Purchased Sold Total - ---------------------------------------------------------------------------------------------------------------------------------- Notional amounts: Balance at December 31, 1996 $11,055 $ 4 $3,823 $ 11 $112 $15,911 $2,515 $2,515 $1,276 $225 $37,447 Additions 125 --- --- --- --- 5,520 2,441 2,441 1,235 --- 11,762 Maturities (280 ) --- --- (11 ) (112 ) --- --- --- --- --- (403 ) Terminations --- (4 ) (765 ) --- --- --- (647 ) (647 ) (1,276 ) (225 ) (3,564 ) - ------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 $10,900 $ --- $3,058 $ --- $--- $21,431 $4,309 $4,309 $1,235 $--- $45,242 - -------------------------------------------------------------------------------------------------------------------------------
During the first quarter of 1997, there was a net increase of approximately $7.8 billion of risk-management instruments as the corporation expanded its hedge program for mortgage servicing rights. The maturities of the risk-management instruments are shown in the following table:
Maturities of the Risk-Management Instruments - --------------------------------------------------------------------------------------------------------------------- March 31, 1997 Dollars in millions Within 1 1 to 2 2 to 3 3 to 4 4 to 5 After 5 Total Year Years Years Years Years Years - --------------------------------------------------------------------------------------------------------------------- Notional amounts: Interest rate swaps Receive-fixed $2,404 $4,325 $1,607 $ 624 $ 1,225 $ 715 $10,900 Basis 329 1,529 1,200 --- --- --- 3,058 Interest-rate --- --- 2,886 7,985 10,060 500 21,431 floors-purchased Interest-rate --- --- 905 2,736 668 --- 4,309 caps-purchased Interest-rate caps-sold --- --- 905 2,736 668 --- 4,309 Call options-purchased 1,235 --- --- --- --- --- 1,235 - --------------------------------------------------------------------------------------------------------------------- Total risk-management instruments $3,968 $5,854 $7,503 $14,081 $12,621 $1,215 $45,242 - ---------------------------------------------------------------------------------------------------------------------
Liquidity Risk Liquidity risk-management's objective is to assure the ability of the corporation and its subsidiaries to meet their financial obligations. These obligations are the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, the ability to fund new and existing loan commitments and to take advantage of business opportunities. Liquidity is composed of the maintenance of a strong base of core customer funds, maturing short-term assets, the ability to sell marketable securities, committed lines of credit and access to capital markets. Increasingly, liquidity is enhanced through the securitization of consumer asset receivables. Liquidity at Fleet is measured and monitored daily, allowing management to better understand and react to balance sheet trends. ALCO is responsible for implementing the Board's policies and guidelines governing liquidity. The strength of Fleet's liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources in the national and international capital markets as well as from direct customer contacts. Wholesale funding sources include large certificates of deposit, foreign branch deposits, federal funds, collateralized borrowings and a $4 billion bank-note program. At March 31, 1997 and December 31, 1996, the corporation had commercial paper outstanding of $660 million and $676 million, respectively. The corporation has backup lines of credit to ensure that funding is not interrupted if commercial paper is not available. The total amount of funds available under these agreements was $1.0 billion at March 31, 1997, with no outstanding balance under these lines of credit. Fleet has shelf registration statements that 20 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS provide for the issuance of common and preferred stock, senior or subordinated debt securities and other securities with total amount of funds available of approximately $963.4 million at March 31, 1997. CAPITAL - ------------------------------------------------------------- March 31, Dec, 31, March 31, Dollars in millions 1997 1996 1996 - ------------------------------------------------------------- Risk-adjusted assets $77,970 $78,571 $63,591 Tier 1 risk-based capital (4% minimum) 7.54% 7.67 % 9.18 % Total risk-based capital (8% minimum) 11.26 11.36 13.03 Leverage ratio (4% minimum) 7.22 7.14 7.88 Common equity-to-assets 7.62 7.56 8.35 Total equity-to-assets 8.69 8.67 9.49 Tangible common equity-to-assets 5.70 5.68 6.96 Tangible total equity-to-assets 6.79 6.82 8.12 - ------------------------------------------------------------- At March 31, 1997, the corporation exceeded all regulatory required minimum capital ratios as Fleet's preliminary Tier 1 and Total risk based capital ratios were 7.54 percent and 11.26 percent, respectively, compared with 7.67 percent and 11.36 percent, respectively, at December 31, 1996. The leverage ratio, a measure of Tier 1 capital to average quarterly assets, was 7.22 percent at March 31, 1997, compared with 7.14 percent at December 31, 1996. The corporation's ratios decreased slightly when compared to December 31, 1996 due to the repurchase of 6.9 million common shares during the first quarter of 1997 at an average cost of $54.67 per share. These shares were repurchased as part of the corporation's capital management program as announced in January 1997. RECENT ACCOUNTING DEVELOPMENTS In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which will be effective for financial statements for both interim and annual periods ending December 31, 1997. Primary EPS will be replaced with basic EPS and fully diluted EPS will be replaced with diluted EPS. Primary EPS includes the dilutive effect of common stock equivalents; basic EPS will exclude all common stock equivalents. Diluted EPS is very similar to fully diluted EPS. The statement also requires a reconciliation of basic EPS to diluted EPS. For the quarter ended March 31, 1997, basic and diluted EPS, as calculated under the new statement, are $1.14 and $1.10, respectively, as compared to the reported EPS of $1.10 for both fully diluted and primary earnings per share. Also in February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure," which will be effective for 1997 financial statements. The corporation's disclosures currently comply with the provisions of this statement. CAUTIONARY STATEMENT This Quarterly Report on Form 10-Q contains statements relating to future results of the corporation (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in political and economic conditions, interest rate fluctuations, competitive product and pricing pressures within the corporation's market, equity and bond market fluctuations, personal and corporate customers' bankruptcies, inflation, acquisitions and integrations of acquired businesses, as well as other risks and uncertainties detailed from time to time in the filings of the corporation with the Securities and Exchange Commission. PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The corporation held its Annual Meeting of Stockholders on April 16, 1997. (b) Not applicable. (c) A brief description of each matter voted upon at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each such matter, follows. A separate tabulation with respect to each nominee for office is also included. Two matters were voted on at the Annual Meeting. 1. ELECTION OF DIRECTORS All six nominees for election as directors were elected. There were no abstentions or broker non-votes for any of the nominees. NAME OF DIRECTOR FOR AGAINST TERM EXPIRATION --------------- --- ------- --------------- William Barnet, III 214,247,483 3,122,232 2000 John T. Collins 214,255,830 3,113,885 2000 Raymond C. Kennedy 214,221,594 3,148,121 2000 Robert J. Matura 214,229,063 3,140,652 2000 Terrence Murray 214,129,617 3,240,098 2000 Samuel O. Thier 214,093,193 3,276,522 2000 The following directors will continue in office and were not up for re-election. Joel B. Alvord 1998 Bradford R. Boss 1998 Stillman B. Brown 1998 James F. Hardyman 1998 Arthur C. Milot 1998 Lois D. Rice 1998 John R. Riedman 1998 Paul J. Choquette, Jr. 1999 Bernard M. Fox 1999 Robert J. Kavner 1999 Thomas D. O'Connor 1999 Michael B. Picotte 1999 Paul R. Tregurtha 1999 22 2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS The second proposal voted on by stockholders of the corporation, to approve the appointment of KPMG Peat Marwick LLP to serve as independent auditors of the corporation for the current fiscal year ended December 31, 1997, was approved with 215,996,739 votes cast for, 862,002 votes cast against, and 510,974 abstentions. There were no broker non-votes. (d) Not applicable 23 PART II. ITEM 6. (a) Exhibit Index Page of Exhibit this Number Report - ------ -------- 4 Instruments defining the right of security holders, including debentures * 11 Statement re-computation of per share earnings 12 Statement re-computation of ratios 27 Financial data schedule * Registrant has no instruments defining the rights of holders of equity or debt securities where the amount of securities authorized thereunder exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. Registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request. (b) Four Form 8-K's were filed during the period from January 1, 1997 to the date of the filing of this report. - Current Report on Form 8-K dated January 15, 1997 announcing fourth quarter earnings and the sale of Option One, the indirect lending portfolio and corporate trust business, as well as the common stock repurchase plan. - Current Report on Form 8-K dated February 12, 1997 reporting the exchange of 3.4 million shares of Series V 7.25% Perpetual Preferred Stock for 3.4 million shares of 8.00% Trust Originated Preferred Securities on February 4, 1997. - Current Report on Form 8-K dated March 28, 1997 filing the Unaudited Pro Forma Combined Financial Statements as of December 31, 1996, and Notes thereto, in connection with the NatWest Merger. - Current Report on Form 8-K dated April 16, 1997 announcing first quarter earnings. 24 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEET FINANCIAL GROUP, INC. --------------------------- (Registrant) /S/ EUGENE M. MCQUADE ----------------------- Eugene M. McQuade Vice Chairman Chief Financial Officer /S/ ROBERT C. LAMB, JR. ------------------------ Robert C. Lamb, Jr. Controller Chief Accounting Officer DATE: May 14, 1997 25 EX-11 2 STATEMENT RE-COMPUTATION EXHIBIT 11 FLEET FINANCIAL GROUP, INC. COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS ($ IN THOUSANDS, EXCEPT PER SHARE DATA) For the Three Months Ended March 31 ------------------------------------------------------ 1997 1996 ------------------------------------------------------ FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED ------------------------------------------------------ Equivalent shares: Average shares outstanding 258,555,022 258,555,022 262,525,888 262,525,888 Additional shares due to: Stock options 3,785,675 3,853,161 2,163,012 2,178,472 Warrants 5,043,537 5,071,231 3,663,854 3,671,654 ------------------------------------------------------ Total equivalent shares 267,384,234 267,479,414 268,352,754 268,376,014 ------------------------------------------------------ ------------------------------------------------------ Earnings per share Net income $ 310,691 $ 310,691 $263,802 $ 263,802 Less: Preferred stock dividends (17,024) (17,024) (12,538) (12,538) ------------------------------------------------------ ------------------------------------------------------ Adjusted net income $ 293,667 $ 293,667 $251,264 $ 251,264 ------------------------------------------------------ ------------------------------------------------------ Total equivalent shares 267,384,234 267,479,414 268,352,754 268,376,014 ------------------------------------------------------ ------------------------------------------------------ Earnings per share on net income $ 1.10 $ 1.10 $ 0.94 $ 0.94 ------------------------------------------------------ ------------------------------------------------------ 26 EX-12 3 STATEMENT OF RATIOS EXHIBIT 12
FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS (THOUSANDS) Three months ended March 31 Year ended December 31 - --------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes, extraordinary credit and cumulative effect of change in method of accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197 (b) Preferred dividends 28,133 117,676 62,064 48,859 60,365 65,658 - --------------------------------------------------------------------------------------------------------------------------------- (c) Adjusted earnings $ 682,821 $2,785,594 $2,424,339 $2,469,490 $1,958,829 $1,370,654 - --------------------------------------------------------------------------------------------------------------------------------- Fixed charges and preferred dividends $ 169,384 854,996 $1,390,583 $1,089,851 $ 864,373 $ 753,285 - --------------------------------------------------------------------------------------------------------------------------------- Adjusted earnings/fixed charges 4.03x 3.26x 1.74x 2.27x 2.27x 1.82x - ---------------------------------------------------------------------------------------------------------------------------------
INCLUDING INTEREST ON DEPOSITS Three months ended March 31 Year ended December 31 - --------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes, extra- ordinary credit and cumulative effect of change in method of accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197 (3) Interest on deposits 416,263 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804 (b) Preferred dividends 28,133 117,676 62,064 48,859 60,365 65,658 - --------------------------------------------------------------------------------------------------------------------------------- (c) Adjusted earnings $1,099,084 $4,539,317 $4,150,742 $3,640,022 $3,123,875 $3,069,458 - --------------------------------------------------------------------------------------------------------------------------------- Fixed charges and preferred dividends $ 585,647 $2,608,719 $3,116,986 $2,260,383 $2,029,419 $2,452,089 - --------------------------------------------------------------------------------------------------------------------------------- Adjusted earnings/fixed charges 1.88x 1.74x 1.33x 1.61x 1.54x 1.25x - --------------------------------------------------------------------------------------------------------------------------------- 27
EXHIBIT 12 FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS (THOUSANDS) Three months ended March 31 Year ended December 31 - --------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes, extraordinary credit and cumulative effect of change in method of accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197 - --------------------------------------------------------------------------------------------------------------------------------- (b) Adjusted earnings $ 654,688 $2,667,918 $2,362,275 $2,420,631 $1,898,464 $1,304,996 - --------------------------------------------------------------------------------------------------------------------------------- Fixed charges $ 141,251 $ 737,320 $1,328,519 $1,040,992 $ 804,008 $ 687,627 - --------------------------------------------------------------------------------------------------------------------------------- Adjusted earnings/fixed charges 4.63x 3.62x 1.78x 2.33x 2.36x 1.90x - ---------------------------------------------------------------------------------------------------------------------------------
INCLUDING INTEREST ON DEPOSITS Three months ended March 31 Year ended December 31 - --------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes, extraordinary credit and cumulative effect of change in method of accounting $ 513,437 $1,930,598 $1,033,756 $1,379,639 $1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 128,436 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent 12,815 52,264 49,921 50,597 52,254 49,197 (3) Interest on deposits 416,263 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804 - --------------------------------------------------------------------------------------------------------------------------------- (b) Adjusted earnings $1,070,951 $4,421,641 $4,088,678 $3,591,163 $3,063,510 $3,003,800 - --------------------------------------------------------------------------------------------------------------------------------- Fixed charges $ 557,514 $2,491,043 $3,054,922 $2,211,524 $1,969,054 $2,386,431 - --------------------------------------------------------------------------------------------------------------------------------- Adjusted earnings/fixed charges 1.92x 1.78x 1.34x 1.62x 1.56x 1.26x - ---------------------------------------------------------------------------------------------------------------------------------
28 EX-27 4 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the March 31, 1997 consolidated financial statements and management's discussion and analysis of financial condition and results of operations contained in the Form 10-Q and is qualified in its entirety by reference to such financial statements. 3-MOS 3-MOS DEC-31-1997 DEC-31-1996 MAR-31-1997 MAR-31-1996 4,894 3,287 153 18 262 1,808 120 98 7,465 9,243 1,092 848 1,095 824 59,054 47,559 1,462 1,287 81,692 72,123 64,139 50,121 3,579 7,173 2,260 1,985 4,617 6,000 0 0 869 824 3,140 3,125 3,088 2,895 81,692 72,123 1,287 1,144 150 193 0 0 1,437 1,337 416 402 544 613 893 724 65 35 13 18 840 717 514 450 514 450 0 0 0 0 311 264 1.10 .94 1.10 .94 5.16 4.43 674 499 226 180 2 0 0 0 1,488 1,321 127 83 37 23 1,462 1,287 1,462 1,287 0 0 220 235
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