-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sDr7aSU8Z54mt6EJSmx+ascqiZ5oPxwFMETDdYbPkdWUcwa6sgA1h9pK1eB0qTev VWQfeO4ASdGhcTYHetU1Bw== 0000950135-94-000215.txt : 19940331 0000950135-94-000215.hdr.sgml : 19940331 ACCESSION NUMBER: 0000950135-94-000215 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEET FINANCIAL GROUP INC /RI/ CENTRAL INDEX KEY: 0000050341 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 050341324 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 002-38867 FILM NUMBER: 94518976 BUSINESS ADDRESS: STREET 1: 50 KENNEDY PLZ CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4012786000 MAIL ADDRESS: STREET 1: 111 WESTMINISTER STREET CITY: PROVIDENCE STATE: RI ZIP: 02903 FORMER COMPANY: FORMER CONFORMED NAME: FLEET NORSTAR FINANCIAL GROUP INC DATE OF NAME CHANGE: 19920525 FORMER COMPANY: FORMER CONFORMED NAME: FLEET FINANCIAL GROUP INC DATE OF NAME CHANGE: 19880110 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL NATIONAL CORP DATE OF NAME CHANGE: 19820512 10-K 1 FLEET FINANCIAL GROUP FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 - 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 (I.R.S. Employer Identification No.) incorporation or organization) 50 Kennedy Plaza Providence, Rhode Island 02903 (Address of principal executive office) (Zip Code)
(401) 278-5800 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock, $1 Par Value New York Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends, $1 Par Value New York Stock Exchange Preferred Stock with Cumulative and Adjustable Dividends, $20 Par Value New York Stock Exchange Depositary Shares representing a one-fourth interest in a share of Series III, 10.12% Perpetual Preferred stock, $1 Par Value New York Stock Exchange Depositary Shares representing a one-fourth interest in a share of Series IV, 9.375% Perpetual Preferred Stock, $1 Par Value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 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, and (2) has been subject to such filing requirements for the past 90 days: YES XX NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value on March 3, 1994 of the voting stock held by nonaffiliates of the Registrant was $4.5 billion, which includes $274 million held by banking subsidiaries of the Registrant under trust agreements and other instruments. The number of shares of common stock of the Registrant outstanding as of March 3,1994 was 137,559,732. DOCUMENTS INCORPORATED BY REFERENCE 1. Pertinent extracts from Registrant's accompanying 1993 Annual Report to Shareholders (Parts I and II). 2. Pertinent extracts from Registrant's Proxy Statement for its annual meeting on April 20, 1994, previously filed with the Commission. Such incorpor- ation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402 (a)(8) of Regulation S-K. 2 FORM 10-K FLEET FINANCIAL GROUP, INC. For the Year Ended December 31, 1993 Table of Contents
Description Page Number Part I. Item 1 - Business 3 Item 2 - Properties 10 Item 3 - Legal Proceedings 10 Item 4 - Submission of Matters to a Vote of Security-Holders 10 Part II. Item 5 - Market for the Registrant's Common Stock and Related Stockholder Matters 10 Item 6 - Selected Financial Data 10 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 8 - Financial Statements and Supplementary Data 11 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 Part III. Item 10 - Directors and Executive Officers of the Registrant 11 Item 11 - Executive Compensation 13 Item 12 - Security Ownership of Certain Beneficial Owners and Management 13 Item 13 - Certain Relationships and Related Transactions 13 Part IV. Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 13 Signatures 16
-2- 3 PART I. Item 1. BUSINESS Fleet Financial Group, Inc. (the "Registrant", "Corporation" or"Fleet") is a diversified financial services company organized under the laws of the State of Rhode Island. Fleet is a legal entity separate and distinct from its subsidiaries, assisting such subsidiaries by providing financial resources and management. By most measures, Fleet is among the 15 largest bank holding companies in the United States, with total assets of $47.9 billion at December 31, 1993. Fleet has approximately 26,000 employees. Fleet reported net income for 1993 of $488 million, or $3.01 per share. This compared to net income of $280 million, or $1.77 per share in 1992. For a more detailed discussion of the Corporation's financial results, refer to "Management's Discussion and Analysis" (pages 9-23) of the accompanying 1993 Annual Report to Shareholders which is hereby incorporated by reference. Banking Subsidiaries Fleet is engaged in a general commercial banking and trust business throughout the states of Rhode Island, New York, Connecticut, Massachusetts, Maine and New Hampshire through its banking subsidiaries, Fleet Bank of New York ("Fleet-Upstate"); Fleet Bank ("Fleet-Long Island"); Fleet National Bank ("Fleet-RI"); Fleet Bank, National Association ("Fleet-CT"); Fleet Bank of Massachusetts, National Association ("Fleet-MA"); Fleet Bank of Maine ("Fleet-Maine") and Fleet Bank-NH ("Fleet-NH"). All of the subsidiary banks are members of the Federal Reserve System, and the deposits of each are insured by the FDIC to the extent provided by law. The following table shows the total offices, assets, deposits and equity capital of Fleet's banking subsidiaries at December 31, 1993:
Equity ($ in millions) Offices Assets Deposits Capital - --------------------------------------------------------------------------------- Fleet-Upstate 258 $ 9,651 $ 7,567 $ 827 Fleet-CT 149 8,021 6,049 558 Fleet-MA 177 7,726 6,125 578 Fleet-RI 52 6,652 5,604 630 Fleet-Maine 106 2,895 2,164 225 Fleet-Long Island 72 2,795 2,263 173 Fleet-NH 39 1,776 1,313 123 - --------------------------------------------------------------------------------- 853 $39,516 $31,085 $3,114 - ---------------------------------------------------------------------------------
Nonbanking Subsidiaries Fleet provides, through its nonbanking subsidiaries, a variety of financial services, including mortgage banking, asset-based lending, equipment leasing, consumer finance, real estate financing, credit related life and accident/health insurance, securities brokerage services, investment banking, investment advice and management, data processing, and student loan servicing. The following is a summary of these subsidiaries by line of business: -3- 4 Item 1. BUSINESS - (continued) Mortgage Banking Fleet Mortgage Group, Inc. ("FMG") is a Rhode Island corporation. FMG's mortgage banking business consists primarily of the origination, purchase, sale and servicing of residential first mortgage loans, and the purchase and sale of servicing rights associated with mortgage loans. In 1992, the Corporation sold a 19% interest in FMG, in a public offering of FMG's common stock. FMG currently ranks as the second largest mortgage servicer in the nation. It produces mortgage loans through its 91 retail branch offices located in 37 states and acquires mortgage loans through correspondent lenders, which originate mortgage loans pursuant to guidelines provided by FMG. FMG services a portfolio of approximately $70 billion in mortgage loans. Asset-Based Lending Fleet Credit Corporation ("Fleet Credit") engages primarily in middle market equipment leasing. Fleet Credit had total assets of $1.4 billion as of December 31, 1993, making it one of the largest bank-affiliated commercial finance leasing firms in the U.S. Fleet Credit operates 23 offices in 14 states. Fleet Factors Corporation ("Fleet Factors") is based in New York City, and engages in factoring and commercial finance for various industries, principally textiles, but also including hard goods and electronics. Fleet Factors had total assets of approximately $350 million at December 31, 1993. All of the outstanding common stock of Fleet Factors was sold on February 14, 1994. Consumer Finance Fleet Finance, Inc. ("Fleet Finance") located in Atlanta, Georgia, engages primarily in consumer lending and home equity lending operations through 130 offices in 22 states and underwrites credit life, accident and health insurance. Fleet Finance services a portfolio of approximately $2.3 billion in loans, primarily secured by residential real estate. (Information set forth in Note 16. Commitments, Contingencies, and Other Disclosures (page 47) of the accompanying 1993 Annual Report to Shareholders, which is hereby incorporated by reference, provides a description of certain litigation involving Fleet Finance, Inc.) Securities Brokerage Fleet Securities, Inc. is a full-service municipal securities underwriter and dealer providing services throughout New York and New England. Fleet Brokerage Securities, Inc., is engaged in providing securities brokerage services (including clearing services), related securities credit extension, and other incidental activities through offices in New York City and throughout the country. Fleet Brokerage operates 12 offices in 11 states. Trust and Investment Management Fleet Investment Services Group which has responsibility for overall management of the Corporation's trust activities provides personalized money management and a full range of trust services for individuals, large and small companies, religious and educational endowments and charitable organizations. In total, the Fleet trust operations manage or have under custody approximately $50 billion in assets. -4- 5 Item 1. BUSINESS - (continued) Fleet Investment Advisors Inc. located in Providence, Rhode Island handles investment policy matters and all personal and institutional portfolio management. Data Processing Fleet Services Corporation ("Fleet Services") was formed to consolidate the Corporation's previously existing data processing operations. Fleet Services' principal function is to provide data processing services for the banking and nonbanking subsidiaries of the Corporation. AFSA Data Corporation ("AFSA") provides student loan processing and portfolio management services for Federal Perkins and Federal Family student loans to over 700 colleges, universities, and financial institutions nationwide. AFSA is located in Long Beach, California and operates student loan processing centers in Lombard, IL and Utica, NY. AFSA services a portfolio of approximately $7 billion in student loans. Competition The Corporation's subsidiaries are subject to competition in all aspects of the businesses in which they compete from domestic and foreign banks, equipment leasing companies, finance companies, securities and investment advisory firms, real estate financing companies, mortgage banking companies, and other financial institutions. The Corporation principally competes on interest rates and other terms of financing arrangements, including specialized customer services and various banking arrangements and conveniences to attract depositors, borrowers, and other customers. The Corporation maintains a Products and Services Group to review existing programs and institute new services. Supervision and Regulation Banking is a highly regulated industry, with numerous federal and state laws and regulations governing the organization and operation of banks and their affiliates. As a bank holding company, Fleet is subject to regulation by the Board of Governors of the Federal Reserve Board (the "Federal Reserve Board") under the Bank Holding Company Act of 1956 (as amended) (the "BHCA"). Fleet-Maine, Fleet-NH, Fleet-Upstate and Fleet-Long Island as state-chartered member banks are subject to regulation by the Federal Reserve Board and bank regulators in their respective states. Fleet-CT, Fleet-MA and Fleet-RI are national banks subject to regulation and supervision by the Office of the Comptroller of the Currency (the "OCC"). Each subsidiary bank's deposits are insured by the Federal Deposit Insurance Corporation (FDIC) and each bank subsidiary is a member of the Federal Reserve System. Fleet is also subject to the reporting and other requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The BHCA requires that Fleet obtain prior approval from the Federal Reserve Board for bank and nonbank acquisitions and restricts the business operations permitted to Fleet. The BHCA also restricts the acquisition of shares of out-of-state banks unless the acquisition is specifically authorized by the laws of the state in which the bank to be acquired is located. In addition, Fleet's bank subsidiaries must obtain prior approval from their respective primary regulators for most acquisitions. Virtually all aspects of the subsidiary banks' businesses are subject to regulation and examination, depending on the charter of the particular banking subsidiary, by the Federal Reserve Board, the OCC, the banking regulatory agency of the state in which they operate, or a combination of the above. -5- 6 Item 1. BUSINESS - (continued) On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was signed into law. In general, FDICIA subjects banks to significantly increased regulation and supervision. Among other things, FDICIA requires federal bank regulatory authorities to take "prompt corrective action" in respect of banks that do not meet minimum capital requirements. FDICIA establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the OCC's regulations, a bank is defined to be well capitalized if it maintains a risk-adjusted Tier I capital ratio of at least 6%, a risk-adjusted total capital ratio of at least 10% and a Tier I leverage ratio of at least 5%, and is not otherwise in a "troubled condition" as specified by its appropriate federal regulatory agency. A bank is defined to be adequately capitalized if it maintains a risk-adjusted Tier 1 ratio of at least 4%, a risk-adjusted total capital ratio of at least 8%, and a Tier 1 leverage ratio of at least 4% (3% for certain highly rated institutions), and does not otherwise meet the well capitalized definition. The three undercapitalized categories are based upon the amount by which the bank falls below the ratios applicable to adequately capitalized institutions. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. As of December 31, 1993, all of the Registrant's banking subsidiaries met the requirements of a "well capitalized" institution. Under FDICIA, a bank that is not well capitalized is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market; in addition, "pass through" deposit insurance coverage may not be available for certain employee benefit accounts. Adequately capitalized institutions may apply to the FDIC for a waiver of the prohibition against accepting brokered deposits. Undercapitalized banks are subject to limitations on growth, on their ability to borrow from the Federal Reserve System and on the payment of dividends and are required to submit a capital restoration plan. If a bank fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized banks may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions (which are defined to include institutions which still have a positive net worth) are generally subject to the mandatory appointment of a receiver or conservator. FDICIA directs that each federal banking agency prescribe new safety and soundness standards for depository institutions and depository institution holding companies relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth compensation, a maximum rate of classified assets to capital, minimum earnings sufficient to absorb losses, a minimum ratio of market value to book value for publicly traded shares and other standards which the agencies deem appropriate. The federal banking regulators recently issued a joint proposal to implement such standards. In general, the standards are expected to increase the regulatory burden and expense of conducting the banking business. FDICIA also contains a variety of other provisions that may affect Fleet's operations, including new reporting requirements, regulatory standards for real estate lending, "truth in savings" provisions, and the requirements that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch. Fleet does not expect the application of the standards to have a material adverse effect on its business. The OCC and the Federal Reserve Board have each issued guidelines which impose upon national banks and state banks, that are members of the Federal Reserve System, risk-based capital and leverage standards. The risk-based capital ratio guidelines are based on an international agreement developed by the Basle Committee of Banking Regulations and Supervisory Practices, which consists of representatives of central banks and supervisory authorities in 12 countries, including the United States and the United Kingdom. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk -6- 7 Item 1. BUSINESS - (continued) profiles among banking organizations, takes off-balance sheet exposure into explicit account in assessing adequacy, and minimizes disincentives to holding liquid, low-risk assets. The risk-based ratio is determined by allocating assets and specified off-balance sheet commitments into four weighted categories, with higher levels of capital being required for categories perceived as representing greater risk. Under these guidelines, a bank's capital is divided into two tiers. The first tier includes common equity, non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries less ineligible intangible assets. Supplementary (Tier 2) capital includes, among other items, cumulative and limited life preferred stock, mandatory convertible securities, subordinated debt and the allowance for loan and lease losses, subject to certain limitations. National banks and state-chartered member banks are required to maintain a minimum total risk-based capital ratio of 8%, of which at least half must be Tier I capital. The OCC and the Federal Reserve Board may, however, set higher capital requirements for an individual bank when the bank's particular circumstances warrant. In addition to the risk-based capital standard, national banks and state-chartered member banks are also subject to a leverage capital standard, with a numerator consisting of Tier I capital a denominator consisting of total assets (as defined by the OCC's and the Federal Reserve Board's rules). The OCC and the Federal Reserve Board established a 3% minimum Tier I leverage ratio applicable only to banks meeting certain specified criteria, including excellent asset quality, high liquidity, low interest rate exposure, and the highest regulatory rating. Institutions not meeting these criteria are expected to maintain a ratio which exceeds the 3% minimum by at least 100 to 200 basis points. Failure to meet applicable capital guidelines could subject a bank to a variety of enforcement remedies available to the federal regulatory authorities, including limitations on the ability to pay dividends, the issuance by the appropriate bank regulatory agency of a capital directive to increase capital, the termination of deposit insurance by the FDIC, and (in severe cases) the appointment of a conservator or receiver. In September 1993, the OCC and the Federal Reserve Board, in conjunction with the FDIC, issued proposed revisions to their risk-based capital regulations which provide for consideration of interest rate risk in the overall determination of a bank's minimum capital requirement. The intended effect of the proposal would be to ensure that banking institutions effectively measure and monitor their interest rate risk and that they maintain adequate capital for that risk. Under the proposal, an institution's exposure to interest rate risk would be measured using either a supervisory model, developed by the federal bank regulatory agencies, or the bank's own internal model. An institution that exceeds the threshold level of interest rate risk established by its primary federal regulator would be required to allocate additional capital to cover such exposure. If such additional capital was not available to be allocated, such institution would be required to raise additional capital. Pursuant to certain provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), an insured depository institution which is commonly controlled with another insured depository institution is generally liable for any loss incurred, or reasonably anticipated to be incurred, by the FDIC in connection with the default of such commonly controlled institution, or any assistance provided by the FDIC to such commonly controlled institution, which is in danger of default. The term "default" is defined to mean the appointment of a conservator or receiver for such institution. Thus, each subsidiary bank could incur liability to the FDIC pursuant to this statutory provision in the event of the default of any other subsidiary bank or any of the other insured depository institutions owned or controlled by the Corporation. Such liability is subordinated in right and payment to depository liabilities, secured obligations, any other general or senior liability, and any obligation subordinated to depositors or other general creditors, other than obligations owed to any affiliate of the depository institution (with certain exceptions), and any obligations to shareholders in such capacity. -7- 8 Item 1. BUSINESS - (continued) In its resolution of the problems of an insured depository institution in default or in danger of default, the FDIC is obligated to satisfy its obligations to insured depositors at the least possible cost to the deposit insurance fund. In addition, the FDIC may not take any action that would have the effect of increasing the losses to a deposit insurance fund by protecting depositors for more than the insured portion of deposits (generally $100,000) or creditors other than depositors. FDICIA authorized the FDIC to settle all uninsured and unsecured claims in the insolvency of an insured bank by making a final settlement payment after the declaration of insolvency. Such a payment would constitute full payment and disposition of the FDIC's obligations to claimants. The rate of such final settlement payment is to be a percentage rate determined by the FDIC reflecting an average of the FDIC's receivership recovery experience. On August 10, 1993, the President signed into law legislation which accords the claims of a receiver of an insured depository institution for administrative expenses and the claims of holders of deposit liabilities of such an institution (including the FDIC, as the subrogee of such holders) priority over the claims of general unsecured creditors of such an institution in the event of a liquidation or other resolution of such institution. Under an FDIC interim rule, which became effective August 13, 1993, "administrative expenses" of a receiver are defined as those incurred by a receiver in liquidating or resolving the affairs of a failed insured depository institution. Fleet is a legal entity separate and distinct from its subsidiaries. In addition to those discussed herein, there are various other statutory and regulatory limitations on the extent to which banking subsidiaries of Fleet can finance or otherwise transfer funds to Fleet or its nonbanking subsidiaries, whether in the form of loans, extensions of credit, investments, or asset purchases. Such transfers by any subsidiary bank to Fleet or any nonbanking subsidiary are limited in amount to 10% of the bank's capital and surplus and, with respect to Fleet and all such nonbanking subsidiaries, to an aggregate of 20% of each such bank's capital and surplus. Furthermore, loans and extensions of credit are required to be secured in specified amounts and are required to be on terms and conditions consistent with safe and sound banking practice. In addition, there are regulatory limitations on the payment of dividends directly or indirectly to Fleet from its banking subsidiaries. Under applicable banking statutes, at December 31, 1993, Fleet's banking subsidiaries could have paid additional dividends of approximately $417 million, of which $125 million and $95 million could have been paid by Fleet- MA and Fleet-CT, respectively. Federal and state regulatory agencies have the authority to limit further Fleet's banking subsidiaries' payment of dividends. The payment of dividends by any subsidiary bank may also be affected by other factors, such as the maintenance of adequate capital for such subsidiary bank. Further, holders of Fleet's Dual Convertible Preferred Stock are entitled to dividends equal to one-half of the total dividends declared (after the first $15 million in dividends) to Fleet, if any, on the common stock of Fleet Banking Group, the parent of Fleet-MA and Fleet-CT. Dividends on the Dual Convertible Preferred Stock, if accrued and unpaid, will be cumulative. Under the policies of the Federal Reserve Board, Fleet is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support such subsidiary bank in circumstances where it might not do so absent such policy. In addition, any subordinated loans by Fleet to provide capital to any of the subsidiary banks would also be subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. The ability of holders of debt and equity securities of Fleet to benefit from the distribution of assets of any subsidiary upon the liquidation or reorganization of such subsidiary is subordinate to prior claims of creditors of the subsidiary except to the extent that a claim of Fleet as a creditor may be recognized. The banking industry is also affected by the monetary and fiscal policies of the federal government, including the Federal Reserve, which exerts considerable influence over the cost and availability of funds obtained for lending and investing. In addition, proposals to change the laws and regulations governing the operations and taxation of banks, companies that control banks, and other financial institutions are frequently raised in Congress, in the state legislatures and before various bank regulatory authorities. The likelihood of any major changes and the impact such changes might have on Fleet are impossible to determine. -8- 9 Item 1. BUSINESS - (continued) Reference is made to Note 16 Commitments, Contingencies, and Other Disclosures (pages 47-48) of the Notes to Consolidated Financial Statements and to the "Capital" and "Liquidity" sections of Management's Discussion and Analysis in the accompanying 1993 Annual Report to Shareholders for information concerning restrictions on the banking subsidiaries' ability to pay dividends and other regulatory matters and legal proceedings. Executive Officers of the Corporation The information required by this item is included in Item 10. Directors and Executive Officers of the Registrant on pages 11 through 12 of this Form 10-K. STATISTICAL INFORMATION BY BANK HOLDING COMPANIES The following information set forth in the accompanying 1993 Annual Report to Shareholders is hereby incorporated by reference: Consolidated Average Balances/Interest Earned-Paid/Rates 1989-1993 table (Page 52-53) for average balance sheet amounts, related taxable equivalent interest earned or paid, and related average yields and rates paid. Rate/Volume Analysis table (page 54) for changes in the taxable equivalent interest income and expense for each major category of interest-earning assets and interest-bearing liability. Note 3. Securities Available for Sale and Note 4. Investment Securities of the Notes to Consolidated Financial Statements (pages 32-34) for information regarding book values, market values, maturities and weighted average yields of securities (by category). Note 5. Loans and Leases of the Notes to the Consolidated Financial Statements (page 35) for distribution of loans of the Registrant. Loan and Lease Maturity table and Interest Sensitivity of Loans Over One Year table (page 54) for maturities and sensitivities of loans to changes in interest rates. Note 7. Nonperforming Assets (page 36) and Note 1. Summary of Significant Accounting Policies - Loans and Leases (page 30) of the Notes to Consolidated Financial Statements for information on nonaccrual, past due and restructured loans and the Registrant's policy for placing loans on nonaccrual status. "Loans and Leases" section of Management's Discussion and Analysis (pages 13-15 and 44-45) for information regarding loan concentrations of the Registrant. "Reserve for Credit Losses" section of Management's Discussion and Analysis (pages 17-18) for the analysis of loss experience, the allocation of the reserve for credit losses, and a description of factors which influenced management's judgment in determining the amount of additions to the allowance charged to operating expense. Consolidated Average Balances/Interest Earned-Paid/Rates 1989-1993 table (pages 52-53) and the "Deposits" section of Management's Discussion and Analysis (page 18) for deposit information. Selected Financial Highlights (page 1) for return on assets, return on equity, dividend payout ratio and equity to asset ratio. -9- 10 Item 1. BUSINESS - (continued) Note 8. Short-term Borrowings of the Notes to Consolidated Financial Statements (page 37) for information on short-term borrowings of the Registrant. Item 2. PROPERTIES The Registrant maintains its corporate headquarters in Providence, Rhode Island, located in a building in which the Registrant has a partnership interest through a subsidiary. The subsidiary is a partner with certain other parties in the ownership and management of the building. Adjacent to the Providence headquarters building, Fleet-RI owns a building which houses the main branch of Fleet-RI and the offices of many of the Providence-based subsidiaries. Fleet-RI also owns an operations center, located in Providence. The Registrant also owns office buildings in Buffalo, NY and Albany, NY, which house operational facilities of Fleet-Upstate. Fleet-LI owns an office building in Melville, NY, which houses its headquarters. Portions of the Fleet-RI, Fleet-Upstate and Fleet-LI buildings are leased to nonaffiliates. As of December 31, 1993, the Registrant's subsidiaries also operated approximately 1,200 domestic offices, of which approximately 500 are owned and 700 are leased from others. The Registrant also leases office space in London. In general, all leases run from one to ten years and most contain options to renew. Item 3. LEGAL PROCEEDINGS Information regarding legal proceedings of the Registrant is hereby incorporated by reference from Note 16. Commitments, Contingencies and Other Disclosures (pages 47-48) of the Registrant's accompanying 1993 Annual Report to Shareholders. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS There were no matters submitted to a vote of security-holders in the fourth quarter. PART II. Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS For information regarding the Registrant common stock's principal U.S. market, high and low quarterly sales prices, approximate number of holders, and quarterly dividends declared and paid, see the Common Stock Price and Dividend Information table (page 51) of the Registrant's accompanying 1993 Annual Report to Shareholders, which is hereby incorporated by reference. Item 6. SELECTED FINANCIAL DATA The information set forth in Selected Financial Highlights (page 1) of the Registrant's accompanying 1993 Annual Report to Shareholders is hereby incorporated by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth in Management's Discussion and Analysis (pages 9-23) of the Registrant's accompanying 1993 Annual Report to Shareholders is hereby incorporated by reference. -10- 11 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information set forth in the Registrant's accompanying 1993 Annual Report to Shareholders is hereby incorporated by reference. The Consolidated Financial Statements together with the report thereon by KPMG Peat Marwick (pages 25-29); the Notes to the Consolidated Financial Statements (pages 30-50); and the unaudited information presented in the Quarterly Summarized Financial Information table (page 51). Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure as defined by Item 304 of Regulation S-K. PART III. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the caption "Election of Directors" (page 2-7) in the Registrant's Proxy Statement with respect to the name of each nominee or director, his age, his positions and offices with the Registrant, his service on the Registrant's Board, his business experience, his directorships held in other public companies, and certain family relationships is hereby incorporated by reference. The names, positions, ages and business experience during the past five years of the executive officers of the Corporation as of March 25, 1994 are set forth below. The term of office of each executive officer extends until the annual meeting of the Board of Directors, and until a successor is chosen and qualified or until they shall have resigned, retired, or have been removed.
Name Positions with the Corporation Age ---- ------------------------------ --- Terrence Murray Chairman, President & Chief Executive Officer 54 Robert J. Higgins Vice Chairman 48 H. Jay Sarles Vice Chairman 49 Michael R. Zucchini Vice Chairman 47 Eugene M. McQuade Executive Vice President & Chief Financial Officer 45 James P. Murphy Executive Vice President 63 John B. Robinson, Jr. Executive Vice President 47 Peter C. Fitts Senior Vice President 52 William C. Mutterperl Senior Vice President and General Counsel 47 Anne M. Slattery Senior Vice President 46
Terrence Murray joined Fleet-RI in 1962. After serving in various capacities for Fleet-RI and the Corporation, in April 1978, he was elected President of the Corporation and Fleet-RI. He is a Director of the Corporation, Fleet-RI and FMG. He became Chairman of the Board of Directors of the Corporation and Fleet-RI in May of 1982. Mr. Murray has been a Director of Fleet since 1976, a Director of Fleet-RI since 1977 and a Director of FMG since 1985. Upon the merger of Fleet and Norstar in January 1988, he became President and Chief Operating Officer of Fleet. Mr. Murray was elected Chairman and Chief Executive Officer of Fleet in September 1988. -11- 12 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - (continued) Robert J. Higgins joined Fleet-RI in 1971. In March 1984, he was named a Vice President of the Corporation. He was elected President in February 1986. In 1989, he was named an Executive Vice President of the Corporation and Chief Executive Officer of Fleet-RI. In 1991, Mr. Higgins was named President of Fleet-CT. In March 1993, he was named a Vice Chairman of the Corporation in charge of commercial banking. H. Jay Sarles joined Fleet-RI in 1968. In 1980, he was appointed a Vice President of the Corporation. Mr. Sarles was appointed Executive Vice President of the Corporation in February of 1986. In 1991, Mr. Sarles became President and Chief Executive Officer of Fleet Banking Group, the parent company of Fleet-MA and Fleet-CT. In March 1993, he was named a Vice Chairman of the Corporation in charge of investment services and administration. Michael R. Zucchini joined the Corporation in August 1987 as Executive Vice President and Chief Information Officer responsible for all data processing activities of the Corporation and its subsidiaries. Since 1974, Mr. Zucchini had served in various capacities for General RE Corp., Stamford, Connecticut and its subsidiary, General RE Services Corp., which engages in data processing. In March 1993, Mr. Zucchini was named a Vice Chairman of the Corporation in charge of consumer banking and operations. Eugene M. McQuade joined the Corporation in 1992 as Senior Vice President-Finance. From 1980 to 1991, Mr. McQuade served in various capacities with Manufacturers Hanover Corporation and Manufacturers Hanover Trust Company, having served as an Executive Vice President and Controller from 1985 to 1991. In March 1993, Mr. McQuade was named an Executive Vice President of the Corporation and in July 1993 was elected as Chief Financial Officer of the Corporation. James P. Murphy joined the Corporation in 1989 as an Executive Vice President and Director of Public Policy and External Relations. Before joining Fleet, Mr. Murphy had served as Executive Vice President of the New York State Bankers Association since March 1976. John B. Robinson, Jr., became an Executive Vice President of the Corporation in 1988. Mr. Robinson had been associated with Norstar Bank ("Norstar") since 1970 when he joined Hempstead Bank (now Fleet-LI). He served in various capacities with Norstar and in 1987, he became President of Norstar. Mr. Robinson is currently in charge of government banking. Peter C. Fitts joined the Corporation in May, 1991 as Senior Vice President-Credit Administration and is responsible for corporate-wide credit administration. In March 1994, Mr. Fitts was named senior credit officer for the Corporation. From 1965 to 1991, Mr. Fitts served in various capacities with Citibank, N.A., having last served as a Senior Vice President and Head of Credit Policy, North America, from 1985 to 1991. William C. Mutterperl joined Fleet-RI in 1977. In June 1985, Mr. Mutterperl was named Vice President, Secretary, and General Counsel of the Corporation. In 1989, Mr. Mutterperl was named a Senior Vice President of the Corporation. Anne M. Slattery joined the Corporation in January, 1994 as Senior Vice President and head of Consumer and Community Banking. From 1969 through 1993, Ms. Slattery served in various capacities with Citicorp, having last served as a managing director of U.S. Consumer Banking. -12- 13 Item 11. EXECUTIVE COMPENSATION Pursuant to Instructions to Form 10-K and Item 402 of Regulation S-K, information set forth in the following sections of the Corporation's Proxy Statement (pages 7-18) are hereby incorporated by reference: "Committees of the Board of Directors", "Compensation Committee Interlocks and Insider Participation", "Compensation Committee Report on Executive Compensation", "Directors' Compensation", "Executive Compensation", "Option/SAR Grants in Last Fiscal Year", "Aggregated Option/SAR Exercises in Last Fiscal Year and FY Option/SAR Values", "Pension Plans", "Change in Control Contracts", and "Stockholder Return Performance Graph". Such incorporation by reference shall not be deemed to specifically incorporate by reference the information required by Item 402(a)(8) of Regulation S-K. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to Instructions to Form 10-K and Item 403 of Regulation S-K, information set forth in the "Securities of the Corporation and Fleet Mortgage Group, Inc. Owned by Management" (page 9) of the Corporation's Proxy Statement is hereby incorporated by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to Instructions to Form 10-K and Item 404 of Regulation S-K, information set forth in the "Indebtedness and Other Transactions" section (pages 18-20) of the Corporation's Proxy Statement is hereby incorporated by reference. Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1. The financial statements of Fleet required in response to this Item are listed in response to Item 8 of this Report and are incorporated by reference. (a)2. All schedules to the consolidated financial statements required by Article 9 of Regulation S-X and all other schedules to the financial statements of the Registrant have been omitted because the information is either not required, not applicable, or is included in the financial statements or notes thereto. (b) Two Current Reports on Form 8-K were filed during the fourth quarter of 1993; one dated October 11, 1993 (describing the merger agreement with Sterling Bancshares Corporation), and a second dated December 16, 1993 (announcing a settlement agreement with the Georgia Attorney General and the Governor's Office of Consumer Affairs relative to suits filed against Fleet Finance, Inc.). (c) Exhibit Index
Exhibit Page of this Number Report - ---------------------------------------------------------------------------- 3 Restated Articles of Incorporation and By-Laws (1) 4(a) Shareholder Rights Plan of Registrant (2) 4(b) Instruments defining the rights of security holders, including indentures (3) 4(c) Form of Rights Certificate for stock purchase rights issued to Whitehall Associates, L.P., and KKR Partners II, L.P. (4) 10(a) 1992 Stock Option and Restricted Stock Plan (5) 10(b) Form of 1992 Restricted Stock Agreement entered into with each of the following executive officers and the number of shares of restricted stock awarded to each under the Amended and Re- stated 1988 Stock Option and Restricted Stock Plan: Terrence Murray, 50,000 shares; William C. Mutterperl, 10,000 shares; John B. Robinson, Jr., 10,000 shares and Michael R. Zucchini, 25,000 shares (6)
-13- 14 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (continued) 10(c) Form of 1993 Restricted Stock Agreement entered into with each of the following executive officers and the number of shares of restricted stock awarded to each under the 1992 Stock Option and Restricted Stock Plan: Robert J. Higgins, 15,000 shares and H. Jay Sarles, 20,000 shares (7) 10(d) Form of Change in Control Agreement together with Schedule of Persons who have entered into such contacts (8) 10(e) Stock Purchase Agreement dated July 12, 1991 between Registrant and Whitehall Associates, L.P., and KKR Partners II, L.P. (9) 10(f) Assistance Agreement dated as of July 12, 1991, among the FDIC, the Registrant, Fleet Banking Group, Inc., the FDIC, (in its capacity as Re- ceiver of the Bridge Banks), Fleet Bank of Maine, Fleet Bank of Massachusetts, National Association and Fleet Bank, National Association (10) 10(g) Shareholders' Agreement dated as of July 14, 1991, among the FDIC, the Registrant, Fleet Banking Group, Inc., Fleet Bank of Massachusetts, National Association and Fleet Bank, National Association (11) 10(h) Service Agreement dated as of June 1, 1991, among the FDIC, the Registrant, RECOLL Management Corporation, New Bank of New England, National Association, New Connecticut Bank and Trust Company, National Association and New Maine National Bank, as amended by Amendment No. 1, dated July 14, 1991 (12) 10(i) Supplemental Compensation Plan for former Norstar directors 17 10(j) Fleet Finanical Group Directors Retirement Plan 19 10(k) Supplemental Executive Retirement Plan 20 11 Statement re computation of per share earnings 28 12 Statement re computation of ratios 29 13 1993 Annual Report to Shareholders 31 21 Subsidiaries of the Registrant 91 23 Accountants' consent 92 (1) Incorporated by reference to Exhibit 1 of Registrant's Form 10-Q Quarterly Report dated June 30, 1992. (2) Incorporated by reference to Registrant's Registration Statement Form 8-A dated November 29, 1990, as amended by First Amendment to Rights Agreement dated March 28, 1991 and as further amended by Second Amendment to Rights Agreement dated July 12, 1991, as reported on Form 8 Amendment to Application or Report dated September 6, 1991. (3) 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. (4) Incorporated by reference to Exhibit 4(c) of the Registrant's Form 8-K Current Report dated July 12, 1991.
-14- 15 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (continued) [FN] (5) Incorporated by reference to Exhibit 4(a) of Registrant's Registration Statement on Form S-8/S-3 dated June 25, 1992 (No. 33-48818). (6) Incorporated by reference to Exhibit 10(b) of the Registrant's 1992 Form 10-K Annual Report filed March 31, 1993. (7) Incorporated by reference to Exhibit 10(c) of the Registrant's 1992 Form 10-K Annual Report filed March 31, 1993. (8) Incorporated by reference to Exhibit 10 of Registrant's 1989 Form 10-K filed March 31, 1990. (In January 1994, Ms. Slattery entered into a contract in the same form as set forth in such Exhibit 10.) (9) Incorporated by reference to Exhibit 4 of Registrant's Form 8-K Current Report dated July 12, 1991. (10) Incorporated by reference to Exhibit 4(a) of the Registrant's Form 8-K Current Report dated July 14, 1991. (11) Incorporated by reference to Exhibit 10(d) of the Registrant's Form 10-K Annual Report dated December 31, 1991. (12) Incorporated by reference to Exhibit 4(b) of the Registrant's Form 8-K Current Report dated July 14, 1991. (d) Financial Statement Schedules - None -15- 16 SIGNATURES Pursuant to the requirements of Section 13 of 15(d) 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 Executive Vice President and Chief Financial Officer Dated March 30, 1994 /s/ Robert C. Lamb, Jr. ----------------------- Robert C. Lamb, Jr. Chief Accounting Officer and Controller Dated March 30, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated. /s/ Terrence Murray /s/ Ruth R. McMullin ---------------------- --------------------- Terrence Murray, Chairman, President, Ruth R. McMullin, Director Chief Executive Officer and Director /s/ William Barnet III /s/ Arthur C. Milot ----------------------- --------------------- William Barnet III, Director Arthur C. Milot, Director /s/ Bradford R. Boss /s/ Thomas D. O'Connor ---------------------- ------------------------ Bradford R. Boss, Director Thomas D. O'Connor, Director /s/ Michael B. Picotte ---------------------- ------------------------ James E. Chandler, Director Michael B. Picotte, Director /s/ Paul J. Choquette, Jr. /s/ James J. Preble --------------------------- ---------------------- Paul J. Choquette, Jr., Director James J. Preble, Director /s/ James F. Hardymon /s/ John D. Reardon ---------------------- --------------------- James F. Hardymon, Director John D. Reardon, Director /s/ Robert M. Kavner /s/ John A. Reeves --------------------- --------------------- Robert M. Kavner, Director John A. Reeves, Director /s/ Lafayette Keeney /s/ John R. Riedman --------------------- --------------------- Lafayette Keeney, Director John R. Riedman, Director /s/ E. Douglas Kenna /s/ John S. Scott --------------------- ------------------- E. Douglas Kenna, Director John S. Scott, Director
/s/ Raymond C. Kennedy ----------------------- Raymond C. Kennedy, Director -16- EX-10.I 2 SUPPLEMENTAL COMPENSATION PLAN 1 EXHIBIT 10(i) SUPPLEMENTAL COMPENSATION PLAN FOR NORSTAR DIRECTORS 1. EFFECTIVE DATE July 1, 1986 2. ELIGIBLE DIRECTOR A member of the Board of Directors of Norstar on the Effective Date shall be considered Eligible Director if his death or other termination of service as a Director takes place when he is not an officer of Norstar or one of its subsidiaries. A member who joins the Board of Directors of Norstar after the Effective Date shall be considered an Eligible Director if (i) he dies while a member and when he is not an officer of Norstar or one of its subsidiaries, or (ii) his termination of service as a Director (other than on account of death) takes place after two years of membership and when he is not an officer of Norstar or one of its subsidiaries. 3. SUPPLEMENTAL COMPENSATION Except as set forth in Paragraph 4 below, Norstar will pay to, or in respect of, each Eligible Director, upon his death or termination of service as a Director, 40 quarterly payments of $5,000 each commencing on the first day of the first calendar quarter following the calendar quarter of his death or termination of service as a Director. The payments shall be made to the former Director, if alive, and otherwise to one or more beneficiaries designated in writing from time to time by the Eligible Director to the secretary of Norstar. The service of a Norstar Director will not be deemed to have terminated so long as the Director serves in any compensated capacity with Norstar, any subsidiary of Norstar or any successor to Norstar or a subsidiary of a successor. 4. CONDITIONS OF PAYMENT A Director will forfeit all payments under this Plan if he serves as an officer, director or employee of, or acts as a consultant for, any corporation or other entity whose business is competitive with Norstar or with any corporation that was a subsidiary of Norstar on his last day of service as a Director. The forfeiture provided above will be inapplicable to any relationship disclosed to the Board that exists on the Effective Date, or at the time a Director first joins the Board, or if the relationship is determined by the Board to be not contrary to the interests of Norstar. 2 5. EVIDENCE OF INSURABILITY It is Norstar's current intention to fund the payments due under this Plan through the purchase of life insurance that will name Norstar as beneficiary. Eligible Directors will, therefore, be required, at Norstar's request, to submit evidence of insurability and to take any required physical examinations. In no event, however, shall an eligible Director be denied payments hereunder based on lack of insurability. 6. AMENDMENT AND TERMINATION The Plan may be amended or terminated at any time. The amendment or termination may not adversely affect any person then drawing benefits under the Plan without his consent. The amendment or termination may affect any Eligible Director provided the amendment or termination is approved by a majority of the Board of Directors of Norstar (but not a successor of Norstar) and applies to Directors of Norstar in general. 7. MERGER, ETC. OF NORSTAR For purposes of this Plan, a corporation with which Norstar merges or consolidated or with which its business is otherwise combined under common ownership will be considered to be Norstar if Norstar shareholders, prior to such transaction, own immediately after such transaction, and as a result of their Norstar ownership, a majority of the voting shares of the combined entity. Otherwise, such corporation will be considered a successor of Norstar. 8. ADMINISTRATION This plan will be administered and interpreted by the Board of Directors of Norstar or of a successor. EX-10.J 3 RETIREMENT PLAN FOR QUALIFIED DIRECTORS 1 EXHIBIT 10(j) FLEET FINANCIAL GROUP, INC. RETIREMENT PLAN FOR QUALIFIED DIRECTORS The following is a description of the Fleet Financial Group, Inc. (the "Corporation") Retirement Plan for Qualified Directors (the "Plan"): Under the Plan, a Qualified Director is entitled to receive an annual benefit of twenty thousand dollars ($20,000). Such benefit is payable for each year of service up to a maximum aggregate benefit of two hundred thousand dollars ($200,000). "Qualified Director" means any director of the Corporation who is not a former director of Norstar Bancorp, Inc. A director is eligible to receive benefits under the Plan after such director has served as a director of the Corporation for a minimum of five (5) years and has reached the age of sixty-five (65). Any director who retires before the age of sixty-five (65) and who has served as a director for a minimum of five (5) years will be entitled to receive his/her annual retainer until the date of their regularly scheduled retirement. After such retirement, the director will be entitled to receive payments under the Plan. EX-10.K 4 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 EXHIBIT 10(k) FLEET FINANCIAL GROUP, INC. Supplemental Executive Retirement Plan (Effective January 1, 1994) 2 ARTICLE I. INTRODUCTION. 1.1 Purposes of Plan. The purpose of the Plan is to facilitate the retirement of select key executive employees by further supplementing the benefits to which they are entitled under the Fleet Financial Group, Inc. Pension Plan. 1.2 Status. The Plan is intended to be a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of sections 201(2), 301(a)(3) and 401(a)(1) of the Employees Retirement Income Security Act of 1974 (ERISA), and shall be interpreted and administered accordingly. ARTICLE 2. DEFINITIONS. Unless defined herein, any word, phrase or term used in this Plan shall have the meaning given to it in the Basic Plan. However, the following terms have the following meanings unless a different meaning is clearly required by the context: 2.1 "Administrator" means the Company or other person or persons designated to administer the Plan pursuant to Section 6.1. 2.2 "Basic Plan" means the Fleet Financial Group, Inc. Pension Plan, as amended and in effect from time to time. Reference to any Article or Section of the Basic Plan shall include reference to any comparable or successor provisions of the Basic Plan, as amended from time to time. 3 2.3 "Beneficiary" means any individual other than the Participant entitled to receive benefits under the terms of the Basic Plan. 2.4 "Company" means Fleet Financial Group, Inc. 2.5 "Eligible Employee" means each executive Employee of the Employer who participates in the Basic Plan. 2.6 "Participant" means any Eligible Employee selected to participate in the Plan in accordance with Article 3. 2.7 "Plan" means the Fleet Financial Group, Inc. Supplemental Executive Retirement Plan as set forth herein and in all subsequent amendments hereto. ARTICLE 3. PARTICIPATION. 3.1 Selection of Participants. The Administrator shall select from time to time those Eligible Employees who will be Participants in the Plan. 3.2 Termination of Participation. The Administrator may terminate a Participant prospectively or retroactively for any reason. Any such termination of participation will likewise terminate any right of the Participant (and his beneficiaries) to receive any benefit under the Plan. ARTICLE 4. SOURCE OF BENEFIT PAYMENTS. 4.1 Obligation of Employer. Each Employer will establish on its books a liability with respect to its obligation for benefits payable under the Plan to those 4 Participants (and their Beneficiaries) who are employed by such Employer. Each Participant and Beneficiary will be an unsecured general creditor of his or her Employer with respect to all benefits payable under the Plan. 4.2 No Funding Required. Nothing in the Plan will be construed to obligate an Employer to fund the Plan. However, an Employer may but shall not be required to establish a trust of which the Employer is treated as the owner under Subpart E of Subchapter J, Chapter 1 of the Internal Revenue Code of 1986, as amended (a "grantor trust") and may deposit funds with the trustee of the trust sufficient to satisfy the benefits provided under the Plan. 4.3 No Claim to Specific Benefits. Nothing in the Plan will be construed to give any individual rights to any specific assets of an Employer, or any other person or entity. ARTICLE 5. BENEFITS. 5.1 Amount of Benefits. The amount of the benefit payable under the Plan to a Participant (or to the Participant's Beneficiary, in the event of the Participant's death) will be equal to (a) minus (b), but not less than zero, where (a) is the amount of the benefit the Participant (or Beneficiary) would have been entitled to receive under the Basic Plan if (i) the term "Compensation" under the Basic Plan included bonus awards to which the Participant is entitled under the Corporate Executive Incentive Plan or other incentive award program and (ii) limitations of sections 401(a)(17) and 415 of the Code (and provisions of the Basic Plan applying those limitations) did not exist; and (b) is the sum of 5 (i) the benefit payable to the Participant (or Beneficiary) under the Basic Plan and (ii) the benefit payable to the Participant (or Beneficiary) under the Fleet Financial Group, Inc. Restated Retirement Income Assurance Plan, as in effect from time to time. 5.2 Payment of Benefits. Benefits payable under the Plan shall be paid in the same form, and shall commence at the same time, as the benefit payable to the Participant (or Beneficiary) under the Basic Plan. 5.3 Death Benefits. In the event of the death of the Participant, benefits under the Plan will become payable to the Participant's Beneficiary, under the same terms and conditions specified in the Basic Plan. 5.4 Effect of Termination of Benefits under the Basic Plan. If for any reason a Participant or Beneficiary is not entitled to receive or ceases to have the right to receive benefits under the Basic Plan, such Participant or Beneficiary shall also not be entitled to receive and shall cease to have the right to receive benefits under the Plan. ARTICLE 6. ADMINISTRATION. 6.1 Selection of Administrator. The Administrator shall be the Company, unless some other individual or entity is designated by the Board of Directors. 6.2 Removal of Administrator. The Board of Directors may at its discretion remove the Administrator at any time from time to time. 6 6.3 Powers of the Administrator. The Administrator will have full discretionary power to administer the Plan in all of its details. For this purpose the Administrator's discretionary power will include, but will not be limited to, the following authority: (a) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan, or required to comply with applicable law; (b) to interpret the Plan; (c) to select and terminate Participants, and to decide all questions concerning the Plan and the eligibility of any person to participate in the Plan; (d) to compute the amounts to be distributed to any Participant, former Participant, spouse or Beneficiary in accordance with the provisions of the Plan, and to determine the person or persons to whom such amounts will be distributed; (e) to authorize the payment of distributions; and (f) to establish and administer a claims procedure consistent with the requirements of Section 503 of ERISA. Any interpretation of the Plan or other determination with respect to the Plan by the Administrator shall be final and conclusive on all persons in the absence of clear and convincing evidence that the Administrator acted arbitrarily and capriciously. 7 ARTICLE 7. AMENDMENT OR TERMINATION OF PLAN. The Company hopes and expects to continue the Plan in effect, but the Company necessarily reserves the right to amend the Plan at any time, and from time to time in any respect including without limitation retroactive amendment, or to terminate the Plan. Any amendment or termination shall be stated in an instrument in writing, and signed by a duly authorized representative of the Company. ARTICLE 8. MISCELLANEOUS. 8.1 No Assignment or Alienation. None of the benefits, payments, proceeds or claims of any Participant or Beneficiary shall be subject to any claim of any creditor of the Participant or Beneficiary or to attachment or garnishment or other legal process by any such creditor; nor shall any Participant or Beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits, payments or proceeds which he or she may expect to receive, contingently or otherwise, under the Plan. 8.2 Limitation of Rights. Neither the establishment of the Plan, nor any amendment thereof, nor the payment of any benefits will be construed as giving any individual any legal or equitable right against the Company, any Affiliated Company, or the Administrator. In no event will the Plan be deemed to constitute a contract between any Employee and the Company, Affiliated Company, or the Administrator. This Plan shall not be deemed to be consideration for, or an inducement for the performance of services by any Employee. 8 8.3 Receipt and Release. Any payment under the Plan to any Participant or Beneficiary, or to any individual as described in Section 8.4 shall be in satisfaction of all claims with respect to benefits under the Plan against the Company, any Affiliated Company, and the Administrator. 8.4 Payment for the Benefit of an Incapacitated Individual. If the Administrator of the Basic Plan determines that payments due to a Participant under the Basic Plan must be paid to another individual because of a Participant's incapacitation, benefits under the Plan will be paid to that same individual designated for that purpose under the applicable provisions of the Basic Plan. 8.5 Governing Law. The Plan will be construed, administered, and governed under the laws of the State of Rhode Island, to the extent not preempted by federal law. 8.6 Severability. If any provision of this Plan is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective. 8.7 Headings and Subheadings. Headings and subheadings are inserted for convenience only and are not to be considered in the construction of the provision of the Plan. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer this 1st day of February, 1994. FLEET FINANCIAL GROUP, INC. By: /s/ William C. Mutterperl ------------------------- EX-11 5 COMPUTATION OF EQUIVALENT SHARES 1 EXHIBIT 11 FLEET FINANCIAL GROUP, INC. COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS ($ in thousands, except per share data)
For the Twelve Months Ended December 31 1993 1992 1991 -------------------- -------------------- -------------------- FULLY FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED ------- ------- ------- ------- ------- ------- Equivalent shares: Average shares outstanding 134,905,446 134,905,446 122,257,504 122,257,504 116,239,467 116,239,467 Additional shares due to: Stock options 730,776 766,256 673,853 938,613 388,855 510,470 Warrants 2,996,091 3,062,547 2,504,307 2,996,947 738,230 894,832 8.5% convertible debt 0 0 0 373,840 0 1,663,604 Series I preferred stock 0 31,977 0 43,878 0 45,034 Series II preferred stock 0 99,775 0 133,889 0 138,948 Dual convertible preferred stock 16,033,994 16,033,994 16,033,994 16,033,994 7,599,674 7,599,674 ----------- ----------- ----------- ----------- ----------- ----------- Total equivalent shares 154,666,307 154,899,995 141,469,658 142,778,665 124,966,226 127,092,029 =========== =========== =========== =========== =========== =========== Earnings per share: Net income $ 488,049 $ 488,049 $ 279,843 $ 279,843 $ 97,672 $ 97,672 Less: Preferred stock dividends (22,209) (22,089) (27,736) (27,508) (14,031) (13,799) Plus: Int. on 8.5% conv. debt 0 0 0 466 0 1,855 ----------- ----------- ----------- ----------- ----------- ----------- Adjusted net income $ 465,840 $ 465,960 $ 252,107 $ 252,801 $ 83,641 $ 85,728 =========== =========== =========== =========== =========== =========== Total equivalent shares 154,666,307 154,899,995 141,469,658 142,778,665 124,966,226 127,092,029 =========== =========== =========== =========== =========== =========== Earnings per share on net income $ 3.01 $ 3.01 $ 1.78 $ 1.77 $ 0.67 $ 0.67 =========== =========== =========== =========== =========== ===========
EX-12 6 COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12 FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS (Dollars in thousands)
Year Ended December 31 ------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------------------------------------------------------------------- Earnings: Net income (loss) $ 488,049 $279,843 $ 97,672 $(73,687) $ 371,346 Adjustments: (a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748 (b) Fixed charges: (1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111 (2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718 (c) Preferred dividends 36,927 49,706 21,958 12,990 11,518 --------- ------- ------- ------- --------- (d) Adjusted earnings $1,303,901 $974,022 $647,383 $651,602 $1,130,441 ========= ======= ======= ======= ========= Fixed charges [b(1)+b(2)+c] $ 488,445 $465,653 $494,535 $814,925 $ 591,347 ========= ======= ======= ======= ========= Adjusted earnings/fixed charges 2.67x 2.09x 1.31x 0.80x* 1.91x ========= ======= ======= ======= =========
INCLUDING INTEREST ON DEPOSITS
Year Ended December 31 ------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------------------------------------------------------------------- Earnings: Net income (loss) $ 488,049 $ 279,843 $ 97,672 $ (73,687) $ 371,346 Adjustments: (a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748 (b) Fixed charges: (1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111 (2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718 (3) Interest on deposits 744,080 1,076,368 1,480,395 1,343,417 1,256,207 (c) Preferred dividends 36,927 49,706 21,958 12,990 11,518 --------- --------- --------- --------- --------- (d) Adjusted earnings $2,047,981 $2,050,390 $2,127,778 $1,995,019 $2,386,648 ========= ======= ======= ======= ========= Fixed charges [b(1)+b(2)+b(3)+c] $1,232,525 $1,542,021 $1,974,930 $2,158,342 $1,847,554 ========= ======= ======= ======= ========= Adjusted earnings/fixed charges 1.66x 1.33x 1.08x 0.92x* 1.29x ========= ======= ======= ======= ========= *Note that earnings are inadequate to cover fixed charges, the deficiency being $163,323 for both the ratio excluding and including interest on deposits.
2 EXHIBIT 12 - (continued) FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS (Dollars in thousands)
Year Ended December 31 ------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------------------------------------------------------------------- Earnings: Net income (loss) $ 488,049 $279,843 $ 97,672 $(73,687) $ 371,346 Adjustments: (a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748 (b) Fixed charges: (1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111 (2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718 --------- ------- ------- ------- --------- (c) Adjusted earnings $1,266,974 $924,316 $625,425 $638,612 $1,118,923 ========= ======= ======= ======= ========= Fixed charges [b(1)+b(2)] $ 451,518 $415,947 $472,577 $801,935 $ 579,829 ========= ======= ======= ======= ========= Adjusted earnings/fixed charges 2.81x 2.22x 1.32x 0.80x* 1.93x ========= ======= ======= ======= =========
INCLUDING INTEREST ON DEPOSITS
Year Ended December 31 ------------------------------------------------------------------- 1993 1992 1991 1990 1989 ------------------------------------------------------------------- Earnings: Net income (loss) $ 488,049 $ 279,843 $ 97,672 $ (73,687) $ 371,346 Adjustments: (a) Applicable income taxes (benefits) 327,407 228,526 55,176 (89,636) 167,748 (b) Fixed charges: (1) Interest on borrowed funds 417,301 386,275 449,544 782,814 560,111 (2) 1/3 of rent 34,217 29,672 23,033 19,121 19,718 (3) Interest on deposits 744,080 1,076,368 1,480,395 1,343,417 1,256,207 --------- --------- --------- --------- --------- (c) Adjusted earnings $2,011,054 $2,000,684 $2,105,820 $1,982,029 $2,375,130 ========= ======= ======= ======= ========= Fixed charges [b(1)+b(2)+b(3)] $1,195,598 $1,492,315 $1,952,972 $2,145,352 $1,836,036 ========= ======= ======= ======= ========= Adjusted earnings/fixed charges 1.68x 1.34x 1.08x 0.92x* 1.29x ========= ======= ======= ======= ========= *Note that earnings are inadequate to cover fixed charges, the deficiency being $163,323 for both the ratio excluding and including interest on deposits.
EX-13 7 1993 ANNUAL REPORT TO SHAREHOLDERS 1 HIGHLIGHTS FLEET FINANCIAL GROUP HIGHLIGHTS o Record 1993 earnings were $488 million, or $3.01 per fully diluted share, an increase of 74% compared to 1992's $280 million, or $1.77 per fully diluted share. Increased earnings were due primarily to a strong rebound in income generated by Fleet's banks as a result of sharply lower credit costs and a stronger net interest margin. o Return on assets (ROA) and return on equity (ROE) improved markedly in 1993. ROA was 1.06% and ROE was 16.07%, compared to .62% and 11.01%, respectively, in 1992. Fourth quarter ROA was 1.14% and ROE was 16.98%, versus .72% and 12.65%, respectively, a year ago. o The quarterly common stock dividend was increased three times in a 12-month period, culminating with a 20% increase in November to $.30 per share. In all, the dividend was increased 50% from the $.20 per share dividend paid in the fourth quarter of 1992. The annualized dividend is not $1.20 per share. o Since April 1992, nonperforming assets have been reduced from $1.6 billion to $601 million, a decrease of almost two-thirds. Additionally, the ratio of nonperforming assets to total assets was 1.25% at year-end, the lowest level since the fourth quarter of 1989. o Despite the strong improvement in credit quality, the reserve for loan losses stood at $1 billion at year-end and 3.8% of loans and leases. o The balance sheet continues to be exceptionally strong. Stockholders' equity amounted to $3.6 billion at December 31, 1993, compared to $3.0 billion at the end of 1992. The corporation's total equity-to-assets ratio at December 31, 1993, was 7.6%. Total assets were $48 billion at year-end 1993 versus $47 billion a year earlier. o In excess of 12 million shares of common stock, representing $400 million in new capital, were sold in February 1993 through a well-received stock offering. o Fleet continued to expand its banking franchise in 1993 by agreeing to acquire Sterling Bancshares Corp., Waltham, Massachusetts, and assuming the deposits of Jefferson National Bank, Watertown, New York. The Sterling acquisition is expected to be completed in the spring of 1994, subject to regulatory approvals. In addition, Fleet received regulatory approval to acquire approximately $700 million in consumer deposits of 29 upstate New York branches of Chemical Bank. This acquisition is expected to be completed by the end of the first quarter of 1994. THE CORPORATION Fleet Financial Group, founded in 1791, is a $48-billion diversified financial services company with 1,200 offices nationwide. Based in Providence, Rhode Island, 26,000 employees work at seven banks, with branches throughout New England and New York State, and at more than 10 major financial services companies located throughout the country, including Atlanta; Columbia, South Carolina; Long Beach, California; Milwaukee; Providence; and New York City. CONTENTS ONE Selected Financial Highlights TWO Letter to Stockholders SIX Management Overview EIGHT Financial Table of Contents NINE Management's Discussion and Analysis TWENTY-SIX Consolidated Financial Statements and Supplemental Financial Information FIFTY-FIVE Affliliates FIFTY-SIX Officers and Directors 2 HIGHLIGHTS FLEET FINANCIAL GROUP
SELECTED FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------------------------------------------------- December 31 Dollars in millions, except per share data 1993 1992 1991 1990 1989 1988 -------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR Interest income (FTE)(a) $ 3,245 $ 3,446 $ 3,375 $ 3,373 $ 3,158 $ 2,637 Interest expense 1,161 1,463 1,930 2,126 1,816 1,403 Net interest income (FTE)(a) 2,084 1,983 1,445 1,247 1,342 1,234 Provision for credit losses 271 486 509 762 160 107 Securities gains (losses) 282 207 173 (37) 26 12 Noninterest income 1,465 1,368 1,082 735 576 484 Noninterest expense 2,424 2,318 1,819 1,289 1,128 1,049 Net income (loss) 488 280 98 (74) 371 336 PER COMMON SHARE Earnings (loss) $ 3.01 1.77 $ 0.67 $ (0.75) $ 3.30 $ 3.01 Market value (year-end) 33.38 32.75 24.88 11.00 26.13 25.50 Cash dividends declared 1.025 0.825 0.80 1.25 1.31 1.1975 Book value (year-end) 22.84 19.50 18.15 17.65 19.87 17.84 AT YEAR-END Assets $ 47,923 $ 46,939 $ 45,445 $ 32,507 $ 33,441 $ 29,052 Securities available for sale 12,577 10,857 10,523 - - - Investment securities 1,546 1,803 102 5,270 5,524 4,676 Loans and leases, net of unearned income 26,310 26,647 26,761 20,465 21,633 19,748 Reserve for credit losses 1,000 1,029 1,021 700 341 315 Deposits 31,085 32,735 35,245 23,191 21,677 20,701 Short-term borrowings 8,107 6,399 3,474 3,600 6,455 3,802 Long-term debt 3,444 3,812 3,004 3,064 2,204 1,675 Total stockholders' equity 3,639 3,010 2,510 2,069 2,289 2,049 OPERATING RATIOS Return on average common equity 16.07% 11.01% 4.02% (3.93)% 17.70% 18.15% Return on average assets 1.06 0.62 0.25 (0.21) 1.25 1.24 Common dividend payout ratio 28.71 36.12 96.66 N/A 38.30 36.52 Net interest margin 5.02 4.80 4.09 3.92 4.96 5.11 Efficiency ratio 66.25 68.08 72.00 65.04 58.82 61.00 Common stockholders' equity-to-assets (year-end) 6.55 5.13 4.82 5.98 6.47 6.60 Average total stockholders' equity-to-assets(b) 7.51 5.78 5.84 6.39 7.32 7.15 ==========================================================================================================================
(a)This schedule is prepared on a fully taxable equivalent (FTE) basis. The FTE adjustment included in interest income was $33 million in 1993; $30 million, 1992; $46 million, 1991; $94 million, 1990; $90 million, 1989; and $85 million, 1988. (b)The 1993 ratio includes dual convertible preferred stock, which was reclassified to stockholders' equity on December 31, 1992. 1 3 LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP TO OUR STOCKHOLDERS: Compared to the turbulent and uncertain years that marked the beginning of the decade, 1993 can be characterized as a significantly more progressive and rewarding year for Fleet. Earnings rebounded--growing, in fact, to record levels--and management was able to focus with renewed intensity on the corporation's forward direction, resulting in a new vision of Fleet's future. The section immediately following this letter addresses certain elements of that still-evolving vision. I urge you to read it. In addition to being encouraged by Fleet's record 1993 earnings of $488 million, we were equally satisfied to achieve a sizeable reduction in nonperforming assets (NPAs). Since April 1992, we have cut NPAs from $1.6 billion to $601 million, a reduction of almost two-thirds in our troubled loan portfolio. Furthermore, our ratio of NPAs to total assets at December 31, 1993, was 1.25%, which is the lowest level since the fourth quarter of 1989. 1993 FINANCIAL RESULTS. Fleet's strong 1993 earnings of $488 million ($3.01 per fully diluted share) represented an increase of 74% compared to 1992's $280 million ($1.77 per fully diluted share). The significant earnings increase was due primarily to a strong rebound in income generated by Fleet's seven banks throughout the Northeast as a result of sharply lower credit costs than we experienced in 1992 and a stronger net interest margin. While the corporation's banks performed exceptionally well last year, the Financial Services Group did not fare as well, earning $42 million compared to the $106 million it contributed to earnings in 1992. The decrease was primarily attributable to a $100-million charge related to mortgage servicing assets at Fleet Mortgage Group in the second quarter and a $29-million loss at Fleet Finance relating to the settlement of litigation. Fleet's return on assets (ROA) and return on equity (ROE) improved markedly in 1993. ROA was 1.06% and ROE was 16.07%, compared to .62% and 11.01%, respectively, in 1992. At December 31, 1993, for the second consecutive quarter, we continued to experience growth in our earning assets as average loans and leases were up $172 million from the third quarter. After several years of declining commercial lending activity, this beginning of loan growth reflected a more stable economy in the Northeast and better prospects for our commercial customers. The corporation's balance sheet continues to be exceptionally strong. Stockholders' equity amounted to $3.6 billion at December 31, 1993, compared to $3.0 billion at the end of 1992. The corporation's equity-to-assets ratio as of December 31, 1993, was 7.6%. Fleet's Tier 1 risk-based capital ratio at year-end 1993 was 11.8%, compared to 10.4% at December 31, 1992, and a regulatory minimum of 4%. ACCOMPLISHMENTS IN 1993. Numerous other 1993 accomplishments deserve mention. Anticipating accelerated growth, an important reorganization early in the year streamlined Fleet's management structure to improve operating efficiencies and communications. Replacing a matrix-style management organization that had served us well for many years but eventually became overly cumbersome, the new functional approach follows product lines, gives Fleet a slimmer organizational alignment, and prepares us to take advantage of full national interstate branch banking when it arrives. Elected vice chairmen were Robert J. Higgins, H. Jay Sarles, and Michael R. Zucchini; Eugene M. McQuade, named an executive vice president, later succeeded John W. Flynn, who retired in June, as chief financial officer. Bob Higgins was given responsibility for Fleet's commercial banking franchise, with all Fleet bank presidents reporting to him. His role encompasses all commercial lending and related areas. Jay Sarles assumed responsibility for strategic planning, mergers and acquisitions, chairmanship of the Asset/Liability Committee, all of the corporation's investment management businesses, and the corporation's staff functions. 2 4 LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP Mike Zucchini took control of Fleet's entire consumer franchise, including consumer banking at Fleet's banks, operations and technology, mortgage banking, consumer finance, and several other key areas. Gene McQuade became responsible for Fleet's entire financial operations, ranging from financial accounting, operations and control, and corporate finance activities, to financial management information and profitability, corporate treasury, Fleet's $14-billion investment portfolio, and regulatory compliance. We believe this improved approach to managing the corporation makes Fleet a stronger, more forward-thinking competitor, more outward-looking, and better at meeting our customers' needs. An extremely well-received stock offering sold in excess of 12 million shares of Fleet common stock last year, representing $400 million in new capital. Fleet continued to expand its banking franchise by agreeing to acquire Sterling Bancshares Corp., Waltham, Massachusetts, and assuming the deposits of Jefferson National Bank, Watertown, New York. We also received regulatory approval to acquire approximately $700 million in consumer deposits of 29 upstate New York branches of Chemical Bank. At the same time, we determined that factoring is not a core business of strategic importance for our company, and accordingly agreed to sell Fleet Factors Corp. to GFC Financial Corp., Phoenix, Arizona, in an all-cash transaction. FLEET FOCUS '94. A sweeping, top-to-bottom review of Fleet's entire Northeast operations, designed to strengthen our competitive position by dramatically improving the corporation's efficiency ratio to an estimated 55% by mid-1995, was launched in 1993. Known as Fleet Focus '94, it is a thorough analysis of how we do business, conducted by our own employees and management, with assistance from an outside consulting team. In the concluding months of 1993, employees at every level of our organization did an outstanding job of identifying thousands of revenue-generating and cost-saving ideas, and our best management talent analyzed the relative merits and risks of those ideas. All potential changes in our business practices and staffing have been reviewed by the company's senior-most officers and will be implemented throughout this year. Fleet Focus will require difficult decisions and sacrifices, including the elimination of positions throughout our organization, always one of management's most painful responsibilities. Improving our efficiency, however, ultimately will boost earnings. Sustained earnings performance will, in turn, increase the value of Fleet's stock and heighten the company's appeal to a broader investment community. Competition for today's customer is intense, and wise consumers are demanding quality at a fair price. Only a highly efficient company can afford to provide both quality service and truly competitive pricing. For Fleet, the issue is how to position the corporation for tomorrow's opportunities. Fleet Focus '94 will provide many of the answers to that question. Unlike many companies that have undertaken efficiency reviews, we launched Fleet Focus '94 from a position of strength and solidity. The overhaul of our operating efficiency is not a tactic for immediate survival. Rather, it is aimed at building Fleet's competitive strength for the longer term. Efficiency, customer focus, quality service, and positioning the corporation for tomorrow's opportunities are the principal goals of this effort. The sum of many reasons for conducting Fleet Focus '94 is that it is essential if Fleet is to continue being a preeminent player in the financial services industry. As the program's benefits begin to add up, Fleet will be strengthened, becoming more agile and better able to offer customers the services they want, configured the way they want them, and at competitive prices. DIVIDEND. In November, the Board of Directors voted the third increase in a 12-month period in the quarterly dividend paid on Fleet's common stock. The dividend was increased a total of 50% in that period. The most recent action, boosting the quarterly dividend 20% to $.30 per share, brought the annualized dividend rate to $1.20 per share. We are proud to continue honoring our commitment to reward you, 3 5 LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP our stockholders, by ensuring that you share in Fleet's steadily increasing earnings. The board also increased pensions for retired Fleet employees by 5%. In the same way that we took action to share the corporation's rising fortunes with stockholders, we felt it was appropriate to recognize our retired employees for their many years of service to the company. SECOND MORTGAGE ISSUE. The corporation took significant steps toward ending a second mortgage controversy at Fleet Finance, our Atlanta-based finance subsidiary, by winning a Georgia Supreme Court case in which we had been charged with usury and by reaching a settlement with Georgia state agencies. The settlement included $70 million to be invested in affordable housing programs to help low-income borrowers throughout Georgia and approximately $30 million in various forms of relief to certain past and present Georgia customers of Fleet Finance. Also, Fleet Finance reached an agreement in principle with class-action plaintiffs, subject to final documentation and court approval. Moreover, Fleet Finance continued to take numerous steps toward becoming a consumer finance industry leader. We are proud of the company's new focus on building strong, responsive relationships with its customers. Over the past 18 months, Fleet Finance has made significant policy and procedural changes to improve relationships with its customers, including offering rates that are among the most competitive in its industry, developing a centralized customer service department, and capping rates and broker/lender points to ensure the best possible loan arrangements to meet each customer's particular needs. Fleet Finance also placed greater emphasis on quality and customer satisfaction by strengthening its credit and risk management units, realigning senior managers to improve oversight, developing innovative consumer credit education programs in cooperation with the National Consumers League, and committing $8 million--including $1.3 million in direct grants to homeowners--to assist its Atlanta neighbors whose lives are being disrupted by work on the Olympic stadium. FLEET INCITY. Fleet generated extremely favorable headlines throughout the country in February of this year as leading members of the U.S. Congress, along with officials from the Clinton Administration, joined us in Washington to announce our new $8-billion community lending and service program, Fleet INCITY. A three-year program, Fleet INCITY is the most comprehensive lending commitment ever made by a U.S. financial institution. Its principal goal is to improve access to credit for low- and moderate-income people and small businesses. Fleet renewed its commitment of $7.2 billion in affordable housing and related initiatives and added $800 million of entirely new and original community commitments. Fleet intends to become a national leader in meeting the financial needs of low- and moderate-income neighborhoods and small and minority-owned businesses by giving credit where credit is due. Fleet INCITY encompasses government-sponsored affordable housing loans totaling more than $7 billion; a Fleet affordable housing initiative and mortgage outreach effort ($455 million); Fleet consumer loans totaling $225 million; Fleet small business loans and business microloans, including plans to create a $15-million Fleet Community Development Corp. (CDC), which will represent one of the largest initial capital investments ever made to a CDC by a bank holding company; and several other community and cultural diversity initiatives. Senator Edward M. Kennedy (D-Mass.) commented, "This is an extraordinary demonstration of responsible corporate and banking leadership, and it is a challenge to the other banks and financial institutions in Massachusetts and throughout the country to follow this incredible example." PEOPLE. Significant appointments in 1993 and earlier this year included the following. o John B. Robinson, Jr., executive vice president in charge of Fleet's New York, Maine, and New Hampshire banking franchises, was given additional responsibility for government banking and Fleet Securities. 4 6 LETTER TO STOCKHOLDERS FLEET FINANCIAL GROUP o Anne M. Slattery, who had been a senior executive with Citicorp, joined Fleet as a senior vice president. She is responsible for all consumer banking, including Fleet's system of more than 800 banking offices at 7 banks throughout the Northeast, the small business lending group, and the middle office support group. o Robert C. Lamb, Jr., was elected controller of the corporation. o David M. Sheppard was named chairman and chief executive officer, and Robert P. Drum was appointed president, of Fleet Services Corp. o Erland E. Kailbourne was elected chairman and chief executive officer of Fleet Bank of New York, succeeding Robert F. Macfarland, who retired. o Dean T. Holt was named president and chief credit officer of Fleet Bank of New York. He was succeeded as president and chief executive officer of Fleet Bank-NH by Michael C. Whitney. o Frederick C. Copeland, Jr., was named chairman and chief executive officer of Fleet Bank, N.A. o Georgina Macdonald was elected president of Fleet Management and Recovery Corp. (FMRC). o Agnes J. Bundy, former counsel to the U.S. Senate Budget Committee, joined the corporation as a senior vice president, Fleet Corporate Administration. She directs Fleet's Community Reinvestment Act (CRA) compliance program. o John S. Poelker, a financial services executive whose career has spanned more than 25 years and included serving as an executive vice president and treasurer of BankAmerica Corp., was named chairman and chief executive officer of Fleet Finance. o Frank H. Odell, retired chairman and chief executive officer of Fleet Bank of New York, retired from the corporation's Board of Directors. He had served on the board with distinction for years. We were saddened last year by the death of Mary Agnes Kiernan Callahan, widow of Peter D. Kiernan, Jr., Fleet's former chairman and chief executive officer. Mrs. Callahan, who devoted considerable time and effort to community service, is missed by her family and her wide circle of friends. OUTLOOK. The financial services industry is moving forward on an evolutionary path toward greater concentration. Superregional banks--relative newcomers on the scene--are beginning to combine into megabanks, seeking to improve operating efficiencies and enhance their ability to deliver superior customer service. As a superregional, Fleet certainly fits the description of a company constantly on the lookout for major new opportunities that make sense in this environment. We have not uncovered opportunities of that magnitude since the Bank of New England acquisition, but we are preparing for the day when we identify the right one. Through the benefits that will accrue from Fleet Focus '94, a new Fleet gradually will take shape. I hinted at it earlier: leaner, more agile, and more than ever before in our history driven by an imperative to give customers the best products, along with service at the highest quality levels, and all at competitive prices. I have no doubt that we will be successful in achieving these objectives, given the strong commitment to them by management and employees throughout the company. Fleet traces its beginnings back more than 200 years, to be sure, but our most significant growth has occurred in the last 20 years. Significant new growth, I am convinced, will be compressed into a far shorter time span. Thanks to the evolutionary process I referred to earlier, most banks today are either growing with remarkable speed or are disappearing from the scene at an equally fast pace. I can assure you that the new Fleet, now beginning to emerge, intends to be numbered among the new breed of customer-oriented financial services companies. We intend, in fact, to improve on our position of industry leadership throughout the remainder of this century and well into the next. I believe Fleet's potential truly is enormous, and your continued support as a stockholder, always greatly appreciated, will be a more important ingredient than ever as we strive to further shape, refine, and develop the new Fleet to its fullest potential. /s/ Terrence Murray Terrence Murray Chairman, President, and Chief Executive Officer 5 7 MANAGEMENT OVERVIEW FLEET FINANCIAL GROUP CHANGE, VISION, AND VALUES Fleet is a company that has changed dramatically in the past decade. We continue to change, which we must do to be successful. We are taking the best from our recent past and blending it with emerging innovations to create a company ideally suited for growth in today's more competitive environment. Vision, in the context of operating a successful business enterprise, has no strict definition. Each company must create its own shades of meaning for the concept of vision, based on the nature of its business and the goals of its management. We believe there are two interrelated concepts critical for success and growth: a strategic business vision and a set of corporate values. STRATEGIC BUSINESS VISION First, we continually develop and refine a clear, achievable strategic business vision, answering questions such as, in which businesses are we engaged, and in which ones do we intend to become active? How do we plan to expand the company? Who are our customers? What do they need and want today and in the future? How can Fleet efficiently meet their needs and wants? What resources, people and otherwise, do we need to achieve that vision? As noted earlier, answers to such critical questions are evolving rapidly as a result of Fleet Focus '94 and senior management's continuing analysis of our business strategies. We will report on the results of these initiatives in future communications, but a few strategies are already evident. o We will be customer-focused, understanding what our customers value and incorporating that knowledge into the development and distribution of our products and services. o We will achieve greater penetration of our exceptionally rich franchise, maximizing the significant growth potential inherent in our enormous customer base. o We will expand business activities that generate fee income, which is less susceptible to fluctuations in the economy. o We will continue to pursue an aggressive acquisition strategy recognizing that the banking industry is rapidly consolidating to eliminate excess capacity. o We will employ technology creatively to serve our customers better and to improve our productivity and efficiency. o We will maintain consistent, responsible, disciplined standards for evaluating risk and for approving credit, regardless of the pressures of the marketplace. We will work to achieve a proper balance between an entrepreneurial approach to business and one in which risk is evaluated and accounted for. Fleet's current management structure, organized along broad functional lines in 1993, is streamlined and highly efficient in today's fast-changing financial services industry. This structure positions the corporation to expand and to take advantage of interstate branching when that possibility becomes a reality. Although Fleet's strategic business vision is still evolving, many components of our business mix are so elemental that they have a secure place in the company's future. COMMERCIAL FINANCIAL SERVICES. Commercial and industrial lending, equipment leasing, asset-based lending, commercial real estate, commercial products and services, government and municipal securities, government banking, trade services, and cash management, a significant segment of the Commercial Financial Services Division, will continue to be core businesses for Fleet. CONSUMER FINANCIAL SERVICES. The Consumer Financial Services Division is in a strong position to offer retail customers high-quality service and a commonality of products, while simultaneously capitalizing on efficiencies necessary for improved earnings. Fleet's consumer banking franchise includes 800 branches across Connecticut, Maine, Massachusetts, New Hampshire, New York, and Rhode Island. New technology will continue to enable nontraditional approaches to sales that are unhindered by geography. Fleet's mortgage banking, consumer finance, and student loan processing business lines also continue to have secure places in Fleet's future. INVESTMENT SERVICES. A group of Fleet subsidiaries, steadily increasing in value to the corporation, offer comprehensive investment, trust, private banking, 6 8 MANAGEMENT OVERVIEW FLEET FINANCIAL GROUP and brokerage services targeted to affluent customers. Included among the several products that help clients manage their finances are money market funds, annuities, and the Galaxy (sm) family of mutual funds. In 1993, the private banking area was integrated with our investment services subsidiary to offer a full range of investment products and services and high-quality investment management services. Fleet's brokerage subsidiary, one of the country's largest, augments Fleet's investment management activities through its primary business of executing orders for buying and selling securities. CORPORATE VALUES The second concept we consider essential is a set of corporate values that serve as guide posts in our corporate life. These values answer such questions as, how will we interact with our stockholders, customers, employees, and the community-at-large? What is our corporate culture? How do we interpret business ethics? How do we want Fleet to be seen by the world? We should be succinct and unambiguous in stating our corporate values. These, then, are our guide posts for corporate behavior. PUTTING OUR CUSTOMERS FIRST. Fleet will deliver top-quality services when, where, and how our customers want them. We will distinguish our institution by our responsiveness, convenience, courtesy, and turnaround time. We will make Fleet a preferred source for financial products and services by making customer service an integral part of our corporate culture. We believe performance that strengthens our earnings is entirely compatible with the best in customer service. As we eliminate unnecessary processes at our branches, employees will be able to devote more time to customers. Finally, when errors do occur, despite our best efforts, our customers deserve to have them resolved promptly and courteously. RESPONSIBLE CITIZENSHIP. Fleet will distinguish itself as a good citizen of the communities in which we do business, which means more than charitable giving anad volunteer support, as important as they are. It also means putting the full weight of our institution behind worthwhile community needs, such as affordable housing. Through sponsorships, special events, charitable gifts, and volunteer programs, the corporation strives to improve the quality of life in the communities we serve. During 1993, for example, Fleet contributed more than $5 million to these communities. The corporation is particularly committed to the advancement of youth and to economic revitalization. In addition to providing financial assistance to myriad worthwhile nonprofit entities, Fleet is proud of the high level of volunteerism and board involvement exhibited by many of our employees. Fleet's new $8-billion affordable housing and community lending program, Fleet INCITY, described earlier, is another example of our determination to be a responsible corporate citizen. HIGHEST ETHICAL STANDARDS. Fleet is renewing its dedication to the principles of fairness, honesty, and integrity, as defined not merely by law, but by the best and highest ethical precepts of contemporary society. We will maintain a work environment that reinforces uncompromising ethical conduct by our employees, and we will not tolerate deviations from those standards. We recognize that we must live by these high ethical standards in all of our interactions with customers, stockholders, government officials, and with one another. BUILDING STOCKHOLDER VALUE. Fleet will maintain an appropriate balance among profitability, growth, and risk in a determined effort to build stockholder value. We will set our dividend at a level that enables stockholders to participate fully in Fleet's prosperity. We will continue to recognize that our stockholders, because they own the company, have a high priority in all of our considerations. Management is committed, on behalf of stockholders, to enhancing the value of their holdings. A REWARDING PLACE TO WORK. Fleet will recruit and retain quality employees by providing an environment that rewards intelligence, commitment, and service to our customers. By offering opportunities for advancement and incentives that truly reward employees for producing business and providing high levels of customer service, we will show sensitivity to the needs of outstanding employees and gratitude for their contributions to Fleet's success. 7 9 FINANCIAL TABLE OF CONTENTS FLEET FINANCIAL GROUP FINANCIAL TABLE OF CONTENTS NINE MANAGEMENT'S DISCUSSION AND ANALYSIS TWENTY-FOUR MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS TWENTY-FIVE REPORT OF INDEPENDENT AUDITORS CONSOLIDATED FINANCIAL STATEMENTS TWENTY-SIX Consolidated Statements of Income TWENTY-SEVEN Consolidated Balance Sheets TWENTY-EIGHT Consolidated Statements of Changes in Stockholders' Equity TWENTY-NINE Consolidated Statements of Cash Flows THIRTY Notes to Consolidated Financial Statements SUPPLEMENTAL FINANCIAL INFORMATION FIFTY-ONE Ten-Year Statistical Summary FIFTY-ONE Quarterly Summarized Financial Information FIFTY-ONE Common Stock Price and Dividend Information FIFTY-TWO Consolidated Average Balances/Interest Earned-Paid/Rates 1989-1993 FIFTY-FOUR Rate/Volume Analysis FIFTY-FOUR Loan and Lease Maturity FIFTY-FOUR Interest Sensitivity of Loans over One Year 8 10 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP OVERVIEW Fleet Financial Group (Fleet or, the corporation) reported net income for 1993 of $488 million, or $3.01 per share, a $208-million (74%) increase compared to 1992. Return on assets improved significantly to 1.06% as stronger earnings were achieved with a relatively level asset base. Return on common stockholders' equity also increased significantly to 16.07%. The improved results reflect increased net interest income due to favorable interest-rate spreads and reduced asset-quality costs as a result of a significant reduction in nonperforming assets (NPAs) and a lower level of net credit losses. The provision for credit losses decreased by $215 million, and other real estate owned (OREO) expense declined by $97 million. Included in the 1993 results are three significant items. First, the corporation recorded a $125-million restructuring charge relating to Fleet's efficiency-improvement program, Fleet Focus '94. The charge covers certain onetime expenses such as severance, project costs, and other direct expenses resulting from this program. Second, Fleet Mortgage Group (FMG) recognized a charge of $100 million during the second quarter related to mortgage servicing assets. Mortgage servicing assets consist of purchased mortgage servicing rights (PMSRs) and deferred excess service fees. High prepayment activity combined with projections of future prepayment activity significantly affected the value of FMG's mortgage servicing assets. More than offsetting these charges, the corporation recognized $282 million in gains from securities sold. Other significant items described in detail later include the settlement of certain lawsuits against Fleet Finance, the corporation's consumer finance subsidiary, two dividend increases to an annualized rate of $1.20, and the sale of 12.3 million shares of common stock generating $391 million in net proceeds.
NET INTEREST INCOME - ----------------------------------------------------------- Year ended December 31 Dollars in millions FTE basis 1993 1992 1991 - ----------------------------------------------------------- Interest income $3,212 $ 3,416 $3,329 Tax-equivalent adjustment 33 30 46 Interest expense 1,161 1,463 1,930 - ---------------------------------------------------------- Net interest income $2,084 $ 1,983 $1,445 ==========================================================
Net interest income on a fully taxable equivalent (FTE) basis for the year ended December 31, 1993, increased by 5.1% compared to 1992, due primarily to an improvement in net interest margin, as earning-asset levels were relatively stable.
NET INTEREST MARGIN AND INTEREST-RATE SPREAD - -------------------------------------------------------------------------------- December 31 1993 1992 - -------------------------------------------------------------------------------- Taxable equivalent rates Average Average Dollars in millions Balance Rate Balance Rate - -------------------------------------------------------------------------------- Securities $12,938 6.85% $ 11,709 7.69% Loans and leases 26,144 8.46 26,615 8.94 Other 2,453 6.04 2,904 5.77 - -------------------------------------------------------------------------------- Total interest-earning assets 41,535 7.81 41,228 8.36 - -------------------------------------------------------------------------------- Interest-bearing liabilities 34,862 3.33 34,431 4.25 - -------------------------------------------------------------------------------- Interest-rate spread 4.48 4.11 Interest-free sources of funds 6,673 - 6,797 - - -------------------------------------------------------------------------------- Total sources of funds $41,535 2.79 $ 41,228 3.56 ================================================================================ Net interest margin 5.02% 4.80% ================================================================================
The net interest margin for 1993 increased 22 basis points (4.6%) compared to 1992, primarily due to the decrease in the cost of liabilities outpacing the decrease in the yield on assets. Decreases in consumer deposit rates, the roll-off of higher rate wholesale liabilities, and the retirement of high-coupon rate debt were major contributors to the decrease in the cost of liabilities. The yield on securities declined 84 basis points, due to sales and maturities of higher-yielding mortgage-backed securities (MBS) and long-term fixed-rate securities, replaced by the purchase of lower-yielding securities during 1993. Those sales reduced prepayment sensitivity and shortened the maturity of the portfolio. Proceeds from those sales were reinvested primarily in short-term U.S. Treasury securities and lower-coupon, adjustable-rate MBS that management believes were less susceptible to prepayment and interest-rate risk. 9 11 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP The yield on loans declined 48 basis points due to a significant run-off of high-yielding loans, some of which were putable to the Federal Deposit Insurance Corp. (FDIC), and refinancing of loans at increasingly competitive rates. These items were partially offset by the benefit of a 38% decrease in nonperforming loans from December 31, 1992, to December 31, 1993, and the increased use of interest-rate swap agreements. (See the Interest-Rate Sensitivity section for more information.) The factors that contributed to the increase in net interest margin in 1993, particularly related to liabilities, including favorable interest-rate conditions, are unlikely to occur in 1994. Therefore, a similar increase in the net interest margin for 1994 is also unlikely.
NONINTEREST INCOME - -------------------------------------------------------------------- Year ended December 31 Dollars in millions 1993 1992 1991 - ------------------------------------------------------------------- Net loan servicing revenue $ 231 $ 234 $ 226 Mortgage production revenue 158 114 42 Gains on sales of mortgage servicing 25 16 37 - -------------------------------------------------------------------- Total mortgage banking 414 364 305 Investment services revenue 174 160 119 Service charges on deposits 173 162 116 Other service charges, fees, and commissions 105 94 84 Student loan servicing fees 51 61 65 Merchant discount fees 31 24 13 Brokerage fees and commissions 20 18 16 Insurance 19 21 18 Gain on sale/securitization of bank loans 14 12 - Other 154 103 82 - -------------------------------------------------------------------- Total operating noninterest income 1,155 1,019 818 - -------------------------------------------------------------------- Securities available for sale gains 282 207 81 Investment securities gains - - 92 - -------------------------------------------------------------------- Total securities gains 282 207 173 - -------------------------------------------------------------------- Trading income: Securities 20 20 16 Foreign exchange/interest- rate products 8 1 26 - -------------------------------------------------------------------- Total trading income 28 21 42 - -------------------------------------------------------------------- Gain on partial sale of FMG - 121 - Gain on sale of finance receivables - - 49 - -------------------------------------------------------------------- Total noninterest income $ 1,465 $ 1,368 $ 1,082 ====================================================================
Operating noninterest income (as defined above) for 1993 increased 13.3% compared to 1992. Net loan servicing revenue, which has been adversely affected by prepayments in the mortgage servicing portfolio, decreased slightly from $234 million in 1992 to $231 million in 1993. This decrease was primarily due to the increased amortization expense of deferred excess service fees. The corporation's mortgage servicing portfolio totaled $69.9 billion at December 31, 1993, compared to $63.0 billion a year earlier, an increase of 11%. The corporation's servicing portfolio is subject to reduction by normal amortization, by sales of servicing rights, by prepayment, or by foreclosure of outstanding loans. The value of the corporation's loan servicing portfolio may be adversely affected if mortgage interest rates decline and loan prepayments increase. The value is also adversely affected by unanticipated rates of default. Conversely, as mortgage interest rates increase or as rates of default decrease, the value of the corporation's loan servicing portfolio may be positively affected. The weighted-average interest rate on the underlying mortgage loans being serviced by the corporation as of December 31, 1993, was 8.26%. The corporation's PMSRs are subject to a great degree of volatility in the event of unanticipated prepayments or defaults. Prepayments in excess of those anticipated at the time PMSRs were recorded result in decreased future net servicing income. Such decreases in future net servicing income would result in accelerated amortization and/or impairment of PMSRs. The corporation's net earnings, future net earnings, and liquidity are adversely affected by unanticipated prepayments of the mortgage loans underlying its PMSRs. Mortgage production revenue increased 39% during 1993 as a result of an increase in net marketing gains, due primarily to a declining interest-rate environment as well as increased sales of mortgage loans in 1993. FMG produced $22.9 billion in residential mortgage loans in 1993, compared to $19.6 billion in 1992, an increase of 17%. Marketing results are generally more favorable when interest rates decline. If interest rates remain stable or increase in future periods, marketing gains would probably decrease. 10 12 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP Gains on sales of mortgage servicing were $25 million, versus $16 million in 1992, as FMG sold mortgage servicing rights related to $2.3 billion of mortgage loans in bulk transactions during 1993. FMG's decision to sell mortgage servicing rights is based upon a variety of factors, including the available markets and current market prices for such servicing rights and the working capital requirements of FMG. Sales of mortgage servicing rights reduce future servicing revenue. The likelihood or profitability of any such sales in the future cannot be predicted. Investment services revenue increased $14 million (9%) from 1992 to 1993 due to an increase in the fee structure. Student loan servicing fees decreased from 1992 primarily due to the closing of AFSA Data's student loan servicing center in Costa Mesa, California, during the second quarter of 1992. This center had been temporarily established to service student loans for another financial institution, a task that is now complete. AFSA's profitability, however, was not adversely affected because cost reductions related to the closing of the servicing center were also achieved. Other noninterest income increased by $51 million from 1992 to 1993 due primarily to the recognition of $17 million of unrealized appreciation of venture capital investments by Fleet Equity Partners and a $3-million increase in administrative fees received from the FDIC for managing troubled assets on its behalf. Fleet has agreed to liquidate, collect, and manage the Bank of New England (BNE) asset pool and the Maine Savings Bank (MSB) special asset pool for the FDIC for a five-year period expiring in July 1996. (See the section on Federal Financial Assistance under Loans and Leases for additional information.) Fleet receives reimbursement for all allowable direct costs, a general overhead payment, and an incentive fee. Such amounts are reflected in noninterest income, net of expenses, in the statements of income and amounted to $31 million and $12 million for the years ended December 31, 1993 and 1992, respectively. The corporation recognized $282 million in gains on the sale of securities in 1993 compared to $207 million in 1992. The increase in the securities gains was primarily due to the sale of approximately $6.5 billion of MBS, fixed-rate U.S. Treasury notes, and equity securities in 1993.
NONINTEREST EXPENSE - ---------------------------------------------------------------- Year ended December 31 Dollars in millions 1993 1992 1991 - ---------------------------------------------------------------- Employee compensation and benefits $ 1,018 $ 958 $ 747 Acquired servicing rights amortization 240 107 99 Occupancy 174 165 134 Equipment 130 118 100 Legal and other professional 86 81 60 FDIC assessment 76 75 64 OREO expense 57 154 105 Core deposit and goodwill amortization 54 45 33 Marketing 53 51 36 Printing and mailing 42 39 35 Telephone 40 38 32 Credit card 38 22 20 Office supplies 33 34 27 Travel and entertainment 28 26 18 Restructuring charge 125 - - Other 230 405 309 - ---------------------------------------------------------------- Total noninterest expense $ 2,424 $ 2,318 $ 1,819 ================================================================
The $106-million increase in total noninterest expense from 1992 to 1993 was primarily due to the charge relating to the impairment of the carrying value of mortgage servicing assets as demonstrated by the increase in acquired servicing rights amortization from 1992 to 1993 and the $125-million restructuring charge recognized in 1993, offset by a $97-million decrease in OREO expense from 1992 to 1993. The 6.3% increase in employee compensation and benefits from year to year is due primarily to an increase in compensation at FMG resulting from record levels of production activity, the impact of the December 1992 acquisitions of Eastland and Heritage banks, normal merit increases, and increased benefits costs. During the second quarter, FMG recognized a charge of $100 million related to mortgage servicing assets. High prepayment activity combined with projections of future prepayment activity significantly affected the value of FMG's mortgage servicing assets. If the corporation continues to experience high levels of prepayments, acceleration of amortization or impairment charges to PMSRs may be required in the future. The corporation, including FMG, continuously analyzes its mortgage servicing portfolio to determine 11 13 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP if adjustments should be made to its amortization schedules or the carrying values of its mortgage servicing assets due to changes in interest rates, historic prepayment rates, expected prepayment rates, and other economic factors. The corporation will continue to evaluate the use of various financial instruments in an effort to offset the impact of future impairment adjustments; however, future impairment of PMSRs and losses from financial instruments could occur in the same period. If the corporation's prepayments continue at high levels similar to those experienced in 1993, further impairment would probably occur. The $97-million (63%) decrease in OREO expense was primarily the result of a $105-million (44%) decrease in foreclosed property and repossessed equipment from $241 million at December 31, 1992, to $136 million at December 31, 1993, as well as stabilization and, in some instances, recovery of the value of such properties. (See the Nonperforming Assets section for additional information.) The corporation recorded a restructuring charge of $125 million relating to Fleet Focus '94 during the third quarter of 1993. This covers certain onetime expenses such as severance costs and occupancy costs, project costs, consulting fees, and other direct expenses resulting from this program. Occupancy costs reflect the writedown of premises and equipment relating to expected abandonment of facilities due to the expected reduction of employees. The most significant portion of expense reductions will consist of savings of employee compensation and benefits due to a reduction in employees. The corporation does not anticipate a decrease in net revenues as a result of the program. The majority of cash outlays associated with this program are expected to be made during 1994 and are not expected to have an impact on the corporation's liquidity. The charge includes only identified direct and incremental costs associated with Fleet Focus '94; however, an additional restructuring charge could be incurred to the extent that the ultimate savings and costs to achieve them are greater than currently anticipated. Fleet Focus '94 is intended to enhance the corporation's competitive position through a comprehensive review of all its Northeast banking activities and operations. The program consists of an intensive project phase followed by implementation of recommended actions. The review is designed to build a more efficient organization with enhanced customer service and focus. The corporation's goal is to improve the existing efficiency ratio through revenue enhancement and spending cuts in virtually all areas of its Northeast banking operations from the current 66% to below 60% by year-end 1994.
EARNINGS BY SUBSIDIARY - --------------------------------------------------------------- Year ended December 31 Dollars in millions 1993 1992 1991 - --------------------------------------------------------------- BANKING GROUP Connecticut $135 $ 68 $ (23) Upstate New York 132 84 119 Massachusetts 124 84 17 Rhode Island 77 (31) (43) Maine 34 23 (11) Long Island 26 (27) (49) New Hampshire 21 5 (11) - -------------------------------------------------------------- Total Banking Group 549 206 (1) - -------------------------------------------------------------- FINANCIAL SERVICES GROUP Fleet Mortgage Group (FMG) 25(a) 100(a) 77 Fleet Equity Partners 13 4 - Fleet Credit 11 1 21 Fleet Factors(b) 9 4 10 Fleet Securities 6 6 4 Fleet Brokerage 4 3 1 AFSA Data 3 (4) (2) Fleet Finance (29) (8) 51 - -------------------------------------------------------------- Total Financial Services Group 42 106 162 - -------------------------------------------------------------- PARENT (103) (32) (63) - -------------------------------------------------------------- Total $488 $ 280 $ 98 ==============================================================
(a)Net of minority interest of $6 million and $9 million for the years ended December 31, 1993 and 1992, respectively. (b)Fleet sold Fleet Factors Corp. to GFC Financial Corp. in the first quarter of 1994. The Banking Group's earnings increased $343 million, or 166%, for the year ended December 31, 1993, compared to the prior year. The positive results were attributable to (after-tax) improved net interest margins; an increase in securities gains of $19 million; a decrease in OREO expenses of $53 million; and a $123-million decrease in the provision for credit losses. These credit-quality cost decreases were the result of a significant overall improvement in asset quality due, in part, to the fourth quarter 1992 bulk sale of problem assets. The Financial Services Group's earnings decreased $64 million due primarily to a $75-million decrease at FMG and a $21-million decrease at Fleet Finance, offset by increases at Fleet Equity 12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP Partners and Fleet Credit. Total assets and revenue of the Financial Services Group were $7.6 billion and $1.1 billion, respectively, at December 31, 1993. FMG contributed income of $25 million in 1993, compared to $100 million in 1992. Earnings for the 1993 period were adversely affected by a high level of mortgage loan prepayments, which resulted in a high level of amortization of mortgage servicing assets. (See the Noninterest Income and Noninterest Expense sections for more information on mortgage banking revenue and mortgage servicing assets amortization.) Fleet Equity Partners recognized $10 million (after-tax) of unrealized appreciation in two venture capital investments in 1993. As an investment company, Fleet Equity Partners's investments are carried at fair value. Accordingly, subsequent appreciation or depreciation in value is dependent upon market conditions. Fleet Finance's 1993 loss of $29 million was primarily related to the settlement of potential litigation with the Georgia Attorney General and Governor's Office of Consumer Affairs and a settlement in principle with plaintiffs in a class-action lawsuit, as well as related asset-quality deterioration. The 1992 results for Fleet Finance include a $15-million (after-tax) charge related to its 10-point program to assist certain customers. A small increase in NPAs was the result of a continuing deterioration of its home equity loan portfolio, partially offset by the reduction in nonperforming commercial real estate loans. The provision for credit losses (after-tax) increased to $45 million in 1993 from $30 million in 1992, while expenses related to OREO (after-tax) decreased to $8 million in 1993 from $13 million in 1992. Fleet Credit reported net income of $11 million in 1993 compared to $1 million for 1992. The improvement in earnings was primarily attributable to an improvement in asset quality and the loss on the sale of a subsidiary in 1992 of $4 million. Fleet Factors's income for 1993 totaled $9 million, compared to $4 million for 1992, primarily due to an increase in volume and improved asset quality. Fleet announced in the fourth quarter of 1993 that it planned to sell Fleet Factors to GFC Financial Corp. of Phoenix, Arizona, in an all-cash transaction, which was completed in the first quarter of 1994. Fleet Factors had total assets of approximately $350 million at December 31, 1993. AFSA's 1993 net income improved $7 million versus 1992, primarily due to operational charges incurred in 1992 to reflect increased rejections of claims against guarantors of the student loans serviced by AFSA. The parent's increased loss is due to the aforementioned restructuring charge and the 1992 gain on partial sale of FMG, offset in part by a $29-million (after-tax) gain in 1993 on the sales of securities available for sale. LOANS AND LEASES
December 31 Dollars in millions 1993 1992 - ------------------------------------------------------------------------------------------- Loans and leases: Commercial and industrial $11,104 $11,149 Consumer 7,531 7,116 Commercial real estate:(a) Construction 477 1,062 Interim/permanent 3,917 3,798 - ------------------------------------------------------------------------------------------- Total commercial real estate 4,394 4,860 - ------------------------------------------------------------------------------------------- Residential real estate 2,052 2,154 Lease financing 1,034 1,092 Other 195 276 - ------------------------------------------------------------------------------------------- Total $26,310 $26,647 ===========================================================================================
(a) During 1993, the corporation adopted a revised definition for classification of commercial real estate loans as either interim/permanent or construction and, accordingly, approximately $600 million of loans were reclassified from the construction category to interim/permanent. Loan and lease portfolios inherently include credit risk. Fleet attempts to control such risk through review processes that include careful analyses of credit applications, portfolio diversification, and ongoing examination of outstandings and delinquencies. Fleet strives to identify potential classified assets early, to take charge-offs promptly based on realistic assessments of probable losses, and to maintain strong loss reserves. The corporation's portfolio is well-diversified by borrower, industry, product, and geographic area, thereby reducing risk. Total loans and leases were $26.3 billion at December 31, 1993, compared to $26.6 billion at December 31, 1992, as modest increases in the commercial and industrial and consumer loan portfolios during the latter portion of 1993 were offset, in part, by the reduction ($1.4 billion) of putable/loss share loans included in commercial and industrial, and commercial real estate loans. 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP COMMERCIAL AND INDUSTRIAL
December 31 Dollars in millions 1993 - ------------------------------------------------------------------- Commercial loans secured by real estate(a) $ 1,076 Business services 1,050 Precious metals/jewelry 916 Health-care 827 Communications 825 Food/produce 779 Apparel and textiles 656 Bank and insurance 529 Transportation 520 Utilities/energy 447 Tourism and entertainment 429 Other 3,050 - ------------------------------------------------------------------- Total $11,104 ===================================================================
(a) Commercial loans secured by real estate represent loans made to commercial borrowers to acquire land and buildings, but the primary source of repayment is the cash flow generated by the operations of the borrower's business. Commercial and industrial lending consists primarily of middle-market corporate customers and is well-diversified as to industry and companies within each industry, thereby mitigating risk. Approximately two-thirds of the portfolio is in the New England banks and one-third in the New York banks, with approximately 14% of portfolio loans subject to federal financial assistance, as compared to 22% in 1992. The decrease was due primarily to the run-off of the putable/loss share loans. COMMERCIAL REAL ESTATE--PRODUCT DIVERSIFICATION
December 31 Dollars in millions 1993 1992 - ------------------------------------------------------------------------------------------- Office $ 1,019 $ 1,126 Apartments 877 779 Retail 865 949 Industrial 380 448 Hotel 240 274 Land 169 200 Residential 151 81 Condominiums 70 71 Research and development 31 48 Other 592 884 - ------------------------------------------------------------------------------------------- Total $ 4,394 $ 4,860 ===========================================================================================
Fleet's commercial real estate portfolio decreased by $466 million in 1993 due in part to a $473-million decrease in loans putable to the FDIC and a $111-million decrease in loss share loans. The putable loans were acquired as part of the 1991 federally assisted BNE acquisition while the loss share loans were acquired as part of the federally assisted acquisitions of Eastland and Heritage banks in December 1992. In 1993, the corporation entered several new lines of business, including national lending, public project finance, real estate investment trusts, and portfolio finance. These areas are expected to be a source of growth in 1994. Fleet continues to look into new opportunities to help rebalance the portfolio and provide growth and diversity in order to improve the overall credit quality of the commercial real estate portfolio. CONSUMER AND RESIDENTIAL REAL ESTATE
December 31 Dollars in millions 1993 1992 - ------------------------------------------------------------------------------------------- Home equity $ 4,100 $ 3,983 Residential real estate 2,052 2,154 Installment 1,310 1,507 Credit card 1,060 579 Student loans 938 916 Other 123 131 - ------------------------------------------------------------------------------------------- Total $ 9,583 $ 9,270 ===========================================================================================
Approximately 64% of the consumer and residential real estate portfolio represented loans secured by residential real estate, including second mortgage and home equity loans and lines of credit. The corporation's subsidiaries originated approximately $1.7 billion of home equity loans and lines of credit during 1993; however, the home equity portfolio increased by only 3% due to refinancings and prepayments. Outstanding residential real estate loans secured by one- to four-family residences were $2.1 billion at December 31, 1993, compared to $2.2 billion at December 31, 1992. The decrease is primarily the result of increased prepayments resulting from falling interest rates. The risks associated with this type of lending are generally lower 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP than other types because the loans are secured by residential properties, whose values have traditionally been more stable and have experienced lower default rates than commercial real estate. Except for selected programs and loans held in the portfolio for asset/liability management purposes, residential mortgage loans in the corporation's banking franchise area are originated by FMG and are sold in the secondary market. Installment loans decreased 13% from $1.5 billion at December 31, 1992, to $1.3 billion at December 31, 1993, as the corporation has made a strategic decision to exit the indirect installment loan market. Credit card outstandings doubled over the past two years to $1.1 billion at December 31, 1993. The increase was due to new originations, special promotions, and a change in rate structure to a rate that floats based on the prime rate. Student loans increased slightly to $938 million, even though the corporation recognized $11 million of gains on the sale of $100 million of student loans in 1993. The corporation manages the risk associated with most types of consumer loans through the utilization of uniform credit standards when extending credit together with enhanced computer systems that streamline the process of monitoring delinquencies and assisting in customer contact. LEASE FINANCING. The corporation provides equipment lease financing for mid- to large-sized equipment through a nationwide network of sales offices. Total lease financings declined slightly during the year. During 1992, lease financings decreased as the corporation sold its small-ticket leasing subsidiary based on a decision to exit this segment of the market. FEDERAL FINANCIAL ASSISTANCE. Over the past three years, Fleet has completed several acquisitions involving federal financial assistance. The most significant were the 1991 acquisitions of BNE and MSB, and the 1992 acquisitions of Heritage and Eastland banks. For all of these acquisitions the FDIC provided substantial loss protection related to specific loans. Until July 1994, specified BNE loans ($2.8 billion at December 31, 1993), comprised principally of commercial and commercial real estate loans, are putable to the FDIC subject to certain conditions and discounts if such loans become classified prior to that date. Fleet currently anticipates retaining the majority of putable loans, which will result in additional risk weighting of these loans when calculating regulatory capital ratios. The reclassification of the putable loans will increase risk-adjusted assets by approximately $1.6 billion (assuming all loans are outstanding at July 14, 1994) and could have caused a decrease at December 31, 1993, in the corporation's Tier 1 risk-based capital ratio and total risk-based capital ratio of approximately 64 and 88 basis points, respectively. (See the Capital section for additional information.) Prior to February 1, 1993, specified MSB loans that became classified were eligible to be put to a special asset pool (MSB special asset pool). The MSB special asset pool ($195 million at December 31, 1993) will be acquired by the FDIC on February 1, 1996, for cash. Fleet receives reimbursement for interest carrying costs on the MSB special asset pool ($8.9 million and $15.0 million for the years ended December 31, 1993 and 1992, respectively). Also, an additional $4.3 million of incentive income was earned on the special asset pool in 1993. Certain of the Heritage and Eastland banks' loans totaling $514 million at December 31, 1993, comprised principally of commercial and commercial real estate loans, are subject to FDIC loss sharing agreements, whereby the FDIC generally reimburses Fleet for 80% of net charge-offs for periods ranging from three to five years from the date of acquisition. 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP NONPERFORMING ASSETS ACTIVITY IN NONPERFORMING ASSETS
Year ended December 31 Dollars in millions 1993 1992 - ------------------------------------------------------------------------------------------- Balance at beginning of year $ 990 $ 1,609 Additions 633 1,217 Reductions: Bulk sale -- (402) Payments/interest applied (397) (514) Returned to accrual (140) (186) Charge-offs/writedowns (312) (517) Sales/other (173) (217) - ------------------------------------------------------------------------------------------- Total reductions (1,022) (1,836) - ------------------------------------------------------------------------------------------- Balance at end of year $ 601 $ 990 ===========================================================================================
NPAs decreased $389 million, or 39%, from December 31, 1992. NPAs at December 31, 1993, as a percentage of total loans, leases, OREO, and insubstance foreclosures (ISFs), and as a percentage of total assets, were 2.27% and 1.25%, respectively. Fleet's nonperforming loans and leases decreased $284 million and OREO and ISFs were reduced $105 million from December 31, 1992. During 1993, nonperforming asset additions were $633 million, a significant improvement over 1992. Reductions in NPAs during the year were primarily attributable to payments, loan charge-offs, and sales. NONPERFORMING ASSETS(a)
Commercial Commercial and Real Dollars in millions Insustrial Estate Consumer Total - ------------------------------------------------------------------------------------------------------- Nonperforming loans and leases: Current or less than 90 days past due $111 $ 31 $ 5 $147 Noncurrent 108 50 160 318 OREO/ISFs 12 78 46 136 - -------------------------------------------------------------------------------------------------------- Total NPAs at December 31, 1993 $231 $ 159 $ 211 $601 ======================================================================================================== Total NPAs at December 31, 1992 $428 $ 393 $ 169 $990 ========================================================================================================
(a) Throughout this document, NPAs and related ratios do not include loans greater than 90 days past due and still accruing interest ($77 million and $118 million at December 31, 1993 and 1992, respectively), or assets subject to federal financial assistance ($118 million and $163 million at December 31, 1993 and 1992, respectively) Consumer NPAs increased primarily due to a $22-million increase at Fleet Finance, caused principally by increased delinquencies. Management believes that part of the increase was a result of increased litigation and media attention, whereby borrowers may have been encouraged to discontinue making payments. A majority of these matters have now been resolved. (See Note 16 to the Consolidated Financial Statements for further information.) Commercial NPAs decreased from December 31, 1992, due to reduced inflow, workout measures, and improving economic conditions. At December 31, 1993 and 1992, loans in the 90 days past due and still accruing interest category amounted to $77 million and $118 million, respectively, which included approximately $62 million and $80 million, respectively, of consumer loans. Although these amounts are not included in NPAs, management reviews loans in this category when considering risk elements to determine the adequacy of Fleet's credit loss reserve. 16 18 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP RESERVE FOR CREDIT LOSSES
December 31 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------- Percent of Percent of Percent of Loan Type to Loan Type to Loan Type to Dollars in millions Amount Total Loans Amount Total Loans Amount Total Loans - ------------------------------------------------------------------------------------------------------------------- Commercial and industrial $ 299 42.2% $ 387 41.1% $ 321 38.0% Consumer 180 28.7 199 26.6 150 25.8 Commercial real estate: Construction(a) 7 1.8 39 3.9 - 4.7 Interim/permanent 135 14.9 209 14.0 256 14.8 - ------------------------------------------------------------------------------------------------------------------- Total commercial real estate 142 16.7 248 17.9 256 19.5 - ------------------------------------------------------------------------------------------------------------------- Residential real estate 27 7.8 38 8.5 61 8.8 Lease financing 36 3.9 31 4.9 33 6.6 Other - 0.7 - 1.0 - 1.3 Unallocated 316 126 200 - ------------------------------------------------------------------------------------------------------------------- Total $1,000 100.0% $1,029 100.0% $ 1,021 100.0% ===================================================================================================================
December 31 1990 1989 - ---------------------------------------------------------------------------------------------------- Percent of Percent of Loan Type to Loan Type to Dollars in millions Amount Total Loans Amount Total Loans - ---------------------------------------------------------------------------------------------------- Commercial and industrial $223 38.1% $120 37.5% Consumer 95 26.7 74 28.2 Commercial real estate: Construction(a) - 8.2 -- 11.3 Interim/permanent 168 9.7 85 5.7 - ---------------------------------------------------------------------------------------------------- Total commercial real estate 168 17.9 85 17.0 - ---------------------------------------------------------------------------------------------------- Residential real estate 57 7.6 20 7.1 Lease financing 26 9.7 27 10.2 Other - -- Unallocated 131 15 - ---------------------------------------------------------------------------------------------------- Total $700 100.0% $341 100.0% ==================================================================================================== (a) Prior to 1992, the allocated commercial real estate reserve included construction loan reserves.
Reserve for credit losses represents amounts available for future credit losses and reflects management's ongoing detailed review of certain individual loans and leases, supplemented by analysis of historic net charge-off experience of the portfolio and an evaluation of current and anticipated economic conditions and other pertinent factors. Based on these analyses, the corporation believes that its year-end reserve is adequate. Loans and leases (or portions thereof) deemed uncollectable are charged against the reserve, while recoveries of amounts previously charged off are added to the reserve. Loss provisions charged to earnings are added to the reserve. Amounts are charged off once the probability of loss has been established with consideration given to factors such as the customer's financial condition, underlying collateral and guarantees, and general and industry economic conditions. During 1993, the corporation refined its consumer loan reserve methodology, which resulted in a lower allocated reserve partially offset by an increase in the unallocated reserve. Fleet's reserve for credit losses decreased $29 million from December 31, 1992, to December 31, 1993, as loans and leases charged off during the year exceeded the amount of the provision and recoveries recognized during the year. The corporation's ratios of reserve for credit losses to NPAs and reserve for credit losses to nonperforming loans and leases have steadily increased due to the decline in nonperforming loans and leases against a relatively flat reserve position. The decrease in the provision for credit losses reflected the reduction in charge-offs and NPAs as well as a general improvement in economic conditions. Net charge-offs decreased $255 million in 1993, compared to 1992, because charge-offs in 1992 included $129 million related to the bulk sale of problem loans. The ratio of net charge-offs to average loans and leases decreased to 1.11% at December 31, 1993, from 2.05% at December 31, 1992. 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP RESERVE FOR CREDIT LOSS ACTIVITY
Year ended December 31 Dollars in millions 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 1,029 $1,021 $ 700 $341 $315 Gross charge-offs: Commercial and industrial 148 226 139 131 64 Consumer 103 92 83 75 61 Commercial real estate(a) 103 231 181 208 31 Residential real estate 4 35 11 3 - Lease financing 21 34 26 31 16 - ---------------------------------------------------------------------------------------------------------------------- Total charge-offs, gross 379 618 440 448 172 - ---------------------------------------------------------------------------------------------------------------------- Recoveries: Commercial and industrial 29 27 11 12 6 Consumer 29 22 20 21 17 Commercial real estate 22 19 8 8 1 Residential real estate - 2 1 - - Lease financing 9 3 3 3 1 - ---------------------------------------------------------------------------------------------------------------------- Total recoveries 89 73 43 44 25 - ---------------------------------------------------------------------------------------------------------------------- Net charge-offs 290 545 397 404 147 Provision 271 486 509 762 160 Acquired/other (10) 67 209 1 13 - ---------------------------------------------------------------------------------------------------------------------- Balance at end of year $ 1,000 $1,029 $1,021 $700 $341 ====================================================================================================================== Ratio of net charge- offs to average loans and leases 1.11% 2.05% 1.65% 1.92% 0.72% - ---------------------------------------------------------------------------------------------------------------------- Ratio of reserve for credit losses to year-end loans and leases 3.80% 3.86% 3.81% 3.42% 1.58% - ---------------------------------------------------------------------------------------------------------------------- Ratio of reserve for credit losses to year-end NPAs 166% 104% 63% 51% 86% - ---------------------------------------------------------------------------------------------------------------------- Ratio of reserve for credit losses to year- end nonperforming loans and leases 215% 137% 97% 71% 108% =======================================================================================================================
(a)Included in 1993 and 1992 commercial real estate charge-offs are $17 million and $65 million, respectively, of construction related charge-offs. DEPOSITS
December 31 Dollars in millions 1993 1992 - ------------------------------------------------------------------------------------------- Demand $ 6,473 $ 6,483 Regular savings, NOW, money market 16,437 15,783 Time 8,175 10,469 - ------------------------------------------------------------------------------------------- Total deposits $31,085 $32,735 ===========================================================================================
Total deposits decreased 5% to $31.1 billion at December 31, 1993, from $32.7 billion at December 31, 1992. The decrease in time deposits was primarily the result of a $1-billion decrease in relatively high-rate wholesale deposits, which had been built up in 1989 and 1990 to increase liquidity. However, other time deposits, such as individual retirement accounts (IRAs) and retail certificates of deposit (CDs), have remained level from December 31, 1992, through December 31, 1993. As a result of these items and the declining rate environment, the average yield on time deposits decreased from 5.37% in 1992 to 4.37% in 1993. Demand and savings deposits also remained relatively stable from year to year; these deposits are stable sources of funds that are less sensitive to interest-rate volatility. Time certificates of deposit and other time deposits issued by domestic offices in amounts of $100,000 or more as of December 31, 1993, will mature as follows. MATURITY OF TIME DEPOSITS
December 31, 1993 Certificates All Other Remaining maturity of Time Dollars in millions Deposit Deposits - -------------------------------------------------------------------------------------------- 3 months or less $ 558 $ 31 3 to 6 months 180 38 6 to 12 months 316 16 Over 12 months 650 44 - ------------------------------------------------------------------------------------------- Total $ 1,704 $ 129 ===========================================================================================
18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP
CAPITAL - ------------------------------------------------------------------------------------- December 31 Dollars in millions 1993 1992 - ------------------------------------------------------------------------------------- Risk-adjusted assets $29,713 $29,232 Tier 1 risk-based capital (4% minimum) 11.8% 10.4% Total risk-based capital (8% minimum) 16.6 15.4 Leverage ratio 7.5 6.7 Common equity-to-assets 6.55 5.13 Total equity-to-assets 7.59 6.41 Tangible total equity-to-assets 5.75 4.46 Capital in excess of minimum requirements: Tier 1 risk-based $ 2,306 $ 1,882 Total risk-based 2,562 2,157 Leverage 1,626 1,693 =====================================================================================
A financial institution's capital serves to support growth and provide protection against loss to depositors and creditors. Equity capital represents the stockholders' investment in the corporation. Management strives to maintain an optimal level of capital on which an attractive return to the stockholders will be realized over both the short and long term, while serving depositors' and creditors' needs. Banks and bank holding companies must also observe the minimum requirements enforced by the federal and, if applicable, state banking regulators. Regulatory capital is defined in terms of Tier 1 and Tier 2 capital (together, total capital). Tier 1 capital consists of stockholders' equity (both common and perpetual preferred stock) and minority interest, net of goodwill, and certain intangible assets. Tier 2 capital consists of a limited amount of loss reserves, subordinated debt (weighted relative to years to maturity), and limited life preferred stock. Regulatory capital requirements are set forth in terms of (1) the leverage ratio (Tier 1/quarterly average assets); (2) risk-based Tier 1 capital (Tier 1/risk-weighted on- and off-balance-sheet risk); and (3) risk-based total capital (total capital/risk-weighted on- and off-balance-sheet risk). The minimum requirements for each of these ratios is 4%, 4%, and 8%, respectively. In addition, under the FDIC Improvement Act (FDICIA), banks are categorized according to their capital levels into one of five categories ranging from "well-capitalized" to "critically undercapitalized." Each category serves to determine a bank's deposit insurance premium (together with regulatory evaluations) as well as any mandated restrictive regulatory actions. (As of December 31, 1993, all of the Fleet affiliate banks were categorized as "well-capitalized," which requires minimum leverage, Tier 1, and total capital ratios of 5%, 6%, and 10%, respectively.) In managing capital, the corporation develops a three-year capital plan annually, which is updated and reviewed by the Board of Directors throughout the year. The increase in the corporation's regulatory ratios during 1993 was due to the accumulation of retained earnings, the issuance of 12.3 million shares of common stock with Fleet receiving net proceeds of $391 million, partially offset by the corporation's repurchase of approximately 50% of the outstanding shares of its Series III and Series IV preferred stocks, and all of the outstanding amount of preferred stock issued to the FDIC in connection with the BNE acquisition. During 1993, the corporation also issued $150 million of 6.875% subordinated notes and redeemed $150 million of floating-rate subordinated capital notes due in 1996 and 1997. LIQUIDITY Liquidity is the ability of the corporation to meet each maturing obligation or customer demand for funds. Liquidity is provided through issuing liabilities, selling assets, or allowing assets to mature. The corporation's Senior Asset/Liability Committee (Senior ALCO) is responsible for implementing the Board of Directors' policies and guidelines for the maintenance of prudent levels of liquidity. The Corporate Funds Committee is responsible for monitoring the performance of each of the banking subsidiaries and the parent company relative to the policies and guidelines established by the Senior ALCO and the Board of Directors. The primary sources of liquidity for the parent are interest and dividends from subsidiaries and access to the capital and money markets. During 1993 the parent received $331 million in interest and dividends from its subsidiaries and paid $312 million in 19 21 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP interest and dividends to third parties. Dividends from banking subsidiaries are limited by various regulatory requirements related to capital adequacy and earnings trends. The dividend payment capacity of Fleet-Massachusetts and Fleet-Connecticut is subject to agreements with the investment partnerships that provided capital for the acquisition of BNE. (See Note 10 to the Consolidated Financial Statements for further information.) Under applicable banking statutes, as of December 31, 1993, Fleet's banking subsidiaries could have paid $417 million of additional dividends, of which $125 and $95 million could have been paid by Fleet-Massachusetts and Fleet-Connecticut, respectively. Banking regulators have the authority to limit further the dividends paid by the corporation's banking subsidiaries. The corporation's subsidiaries rely on cash flow from operations, core deposits, borrowings, short-term high-quality liquid assets, and in the case of nonbanks, funds from the parent for liquidity. In conjunction with the initial public offering of FMG stock in 1992, FMG established a separate funding program. This included $1.75 billion of revolving lines of credit from a diversified group of banks ranging from major international banks to domestic regional banks, and a separate commercial paper and medium-term note (MTN) program. Many alternatives for short-term borrowings are available to the corporation's various subsidiaries, subject to a number of factors, including market pricing and characteristics, availability of collateral, and asset/liability matching. At December 31, 1993, Fleet, including FMG, had commercial paper outstanding of $1.3 billion, including $526 million placed directly by Fleet in its local markets, compared to $743 million and $454 million, respectively, at December 31, 1992. The corporation has backup lines of credit to ensure that funding is not interrupted if commercial paper is not available. At December 31, 1993, the corporation, including FMG, had $2.6 billion in confirmed lines of credit, of which $940 million was outstanding, compared to $2.8 billion of confirmed lines of credit and $995 million outstanding at December 31, 1992. The amounts outstanding under the lines of credit relate entirely to FMG at both December 31, 1993 and 1992. Through the issuance of subordinated debt, senior debt, and the sale of the corporation's common stock, the corporation raised $150 million, $150 million, and $391 million, respectively, in 1993, thereby strengthening its liquidity position. The corporation, including FMG, also has current shelf registrations on file with the Securities and Exchange Commission (SEC) that provide for the issuance of senior and subordinated debt securities and warrants to purchase debt securities. As of December 31, 1993, $1.1 billion of debt securities have been issued under this shelf registration statement, leaving $659 million in debt securities available for future issuance. Also, the corporation has a preferred stock shelf registration on file with the SEC that permits the issuance of $445 million in preferred stock, all of which remained available for issuance at December 31, 1993. The corporation has called for redemption its $1 par and $20 par adjustable-rate preferred stock on April 1, 1994. The redemption price of $50 for each share of $1 par or $20 par adjustable-rate preferred stock, or approximately $125 million in the aggregate, will be paid by the corporation from the cash flows generated from operations. As shown in the Consolidated Statement of Cash Flows, cash and cash equivalents decreased by $824 million during 1993. This decrease primarily reflected the use of $294 million for financing activities and $1.2 billion for investing activities, offset in part by $649 million provided by operating activities. Net cash used for financing activities was largely the result of decreases in customer deposits and repayment of long-term debt, partially offset by increases in short-term borrowings and the issuance of long-term debt. Net cash used for investing activities was mainly the result of the net increase in loans and leases of banking subsidiaries and net purchases of securities. INTEREST-RATE SENSITIVITY The asset/liability management process at Fleet ensures that the risk to earnings from changes in interest rates is prudently managed. During the past two years, Fleet has placed an increasing emphasis on the interest-rate risk management process in recognition, first, of the economic conditions that have caused an 20 22 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP increase in securities and, second, of an intensified effort by regulatory agencies to develop interest-rate risk measurement guidelines under FDICIA. Asset/liability management uses four key measurements to monitor interest-rate risk: (1) the interest-rate sensitivity "gap" analysis, (2) a "rate shock" to measure earnings volatility due to an immediate increase or decrease in market interest rates of up to 200 basis points, (3) simulations of balance sheet and interest-rate scenarios under alternative conditions, and (4) the interest-rate risk reporting schedule, a methodology proposed jointly by the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC), and the FDIC to evaluate the change in an institution's economic value given specific changes in interest rates. Internal parameters have been established as guidelines for monitoring these measurements, which are reported to both corporate and bank asset/liability committees as well as the boards of directors. These guidelines serve as benchmarks for determining actions to balance the current position against overall strategic goals. The following table represents the results of the interest-rate gap analysis. This measurement provides a static analysis of the repricing characteristics of the entire balance sheet. It is prepared by scheduling assets and liabilities into time bands based on their next opportunity to reprice. For a floating-rate instrument, this would be the next date on which its rate could be reset and for a fixed-rate instrument, it would be the next scheduled date on which a principal payment is expected. It may be necessary to apply further assumptions to refine this process. For instance, in order to recognize the potential for MBS to experience premature payments of principal, a prepayment assumption based on management's expectations is layered on top of the expected principal payments. Other categories that are scheduled using management assumptions include noncontractual deposits, such as interest-bearing checking, savings, and money market deposits. Management has estimated, based on historic analysis of Fleet and industry data, that money market and savings deposits are approximately 75% and 50% sensitive, respectively, to interest-rate changes. In order to provide a more accurate one-year gap position, 75% and 50% of these deposits are distributed in the 3 months or less category with the remainder in the after 5 years category. A similar analysis of demand deposits has indicated that the interest-sensitive component represents 20% of all balances. This portion is allocated evenly between the 3 months or less category and the 1 to 5 years category. The remaining 80% of demand deposits are considered noninterest sensitive, or core, and are placed in the after 5 years category. Once all assets and liabilities have been scheduled, a calculation is performed to determine the difference between assets repricing in less than one year and liabilities repricing in less than one year as a percent of total assets.
INTEREST-RATE GAP ANALYSIS - ----------------------------------------------------------------------------------- Cumulatively Repriced Within - ----------------------------------------------------------------------------------- December 31, 1993 Dollars in millions, 3 Months 4 to 12 1 to 5 After 5 by repricing date or Less Months Years Years - ----------------------------------------------------------------------------------- Securities available for sale $ 600 $ 2,984 $ 8,547 $ 446 Investment securities 121 306 788 331 Trading securities 91 - - - Loans and leases 17,344 2,936 4,740 1,290 Mortgages held for resale 2,622 - - - Foreclosed property and repossessed equipment - - - 136 Other assets 294 597 393 3,357 - ----------------------------------------------------------------------------------- Total assets 21,072 6,823 14,468 5,560 - ----------------------------------------------------------------------------------- Deposits: Demand 647 - 646 5,180 Savings 11,070 - - 5,367 Time 4,031 2,276 1,769 99 - ----------------------------------------------------------------------------------- Total deposits 15,748 2,276 2,415 10,646 - ----------------------------------------------------------------------------------- Short-term borrowings 8,050 10 47 - Long-term debt 1,127 135 989 1,193 Other liabilities 69 399 3 1,177 Stockholders' equity 122 - - 3,517 - ----------------------------------------------------------------------------------- Total liabilities and equity 25,116 2,820 3,454 16,533 - ----------------------------------------------------------------------------------- Net off-balance- sheet position (1,811) (235) 3,073 (1,027) Periodic gap (5,855) 3,768 14,087 (12,000) Cumulative gap (5,855) (2,087) 12,000 0 Cumulative gap as a percent of total assets (12.2)% (4.4)% 25.0% 0% ===================================================================================
On a consolidated basis, Fleet Financial Group had $6.6 billion (notional amount) of interest-rate swaps with external counterparties at December 31, 1993. The use of interest-rate swaps for asset/liability management can have substantial 21 23 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP advantages compared to on-balance-sheet alternatives. These advantages include improved control of interest-rate risks and enhanced balance sheet liquidity. Fleet expects to continue its prudent use of this valuable tool. Fleet had $5 billion of interest-rate swaps to protect the corporation against asset sensitivity, a more rapid repricing of assets than liabilities. The majority of these swaps were executed to hedge a rapid downward repricing of floating-rate assets, primarily short-term prime-based loans, in an environment of declining interest rates. These swap transactions, in which Fleet receives a fixed rate and pays a floating rate, principally London interbank offered rate (LIBOR) based, were primarily executed during the past year. These swaps have maturities averaging 1.6 years. Within the next two years, $4.4 billion (87%) of these swaps are expected to mature. Of these, $2.6 billion have the potential to extend one additional year, while one five-year $200-million swap has the potential to extend an additional two years. The corporation also has $1 billion of interest-rate swaps at December 31, 1993, to protect the corporation against liability sensitivity, a more rapid repricing of liabilities than assets. These swap transactions, in which Fleet pays a fixed rate and receives a floating rate, principally LIBOR based, were mostly executed during the last half of 1993. These swaps tend to have longer final maturities, averaging 4.4 years. Nearly all of these swaps, including all executed in the last half of 1993, had an original maturity of at least four years. The maturities of these swaps are all fixed. For swaps used to manage interest-rate risk, net interest income is recognized as it accrues. In 1993, swaps generated $91 million of net interest income compared to $44 million in 1992. At year-end, swaps were continuing to generate $7 million of net interest income per month. This spread can be expected to diminish, however, if market interest rates trend higher. For these swaps, market value is measured but not recognized. At year-end, the unrealized gain on these swaps was $70 million, relatively unchanged from December 31, 1992. This gain can be expected to decline over time as income is accrued. Rising market interest rates would also tend to reduce the gain. Fleet also provides interest-rate swaps to customers to facilitate their own management of interest-rate risk. Fleet hedges the resulting positions with offsetting interest-rate swaps and futures contracts. Customer swaps and their offsets are held in a trading account and marked to market. Any valuations changes are reported as earnings. The corporation has $600 million of interest-rate swaps (as well as $1.3 billion of interest-rate caps and floors), representing customer transactions and their offsets. Fleet's credit exposure on swaps is related not to the notional balances of the interest-rate swaps, but to the current and potential replacement costs. Total current credit exposure, the cost of replacing all outstanding transactions with positive market values ignoring any provision of collateral, is $125 million. This exposure will tend to increase, along with the market value of the swaps, if interest rates decline and decrease if interest rates rise. Individual corporate exposures are generally small and are managed within existing credit relationships. Fleet's most important counterparties are highly rated commercial banks, investment banks, or their subsidiaries. To mitigate credit risk, Fleet has begun to negotiate master agreements providing for bilateral netting and for collateralization of unrealized gains. At year-end, Fleet held $12 million of collateral securing the value of its swaps. Fleet's use of credit enhancements is expected to increase. INCOME TAXES The corporation's 1993 effective tax rates were lower than those in 1992 primarily due to lower state income taxes as a percentage of pretax income. Additionally, retroactive to January 1, 1993, the federal tax rate increased to 35% from 34%. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," the corporation remeasured its deferred tax balances. The impact of the federal tax-rate increase in current earnings offset the remeasurement of the deferred tax balances. The majority of the corporation's significant deferred tax assets will reverse within the next five years. 22 24 MANAGEMENT'S DISCUSSION AND ANALYSIS FLEET FINANCIAL GROUP COMPARISON OF 1992 WITH 1991 Fleet reported net income for 1992 of $280 million, or $1.77 per share, an increase of 187% over 1991 net income of $98 million, or $.67 per share. The improved results reflected the benefit of owning the former BNE franchise for a full year, along with higher net interest margin and higher noninterest income. NPAs decreased $619 million during 1992 and fell below $1 billion for the first time since the first quarter of 1990. Also, during 1992, Fleet completed six government-assisted acquisitions that added $2.3 billion in deposits and $1.3 billion in loans.
NET INTEREST MARGIN AND INTEREST-RATE SPREAD - ------------------------------------------------------------------------- December 31 1992 1991 - ------------------------------------------------------------------------- Taxable equivalent rates Average Average Dollars in millions Balance Rate Balance Rate - ------------------------------------------------------------------------- Securities $11,709 7.69% $ 8,163 8.41% Loans and leases 26,615 8.94 23,995 10.31 Other 2,904 5.77 3,289 6.49 - ------------------------------------------------------------------------- Total interest-earning assets 41,228 8.36 35,447 9.52 - ------------------------------------------------------------------------- Interest-bearing liabilities 34,431 4.25 30,552 6.32 - ------------------------------------------------------------------------- Interest-rate spread 4.11 3.20 Interest-free sources of funds 6,797 - 4,895 - - ------------------------------------------------------------------------- Total sources of funds $41,228 3.56 $35,447 5.43 ========================================================================= Net interest margin 4.80% 4.09% =========================================================================
Net interest income on an FTE basis increased 37% to $2 billion, reflecting the higher interest-rate margin (71 basis points). The increase was primarily attributable to banking consumer deposit rates being aggressively reduced as well as increased volume due to the full-year impact of the BNE acquisition in mid-1991, as average earning assets increased 16% compared to 1991. Noninterest income increased 26% in 1992 to $1.4 billion. The primary reasons for the increase were the $121-million gain on the partial sale of FMG and the full-year impact of the BNE acquisition. Also, securities gains increased by $34 million, or 20%, as the corporation decided to reposition its portfolio due to the interest-rate environment and for other asset/liability management purposes. Noninterest expense totaled $2.3 billion in 1992, a 27% increase over 1991, with the full-year impact of the BNE acquisition being the major factor in the increase. In addition, Fleet recognized a $115-million loss relating to the sale of problem assets in 1992. RECENT ACCOUNTING DEVELOPMENTS The Financial Accounting Standards Board (FASB) has issued Statement No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual of a liability for benefits paid to former or inactive employees after employment but before retirement. This standard was adopted by the corporation effective January 1, 1994. The effect of adopting this standard will not have a material impact on the corporation's results of operations. The FASB has issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan," which requires that creditors value all loans for which it is probable that the creditor will be unable to collect all amounts due according to the terms of the loan agreement at the present value of expected future cash flows discounted at the loan's effective interest rate, or observable market price of the impaired loan, or the fair value of the collateral if the loan is collateral-dependent. The effect of adopting this statement has not been fully determined, but it is not expected to have a material adverse impact on the corporation's results of operations. Adoption of this standard is required for fiscal years beginning after December 15, 1994. The FASB has issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which the corporation adopted effective January 1, 1994. The standard requires, among other things, that securities available for sale be reported at fair value, with unrealized gains and losses reflected as a separate component of stockholders' equity. The corporation currently reports securities available for sale at the lower of amortized cost or fair value with any net unrealized loss included in earnings. The changes in the way the corporation accounts for debt and equity securities could result in increased volatility of capital levels. At December 31, 1993, the fair value of the corporation's securities available for sale portfolio exceeded its aggregate amortized cost by $354 million. If the corporation had adopted this standard on December 31, 1993, the after-tax effect on the corporation's stockholders' equity would have been an increase of $206 million and the year-end common equity-to-assets ratio would have been 6.93% compared to the actual ratio of 6.55%. 23 25 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS FLEET FINANCIAL GROUP MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The accompanying consolidated financial statements and related notes of the corporation were prepared by management in conformity with generally accepted accounting principles. Management is responsible for the integrity and fair presentation of these financial statements and related notes. Management has in place an internal accounting control system designed to safeguard corporate assets from material loss or misuse and to ensure that all transactions are first properly authorized and then recorded in its records. The internal control system includes an organizational structure that provides appropriate delegation of authority and segregation of duties, established policies and procedures, and comprehensive internal audit and loan review programs. Management believes that this system provides assurance that the corporation's assets are adequately safeguarded and that its records, which are the basis for the preparation of all financial statements, are reliable. The Audit Committee of the Board of Directors consists solely of directors who are not employees of the corporation or its subsidiaries. During 1993, the committee met five times with internal auditors, internal loan review management, the independent auditors, and representatives of senior management to discuss the results of examinations and to review their activities to ensure that each is properly discharging its responsibilities. The independent auditors, internal auditors, and loan review management have direct and unrestricted access to the audit committee at all times. The corporation's consolidated financial statements have been audited by KPMG Peat Marwick, independent certified public accountants. Its independent auditor's report, which is based on an audit made in accordance with generally accepted auditing standards, expresses an opinion as to the fair presentation of the consolidated financial statements. In performing its audit, KPMG Peat Marwick considers the corporation's internal control structure to the extent it deems necessary in order to issue its opinion on the consolidated financial statements. /s/ Terrence Murray /s/ Eugene M. McQuade Terrence Murray Eugene M. McQuade Chairman, President, and Executive Vice President Chief Executive Officer and Chief Financial Officer 24 26 REPORT OF INDEPENDENT AUDITORS FLEET FINANCIAL GROUP REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders of Fleet Financial Group, Inc.: We have audited the accompanying consolidated balance sheets of Fleet Financial Group, Inc., as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1993. These consolidated financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fleet Financial Group, Inc., at December 31, 1993 and 1992, and the results of its operations and cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick Providence, Rhode Island January 19, 1994 25 27 CONSOLIDATED STATEMENTS OF INCOME FLEET FINANCIAL GROUP
CONSOLIDATED STATEMENTS OF INCOME - ----------------------------------------------------------------------------------------------------------------------- Year ended December 31 Dollars in millions, except per share amounts 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------- Interest and fees on loans and leases $2,339 $2,514 $2,577 Interest on taxable securities 840 863 596 Interest on tax-exempt securities 27 24 66 Interest on short-term investments 6 15 90 - ----------------------------------------------------------------------------------------------------------------------- Total interest income 3,212 3,416 3,329 - ----------------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 744 1,076 1,480 Short-term borrowings 180 164 217 Long-term debt 237 223 233 - ----------------------------------------------------------------------------------------------------------------------- Total interest expense 1,161 1,463 1,930 - ----------------------------------------------------------------------------------------------------------------------- Net interest income 2,051 1,953 1,399 - ----------------------------------------------------------------------------------------------------------------------- Provision for credit losses 271 486 509 - ----------------------------------------------------------------------------------------------------------------------- Net interest income after provision for credit losses 1,780 1,467 890 - ----------------------------------------------------------------------------------------------------------------------- Noninterest income: Mortgage banking 414 364 305 Service charges, fees, and commissions 348 319 247 Securities available for sale gains 282 207 81 Investment services revenue 174 160 119 Student loan servicing fees 51 61 65 Investment securities gains -- -- 92 Gain on securitization and sale of finance receivables -- -- 49 Gain on partial sale of FMG -- 121 -- Other 196 136 124 - ----------------------------------------------------------------------------------------------------------------------- Total noninterest income 1,465 1,368 1,082 - ----------------------------------------------------------------------------------------------------------------------- Noninterest expense: Employee compensation and benefits 1,018 958 747 Acquired servicing rights amortization 240 107 99 Occupancy 174 165 134 Equipment 130 118 100 Legal and other professional 86 81 60 FDIC assessment 76 75 64 OREO expense 57 154 105 Core deposit and goodwill amortization 54 45 33 Marketing 53 51 36 Restructuring accrual 125 -- -- Loss on sale of problem assets -- 115 -- Nonrecurring expenses related to acquired banks -- 9 111 Other 411 440 330 - ----------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,424 2,318 1,819 - ----------------------------------------------------------------------------------------------------------------------- Income before income taxes 821 517 153 Applicable income taxes 327 228 55 - ----------------------------------------------------------------------------------------------------------------------- Net income before minority interest 494 289 98 Minority interest (6) (9) -- - ----------------------------------------------------------------------------------------------------------------------- Net income $ 488 $ 280 $ 98 ======================================================================================================================= Net income applicable to common shares $ 466 $ 252 $ 84 ======================================================================================================================= Weighted average common shares outstanding: Primary 154,666,307 141,469,658 124,966,226 Fully-diluted 154,899,995 142,778,665 127,092,029 Earnings per share: Primary $ 3.01 $ 1.78 $ 0.67 Fully-diluted 3.01 1.77 0.67 Dividends declared 1.025 0.825 0.80 =======================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 26 28 CONSOLIDATED BALANCE SHEETS FLEET FINANCIAL GROUP
CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------------------------- December 31 Dollars in millions, except share amounts 1993 1992 - ---------------------------------------------------------------------------------------------------------------------- ASSETS Cash, due from banks and interest-bearing deposits $ 2,213 $ 2,501 Federal funds sold and securities purchased under agreements to resell -- 536 Securities available for sale (market value: $12,931 and $11,270) 12,577 10,857 Investment securities (market value: $1,580 and $1,793) 1,546 1,803 Loans and leases 26,310 26,647 Reserve for credit losses (1,000) (1,029) - ----------------------------------------------------------------------------------------------------------------------- Net loans and leases 25,310 25,618 - ----------------------------------------------------------------------------------------------------------------------- Mortgages held for resale 2,622 2,087 Premises and equipment 733 654 Acquired servicing rights 560 548 Deferred taxes 360 239 Accrued interest receivable 347 324 Excess cost over net assets of subsidiaries acquired 187 188 Other intangibles 166 189 Foreclosed property and repossessed equipment 136 241 Trading account securities 91 127 Other assets 1,075 1,027 - ----------------------------------------------------------------------------------------------------------------------- Total assets $ 47,923 $ 46,939 ======================================================================================================================= LIABILITIES Deposits: Demand $ 6,473 $ 6,483 Regular savings, NOW, money market 16,437 15,783 Time 8,175 10,469 - ----------------------------------------------------------------------------------------------------------------------- Total deposits 31,085 32,735 - ----------------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 1,961 2,880 Other short-term borrowings 6,146 3,519 Accrued expenses and other liabilities 1,648 983 Long-term debt 3,444 3,812 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities 44,284 43,929 - ----------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock 501 604 Common stock (outstanding 137,381,588 and 123,380,244 shares) 137 123 Common surplus 1,492 1,066 Retained earnings 1,509 1,217 - ----------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 3,639 3,010 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 47,923 $ 46,939 =======================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 27 29 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLERS' EQUITY FLEET FINANCIAL GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------------- Common December 31 Preferred Stock Common Retained Dollars in millions, except share amounts Stock $1 Par Surplus Earnings Total - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1990 $125 $110 $ 782 $1,052 $2,069 Net income -- -- -- 98 Cash dividends declared on common stock ($.80 per share) -- -- -- (95) Cash dividends declared on preferred stock -- -- -- (14) Preferred stock issued, net of issuance costs of $8 196 -- -- -- Common stock issued in connection with: Common stock offering, net of issuance costs of $8 -- 10 213 -- Employee benefit and stock option plans and conversion of preferred stock and convertible debentures -- 1 8 -- Dividend reinvestment -- -- 3 -- Adjustment of valuation account for marketable equity securities -- -- -- 24 Other items, net -- -- -- (3) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1991 321 121 1,006 1,062 2,510 Net income -- -- -- 280 Cash dividends declared on common stock ($.825 per share) -- -- -- (101) Cash dividends declared on preferred stock -- -- -- (28) Dual convertible preferred stock 283(a) -- -- -- Common stock issued in connection with: Employee benefit and stock option plans and conversion of preferred stock and convertible debentures -- 1 48 (1) Dividend reinvestment -- 1 12 -- Adjustment of valuation account for marketable equity securities -- -- -- 5 - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 604 123 1,066 1,217 3,010 Net income -- -- -- 488 Cash dividends declared on common stock ($1.025 per share) -- -- -- (140) Cash dividends declared on preferred stock -- -- -- (22) Purchase of Series III preferred stock (50) -- -- (15) Purchase of Series IV preferred stock (50) -- -- (11) Common stock issued in connection with: Common stock offering, net of issuance costs of $10 -- 12 379 -- Employee benefit and stock option plans and conversion of preferred stock (3) 1 23 (4) Dividend reinvestment -- 1 23 -- Other items, net -- -- 1 (4) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 $501 $137 $1,492 $1,509 $3,639 ============================================================================================================================
(a) Shown separately at December 31, 1991. See accompanying Notes to Consolidated Financial Statements. 28 30 CONSOLIDATED STATEMENTS OF CASH FLOW FLEET FINANCIAL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------- December 31 Dollars in millions 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 488 $ 280 $ 98 Adjustments for noncash items: Depreciation and amortization of premises and equipment 95 76 66 Amortization of acquired servicing rights and other intangible assets 294 152 132 Writedown of OREO to fair value 47 126 76 Provision for credit losses 271 486 509 Deferred income tax expense (benefit) (114) 2 (141) Loss on sale of problem assets -- 115 -- Minority interest 6 9 -- Securities gains (282) (207) (173) Gain on partial sale of FMG -- (121) -- Other gains on sales of assets (39) (28) (86) Originations and purchases of mortgages held for sale (19,719) (17,408) (11,000) Proceeds from sales of mortgages held for sale 19,184 17,117 10,525 Net decrease in trading account securities 36 13 (103) Net decrease in due from FDIC 33 167 98 (Increase) decrease in accrued receivables, net (176) 663 (637) Increase (decrease) in accrued liabilities, net 288 (148) 149 Other--net 237 162 159 - ------------------------------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by operating activities 649 1,456 (328) - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale (8,506) (7,080) (6,637) Proceeds from maturities and sales of securities available for sale 7,439 7,215 4,486 Purchases of investment securities (60) (1,714) (6,510) Proceeds from maturities of investment securities 308 12 1,791 Proceeds from sales of investment securities -- -- 3,997 Net cash and cash equivalents received from banking institutions acquired -- 400 5,807 Loans made to customers, nonbank subsidiaries (3,413) (2,796) (2,580) Principal collected on loans made to customers, nonbank subsidiaries 3,386 3,105 2,776 Loans purchased from the FDIC (18) (1,061) -- Loans purchased from third parties (161) (831) (711) Proceeds from sales of loans 344 871 979 Net (increase) decrease in loans and leases, banking (571) 405 1,093 Putable loans transferred to the FDIC 274 632 17 Proceeds from sales of OREO 148 259 152 Principal collected on OREO 61 92 75 Proceeds from sales of mortgage servicing 28 20 64 Proceeds from sales of premises and equipment 13 11 18 Purchases of premises and equipment (205) (124) (83) Purchases of acquired servicing rights (246) (136) (102) - ------------------------------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by investing activities (1,179) (720) 4,632 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (1,650) (4,674) (3,354) Net increase (decrease) in short-term borrowings 1,708 2,925 (3,108) Proceeds from issuance of long-term debt 645 876 1,048 Repayments of long-term debt (1,013) (68) (385) Proceeds from issuance of DCP stock and rights -- -- 283 Proceeds from issuance of common stock 432 27 428 Proceeds from issuance of FMG common stock -- 207 -- Repurchase of preferred stock held by the FDIC (143) -- -- Repurchase of preferred stock Series III and IV (126) -- -- Cash dividends paid (147) (125) (105) - ------------------------------------------------------------------------------------------------------------------------------- Net cash flow used by financing activities (294) (832) (5,193) - ------------------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (824) (96) (889) - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of the year 3,037 3,133 4,022 - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of the year $ 2,213 $ 3,037 $ 3,133 ===============================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 29 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Fleet conform to generally accepted accounting principles and prevailing practices within the banking industry. Certain prior year amounts have been reclassified to conform to current year classifications. The following is a summary of the significant accounting policies. BASIS OF PRESENTATION. The consolidated financial statements of Fleet include the accounts of the corporation and its subsidiaries. All material intercompany transactions and balances have been eliminated. For purposes of the Consolidated Statements of Cash Flows, the corporation has defined cash and cash equivalents to include cash, due from banks, interest-bearing deposits, federal funds sold, and securities purchased under agreements to resell. SECURITIES. Securities are classified at the time of purchase, based on management's intentions, as investment securities, securities available for sale, or trading account securities. Investment securities are those that management has the positive intent and ability to hold on a long-term basis or until maturity and are carried at amortized cost. Securities available for sale, which included marketable equity securities, are those that management intends to hold for an indefinite period of time, including securities used as part of the asset/liability management strategy, and that may be sold in response to changes in interest rates, changes in prepayment risk, changes in liquidity needs, the desire to increase capital, and other similar factors. Securities available for sale are recorded at the lower of aggregate cost or market value. Net unrealized losses on marketable equity securities are reported as a reduction of retained earnings on a net-of-tax basis. Any portion of unrealized loss on an individual security deemed to be other than temporary is recognized as a realized loss in the accounting period in which such determination is made. The specific identification method is used to determine gains and losses on sales of securities. Trading account securities are stated at market value. Realized and unrealized gains and losses from trading securities are reflected in income currently. LOANS AND LEASES. Loans and leases are placed on nonaccrual status either as a result of past due status or a judgment by management that, although payments are current, such action is prudent. Except in the case of most consumer and residential real estate loans, loans and leases on which payments are past due 90 days or more are placed on nonaccrual status unless they are well-secured and in the process of normal collection or renewal. Consumer loans, including residential real estate, are placed on nonaccrual status at 120 days past due and generally charged off at 180 days past due. When a loan is placed on nonaccrual status, all interest previously accrued in the current year, but not collected, is reversed against interest income. Any interest accrued in prior years is charged against the reserve for credit losses. Assets can be returned to accrual status when they become current as to principal and interest, demonstrate a period of performance under the contractual terms for restructured loans, and when, in management's opinion, they are estimated to be fully collectable. FORECLOSED PROPERTY AND REPOSSESSED EQUIPMENT. Property and equipment acquired through foreclosure (other real estate owned, or OREO), including insubstance foreclosures (ISFs), are stated at the lower of cost or fair value less selling costs. Credit losses arising at the time of foreclosure are charged against the reserve for credit losses. Any additional writedowns to the carrying value of these assets that may be required are charged to expense and recorded in a valuation reserve that is maintained on an asset-by-asset basis. RESERVE FOR CREDIT LOSSES. The corporation continually evaluates its reserve for credit losses by performing detailed reviews of certain individual loans and leases, considering the historic net charge-off experience of the portfolio, and performing an evaluation of current and anticipated economic conditions and other pertinent factors. Based on these analyses, the reserve for credit losses is maintained at levels considered adequate by management to provide for loan and lease losses inherent in these portfolios. 30 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP Loans and leases, or portions thereof, deemed uncollectable are charged off against the reserve while recoveries of amounts previously charged off are credited to the reserve. Amounts are charged off once the probability of loss has been established, giving consideration to such factors as the customer's financial condition, underlying collateral and guarantees, and general and industry economic conditions. MORTGAGES HELD FOR RESALE. Mortgages held for resale are recorded at the lower of aggregate cost or market value. Market value is determined by outstanding commitments from investors or by current investor yield requirements. No valuation allowance was required as of December 31, 1993 or 1992. PURCHASED MORTGAGE SERVICING RIGHTS. The acquisition costs of bulk-servicing purchases and servicing rights acquired through the purchase of mortgage loans originated by others, net of aggregate gains from the sale of these purchased loans, are capitalized as purchased mortgage servicing rights (PMSRs). The acquisition costs capitalized do not exceed the present value of the expected net future servicing income at the time of acquisition. The cost of PMSRs is amortized on an accelerated basis over the estimated period of net servicing revenues. The corporation evaluates PMSRs for impairment by measuring the undiscounted disaggregated anticipated future net cash flows utilizing market consensus prepayment predictions, adjusted, if appropriate, for individual portfolio characteristics and other economic factors. If recorded balances for any of the disaggregated PMSRs categories exceed the undiscounted anticipated future net cash flows, a current impairment adjustment is recorded. The corporation's method of disaggregation is to evaluate individually large servicing acquisitions and to value correspondent acquisitions by quarter of acquisition and channel of acquisition. Additionally, the corporation will prospectively accelerate amortization of PMSRs if the expected net servicing income discounted at market rates utilizing market consensus prepayment predictions, adjusted, if appropriate, for individual portfolio characteristics and other economic factors is less than the carrying value. EXCESS COST OVER NET ASSETS OF SUBSIDIARIES ACQUIRED. The excess cost over net assets of subsidiaries acquired (goodwill) is being amortized on a straight-line basis over periods of up to 40 years. Goodwill relating to banking subsidiaries acquired subsequent to 1981 is amortized over 25 years or less. On a periodic basis, the corporation reviews goodwill for events or changes in circumstances that may indicate that the carrying amount of goodwill may not be recoverable. OTHER INTANGIBLE ASSETS. The excess of the purchase price over the fair value of the tangible net assets of certain acquisitions has been allocated to core deposits (core deposit intangible), based on valuations, and is being amortized on a straight-line basis, generally over seven years. On a periodic basis, the corporation reviews its intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets may not be recoverable. INCOME TAXES. Effective January 1, 1993, the corporation changed its method of accounting for income taxes from the deferred method to the liability method, in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the change is enacted. INTEREST-RATE PRODUCTS. The corporation enters into interest-rate swaps to manage exposure to interest-rate risk and, to a lesser extent, as a counterparty in transactions with customers. For swaps that are designated and effective as hedges of assets and liabilities, the net differential to be paid or received on the swaps is treated as an adjustment to the yield on the hedged instrument. 31 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP EARNINGS PER SHARE. Earnings per share is computed by dividing earnings (after deducting dividends on preferred stock) by the weighted average number of common shares and common stock equivalents outstanding during the period, assuming the conversion of the convertible preferred stock. Common stock equivalents include stock options and rights and the dual convertible preferred (DCP) stock. MINORITY INTEREST. Minority interest represents the minority stockholders' proportionate share of the equity of Fleet Mortgage Group (FMG). At December 31, 1993, the corporation owned approximately 81% of FMG's capital stock. The corporation accounts for subsidiary stock transactions in its statement of income. NOTE 2. RESTRUCTURING CHARGE A restructuring charge of $125 million was accrued for in 1993. The charge relates to the corporation's efficiency-improvement program that was undertaken during the year and reflects anticipated severance and occupancy costs, project costs, consulting fees, and other direct expenses resulting from this program. Occupancy costs reflect the writedown of premises and equipment due to expected abandonment of facilities because of the expected reduction of employees. The most significant portion of expense reductions will consist of employee compensation and benefits due to a reduction of employees. The corporation does not anticipate a decrease in net revenues as a result of this program. This program is intended to enhance the corporation's competitive position through a comprehensive review of all its Northeast banking activities and operations. The review is designed to build a more efficient organization with enhanced customer service and focus. The charge includes only identified direct and incremental costs associated with the efficiency program.
NOTE 3. SECURITIES AVAILABLE FOR SALE ====================================================================================== Gross Gross December 31, 1993 Amortized Unrealized Unrealized Market Dollars in millions Cost Gains Losses Value ====================================================================================== U.S. Treasury and government agencies $ 5,775 $ 180 $ 5 $ 5,950 State and municipal 733 15 1 747 Mortgage-backed securities 5,739 143 4 5,878 Other debt securities 250 7 -- 257 - -------------------------------------------------------------------------------------- Total debt securities 12,497 345 10 12,832 Marketable equity securities 64 19 -- 83 Other securities 16 -- -- 16 - -------------------------------------------------------------------------------------- Total securities available for sale $ 12,577 $ 364 $ 10 $ 12,931 ======================================================================================
====================================================================================== Gross Gross December 31, 1992 Amortized Unrealized Unrealized Market Dollars in millions Cost Gains Losses Value - ------------------------------------------------------------------------------------ U.S. Treasury and government agencies $ 3,884 $ 185 $ 10 $ 4,059 State and municipal 709 13 2 720 Mortgage-backed securities 5,943 190 1 6,132 Other debt securities 181 6 -- 187 - -------------------------------------------------------------------------------------- Total debt securities 10,717 394 13 11,098 Marketable equity securities 81 32 -- 113 Other securities 59 -- -- 59 - -------------------------------------------------------------------------------------- Total securities available for sale $ 10,857 $ 426 $ 13 $ 11,270 ======================================================================================
====================================================================================== Gross Gross December 31, 1991 Amortized Unrealized Unrealized Market Dollars in millions Cost Gains Losses Value - -------------------------------------------------------------------------------------- U.S. Treasury and government agencies $ 4,457 $ 274 $ -- $ 4,731 State and municipal 313 13 -- 326 Mortgage-backed securities 5,392 287 3 5,676 Other debt securities 266 5 -- 271 - -------------------------------------------------------------------------------------- Total debt securities 10,428 579 3 11,004 Marketable equity securities 48 (a) (a) 48 Other securities 47 -- -- 47 - -------------------------------------------------------------------------------------- Total securities available for sale $ 10,523 $ 579 $ 3 $ 11,099 ====================================================================================== (a) At December 31, 1991, marketable equity securities gross unrealized gains were $1.1 million, and gross unrealized losses were $8.4 million. Stockholders' equity was reduced by valuation reserves established against marketable equity securities in order to reflect the market values of the securities. The reserve was $7.3 million at December 31, 1991.
32 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP Net realized gains on sales of marketable equity securities were $49 million and $3 million in 1993 and 1992, respectively. There were no realized gains or losses on sales of marketable equity securities in 1991. At December 31, 1993 and 1992, securities available for sale with a carrying value of $6.6 billion and $5.5 billion, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes. The amortized cost and estimated market value of debt securities available for sale by contractual maturity are shown in the following table. Actual maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
MATURITIES OF SECURITIES AVAILABLE FOR SALE ===================================================================================== December 31, 1993 Within 1 1 to 5 5 to 10 After 10 Dollars in millions Year Years Years Years Total - ------------------------------------------------------------------------------------- Amortized cost: U.S. Treasury and government agencies $ 154 $ 5,443 $ 52 $ 126 $ 5,775 State and municipal 481 177 55 20 733 Mortgage-backed securities -- 4 86 5,649 5,739 Other debt securities -- 200 1 49 250 - ------------------------------------------------------------------------------------- Total debt securities $ 635 $ 5,824 $ 194 $ 5,844 $ 12,497 ===================================================================================== Percent of total debt securities 5.1% 46.6% 1.5% 46.8% 100.0% Weighted average yield(a) 4.9 6.0 8.2 6.3 6.1 ===================================================================================== Market value $ 637 $ 6,009 $ 206 $ 5,980 $ 12,832 =====================================================================================
(a) A tax-equivalent adjustment has been included in the calculations of the yields to reflect this income as if it had been fully taxable. The tax-equivalent adjustment is based upon the applicable federal and state income tax rates. Proceeds from sales of debt securities available for sale during 1993, 1992, and 1991 were $6.8 billion, $5.2 billion, and $4.5 billion, respectively. Gross gains of $233 million and gross losses of $49 thousand were realized on those sales in 1993, gross gains of $210 million and gross losses of $6 million were realized on those sales in 1992, and gross gains of $81 million and no losses were realized on those sales in 1991. Income tax expense on securities available for sale gains was $117 million in 1993, $83 million in 1992, and $28 million in 1991. The FASB has issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which the corporation adopted effective January 1, 1994. The standard requires, among other things, that securities available for sale be reported at fair value, with unrealized gains and losses reflected as a separate component of stockholders' equity. The corporation currently reports securities available for sale at the lower of amortized cost or fair value with any net unrealized loss included in earnings. The changes in the way the corporation accounts for debt and equity securities could result in increased volatility of capital levels. At December 31, 1993, the fair value of the corporation's securities available for sale portfolio exceeded its aggregate amortized cost by $354 million. If the corporation had adopted this standard on December 31, 1993, the after-tax effect on the corporation's stockholders' equity would have been an increase of $206 million and the year-end common equity-to-assets ratio would have been 6.93% compared to the actual ratio of 6.55%. 33 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 4. INVESTMENT SECURITIES
Gross Gross December 31, 1993 Amortized Unrealized Unrealized Market Dollars in millions Cost Gains Losses Value - ------------------------------------------------------------------- U.S. Treasury and government agencies $ 74 $ 2 - $ 76 Mortgage-backed securities 1,382 32 - 1,414 Other debt securities 13 - - 13 - ------------------------------------------------------------------- Total debt securities 1,469 34 - 1,503 Other securities 77 - - 77 - ------------------------------------------------------------------- Total investment securities $1,546 $34 - $1,580 ===================================================================
Gross Gross December 31, 1992 Amortized Unrealized Unrealized Market Dollars in millions Cost Gains Losses Value - ------------------------------------------------------------------- U.S. Treasury and government agencies $ 77 $ - $ 1 $ 76 Mortgage-backed securities 1,634 2 11 1,625 Other debt securities 12 - - 12 - ------------------------------------------------------------------- Total debt securities 1,723 2 12 1,713 Other securities 80 - - 80 - ------------------------------------------------------------------- Total investment securities $1,803 $ 2 $12 $1,793 ===================================================================
At December 31, 1991, investment securities consisted primarily of Federal Reserve Bank stock and private placement preferred stock with a total amortized cost and market value of $102 million. Net realized gains on sales of marketable equity securities were $6 million in 1991. At December 31, 1993 and 1992, investment securities with a carrying value of $820 million and $695 million, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes. The amortized cost and estimated market value of investment securities by contractual maturity are shown in the following table. Actual maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. MATURITIES OF INVESTMENT SECURITIES
December 31, 1993 Within 1 1 to 5 5 to 10 After 10 Dollars in millions Year Years Years Years Total - ------------------------------------------------------------------------------------------------ Amortized cost: U.S. Treasury and government agencies $23 $ 1 $50 $ - $ 74 Mortgage-backed securities - 1 - 1,381 1,382 Other securities 2 8 3 - 13 - ------------------------------------------------------------------------------------------------ Total debt securities $25 $10 $53 $1,381 $1,469 - ------------------------------------------------------------------------------------------------ Percent of total debt securities 1.7% 0.7% 3.6% 94.0% 100.0% Weighted average yield(a) 3.5 5.8 6.0 6.8 6.7 ================================================================================================ Market value $26 $10 $55 $1,412 $1,503 ================================================================================================
(a) A tax-equivalent adjustment has been included in the calculations of the yields to reflect this income as if it had been fully taxable. The tax-equivalent adjustment is based upon the applicable federal and state income tax rates. Proceeds from sales of investment securities during 1991 were $3.9 billion. No investment securities were sold in 1993 or 1992. Gross gains of $94 million and gross losses of $8 million were realized on sales of investment securities in 1991. Income tax expense relating to these gains was $35 million. 34 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 5. LOANS AND LEASES
December 31 Dollars in millions 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------- Loans: Commercial and industrial $11,104 $11,149 $10,435 $ 8,093 $ 8,447 Consumer 7,531 7,116 6,738 5,442 6,024 Commercial real estate: Construction(a) 477 1,062 1,292 1,729 2,548 Interim/permanent 3,917 3,798 4,061 2,070 1,279 Residential real estate 2,052 2,154 2,402 1,448 1,471 Other 195 276 353 - - - --------------------------------------------------------------------------------------------------------------------- Loans, net of unearned income 25,276 25,555 25,281 18,782 19,769 - --------------------------------------------------------------------------------------------------------------------- Lease financing: Lease receivables 1,161 1,165 1,632 1,903 2,153 Estimated residual value 161 161 165 161 146 Unearned income (288) (234) (317) (381) (435) - --------------------------------------------------------------------------------------------------------------------- Lease financing, net of unearned income(b) 1,034 1,092 1,480 1,683 1,864 - --------------------------------------------------------------------------------------------------------------------- Total loans and leases, net of unearned income $26,310 $26,647 $26,761 $20,465 $21,633 =====================================================================================================================
(a) During 1993, the corporation adopted a revised definition for classification of commercial real estate loans as either interim/permanent or construction and, accordingly, approximately $600 million of loans were reclassified from the construction category to interim/permanent. (b) The corporation's leases consist principally of full-payout, direct financing leases. For federal income tax purposes, the corporation has the tax benefit of depreciation on the entire leased unit and interest on the long-term debt. Deferred taxes arising from leveraged leases totaled $13 million in 1993 and $19 million in 1992. Future minimum lease payments to be received are $392 million in 1994; $226 million, 1995; $180 million, 1996; $130 million, 1997; $92 million, 1998; and $141 million, 1999 and thereafter. Total loans and leases include $3.5 billion and $5.2 billion of loans and leases, primarily commercial and commercial real estate loans, subject to either repurchase, including the Bank of New England (BNE) asset pool and Maine Savings Bank (MSB) special asset pool, by, or loss sharing arrangements with, the Federal Deposit Insurance Corp. (FDIC) at December 31, 1993 and 1992, respectively. Approximately $2.8 billion of BNE loans are putable to the FDIC until July 1994, subject to certain conditions and discounts if such loans become classified prior to that date. The MSB special asset pool consisting of $195 million of loans will be acquired by the FDIC on February 1, 1996, for cash. Also, loans aggregating $514 million are subject to FDIC loss share agreements, whereby the FDIC generally reimburses Fleet for 80% of net charge-offs for periods ranging from three to five years from the date of acquisition. Certain directors and executive officers of the corporation and its subsidiaries, including their immediate families and companies with which they are affiliated, borrowed from the subsidiaries during 1993. Such loans were made in the ordinary course of business under the subsidiaries' normal credit terms, including interest rate and collateral. Loans to these individuals, their immediate families, and affiliated companies were as follows. RELATED PARTY LOANS
Dollars in millions - ------------------------------------------------------------------------ Balance Balance December 31, 1992 Additions Repayments December 31, 1993 - ------------------------------------------------------------------------ $290 $255 $284 $261 ========================================================================
35 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 6. RESERVES FOR LOSSES RESERVE FOR CREDIT LOSS ACTIVITY
December 31 Dollars in millions 1993 1992 1991 - ---------------------------------------------------------------- Balance at beginning of year $1,029 $1,021 $ 700 Provision charged to income 271 486 509 Loans and leases charged off (379) (618) (440) Recoveries of loans and leases charged off 89 73 43 Acquisitions/other (10) 67 209 - ---------------------------------------------------------------- Balance at end of year $1,000 $1,029 $1,021 ================================================================
Acquisitions/other includes reserves acquired as a result of acquisitions offset in part by reserve transfers to the FDIC. As part of the BNE acquisition, the FDIC transferred a reserve of 1.25% of the book value of all acquired loans to the corporation. As loans are put to the FDIC, the applicable 1.25% initial loan loss reserve that was established with these loans is also transferred to the FDIC. As of December 31, 1993, the reserve associated with loans acquired as part of the BNE acquisition aggregated $76 million. Until the expiration of the putable period, all or part of the $76-million reserve could be transferred to the FDIC if the corresponding loans were also transferred. However, Fleet currently anticipates retaining the majority of the putable loans, and the balance of the $76-million reserve would also be retained. RESERVE FOR OREO ACTIVITY
December 31 Dollars in millions 1993 - ------------------------------------------------------- Balance at beginning of year $ 12 Provision 47 Disposition, net (29) - ------------------------------------------------------- Balance at end of year $ 30 =======================================================
NOTE 7. NONPERFORMING ASSETS
December 31 Dollars in millions 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------ Loans and leases on a nonaccrual basis: Current $147 $359 $ 313 $ 328 $ - Noncurrent 318 390 739 659 319 OREO/ISFs: Current 6 9 17 36 - Noncurrent 130 232 540 363 80 - ------------------------------------------------------------------------------ Total NPAs $601 $990 $1,609 $1,386 $399 ============================================================================== NPAs as a percent of outstanding loans, leases, and OREO 2.27% 3.68% 5.89% 6.64% 1.84% ============================================================================== Accruing loans and leases contractually past due 90 days or more $ 77 $118 $ 163 $ 157 $ 79 ==============================================================================
The corporation has no significant outstanding commitments to lend additional funds to customers whose loans have been placed on nonperforming status or the terms of which have been modified. The gross interest income that would have been recorded if the nonperforming loans and leases had been current in accordance with their original terms and had been outstanding throughout the period (or since origination if held for part of the period) was $58 million, $87 million, and $101 million in 1993, 1992, and 1991, respectively. The actual amount of interest income on those loans included in net income for the period was $16 million, $30 million, and $22 million in 1993, 1992, and 1991, respectively. Renegotiated loans that have been returned to accrual status totaled $29 million at December 31, 1993. These loans, which are not included in nonperforming assets (NPAs), were renegotiated at existing market interest rates and are performing in accordance with their renegotiated terms. The average current yield on these loans was 7.4% at December 31, 1993. Additionally, approximately $21 million of loans renegotiated in 1993 are reflected in NPAs as a sufficient payment-performance history has not yet been established. During the fourth quarter of 1992, Fleet sold approximately $515 million of assets to multiple buyers in bulk-sale transactions resulting in net proceeds to Fleet of $271 million. Approximately $402 million of the assets sold in these transactions were nonperforming. 36 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 8. SHORT-TERM BORROWINGS
Securities Federal Sold under Other Total Funds Agreements to Commercial Short-Term Short-Term Dollars in millions Purchased Repurchase Paper Borrowings Borrowings - ---------------------------------------------------------------------------------------------------------------------- 1993 Balance at December 31 $ 442 $1,519 $1,337 $4,809 $8,107 Highest balance at any month-end 1,238 2,302 1,415 4,809 8,107 Average balance for the year 1,021 1,690 1,036 2,224 5,971 Weighted average interest rate as of December 31 3.01% 2.60% 3.38% 3.22% 3.12% Weighted average interest rate paid for the year 3.08 2.64 3.52 3.06 3.02 ====================================================================================================================== 1992 Balance at December 31 $ 765 $2,115 $ 743 $2,776 $6,399 Highest balance at any month-end 981 2,706 866 2,776 6,399 Average balance for the year 853 1,856 610 1,434 4,753 Weighted average interest rate as of December 31 3.17% 2.91% 3.71% 4.26% 3.62% Weighted average interest rate paid for the year 3.33 2.97 4.20 3.83 3.45 ====================================================================================================================== 1991 Balance at December 31 $1,147 $1,320 $ 506 $ 501 $3,474 Highest balance at any month-end 1,147 2,067 770 1,367 4,148 Average balance for the year 583 1,439 507 755 3,284 Weighted average interest rate as of December 31 4.31% 3.78% 4.80% 4.96% 4.27% Weighted average interest rate paid for the year 5.67 5.34 6.13 10.02 6.60 ======================================================================================================================
Federal funds purchased and securities sold under agreements to repurchase generally mature within one to four days of the transaction date. Commercial paper and other short-term borrowings generally mature within 90 days, although commercial paper may have a term of up to 270 days. Total credit facilities available, including revolving credit facilities, were $2.6 billion with $940 million outstanding at December 31, 1993, compared to $2.8 billion with $995 million outstanding at December 31, 1992. The amounts outstanding under the lines of credit relate entirely to FMG at both December 31, 1993 and 1992. During 1993, the corporation and its subsidiaries paid commitment fees ranging from .15% to .375% of the lines. 37 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 9. LONG-TERM DEBT
December 31 Dollars in millions Maturity Date 1993 1992 - ------------------------------------------------------------------------------ SENIOR NOTES AND DEBENTURES Parent company: MTNs 5.17%-10.22% 1993-1997 $ 280 $ 281 9.625%-11.25% notes 1993 - 300 9.375%-11.75% notes 1994 115 115 5.625% notes 1995 200 200 7.65% notes 1997 100 100 Other 1 3 - ------------------------------------------------------------------------------ Total parent company 696 999 - ------------------------------------------------------------------------------ Affiliates: MTNs 5.35%-7.48% 1994-2003 373 157 Floating-rate notes 1993 - 627 Floating-rate notes 1994 250 250 Floating-rate notes 1995 400 - 9.80% notes 1995 250 250 9.98% notes 1996 70 70 6.125% notes 1997 150 150 6.50% notes 1999 150 150 Other 18 72 - ------------------------------------------------------------------------------ Total affiliates 1,661 1,726 - ------------------------------------------------------------------------------ Total senior notes and debentures 2,357 2,725 - ------------------------------------------------------------------------------ SUBORDINATED NOTES AND DEBENTURES(a) Floating-rate subordinated- capital notes 1996 - 50 Floating-rate subordinated- capital notes 1997 - 100 Floating-rate subordinated- capital notes 1998 100 100 7.625% subordinated notes 1999 150 150 9.00%-9.90% subordinated notes 2001 325 325 6.875% subordinated notes 2003 150 - 8.125% subordinated notes 2004 250 250 8.625% subordinated notes 2007 107 107 Other 5 5 - ------------------------------------------------------------------------------ Total subordinated notes and debentures 1,087 1,087 - ------------------------------------------------------------------------------ Total long-term debt $3,444 $3,812 ==============================================================================
(a) All subordinated debt is at the parent company with the exception of $400,000 at an affiliate and is included in total risk-based capital. The corporation and FMG have filed registration statements with the Securities and Exchange Commission (SEC) for the issuance of up to $1.8 billion of senior or subordinated debt securities. As of December 31, 1993, $1.1 billion of debt securities had been issued under these shelf registrations, leaving $659 million in debt securities available for future issuance. The $50 million of 11.75%, $65 million of 9.375%, $200 million of 5.625%, and $100 million of 7.65% notes provide for a single principal payment and are not redeemable prior to maturity. The fixed-rate subordinated notes all provide for a single payment at maturity. Long-term senior borrowings of affiliates include $373 million of medium-term notes (MTNs), $150 million of 6.125% notes, and $150 million of 6.50% notes issued by FMG and $250 million of 9.80% and $70 million of 9.98% notes issued by Fleet Finance. The $250-million floating-rate notes due 1994 and the $400-million floating-rate notes due 1995 were issued by subsidiary banks. The rate floats with the London interbank offered rate (LIBOR) index, and the notes are secured by the banks' qualifying student loan portfolios or collateralized by mortgage-backed securities (MBS). All the floating-rate subordinated notes are redeemable at the option of the corporation, in whole or in part, at their principal amount plus accrued interest. During 1993, the corporation redeemed the floating-rate subordinated-capital notes due 1996 and 1997. The floating-rate subordinated-capital notes due in 1998 pay interest at approximately the three-month LIBOR index, reset quarterly. The aggregate payments required to retire long-term debt are: 1994, $693 million; 1995, $956 million; 1996, $171 million; 1997, $292 million; 1998, $138 million; 1999 and thereafter, $1,194 million. 38 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 10. PREFERRED STOCK
December 31 Dollars in millions, except share data 1993 1992 - ------------------------------------------------------------------------ 10.12% Series III perpetual preferred stock, $1 par, 519,758 shares issued and outstanding at December 31, 1993; 1,050,000 shares issued and outstanding at December 31, 1992 $ 50 $100 9.375% Series IV perpetual preferred stock, $1 par, 478,838 shares issued and outstanding at December 31, 1993; 1,000,000 shares issued and outstanding at December 31, 1992 46 96 Preferred stock with cumulative and adjustable dividends, $1 par, 1,000,000 shares issued and outstanding at December 31, 1993 and 1992 49 49 Preferred stock with cumulative and adjustable dividends, $20 par, 1,500,000 shares issued and outstanding at December 31, 1993 and 1992 73 73 Dual convertible preferred stock, $200 stated value, 1,415,000 shares issued and out- standing at December 31, 1993 and 1992 283 283 Other(a) - 3 - ------------------------------------------------------------------------ Total $501 $604 ======================================================================== (a) During 1993, the corporation called for redemption all 31,000 outstanding shares of its 6.5% Series II cumulative convertible preferred stock (Series II stock) and converted all of its outstanding shares of 12% Series I cumulative convertible preferred stock (Series I stock). The entire 31,000 outstanding shares of Series II stock were converted into 133,889 shares of common stock. The Series I stock was converted into 43,165 shares of the corporation's common stock.
The corporation has authorized 16 million shares of $1 par value cumulative preferred stock and 1.5 million shares of $20 par value preferred stock with cumulative and adjustable dividends. The corporation has filed a shelf registration statement with the SEC for the issuance of $445 million in preferred stock, all of which remains available for issuance. During 1993, the corporation purchased approximately 530,000 shares (2.121 million depositary shares) of its Series III preferred stock at a price of approximately $30.50 per depositary share and approximately 521,000 shares (2.085 million depositary shares) of its Series IV preferred stock at a price of approximately $29.25 per depositary share, plus accrued dividends. The Series III perpetual preferred stock is redeemable at the option of Fleet after June 1, 1996, at $105.06 per share ($26.265 per depositary share), declining each year to $100 per share ($25 per depositary share) on or after June 1, 2001, plus accrued and unpaid dividends thereon. The Series IV perpetual preferred stock is redeemable at the option of Fleet after December 1, 1996, at $100 per share ($25 per depositary share), plus accrued and unpaid dividends thereon. Both the $1 par and $20 par adjustable-rate preferred stock were redeemable, at the corporation's option, at $50.00 per share plus accrued and unpaid dividends thereon. The shares paid dividends quarterly. The dividend rate on the $1 par and $20 par shares was calculated at 3.25% and 3.00%, respectively, below the highest of the three-month U.S. Treasury bill rate, the U.S. Treasury 10-year constant maturity rate, or the U.S. Treasury 20-year constant maturity rate, but not lower than 6% or higher than 12% per annum for the $1 par, or higher than 13% per annum for the $20 par. The corporation has called for redemption its $1 par and $20 par adjustable-rate preferred stock on April 1, 1994. The redemption price is $50 for each share of $1 par or $20 par adjustable-rate preferred stock plus accrued dividends. Except in certain circumstances, the holders of the preferred stock have no voting rights. In connection with the acquisition of BNE in 1991, the corporation issued to limited partnerships managed by affiliates of Kohlberg, Kravis, Roberts & Co. $283 million of DCP stock, $200 stated value, convertible into approximately 16 million shares of Fleet common stock at a conversion price of $17.65 per common share. Shares of DCP stock carry limited voting rights until conversion and will pay dividends (if any, in excess of $15 million) equal to 50% of the common dividends paid by Fleet Banking Group, a wholly owned subsidiary of the corporation, which owns all of the common stock of the Fleet subsidiaries that acquired the Massachusetts and Connecticut banking franchises of BNE. No such dividends have been declared to date nor are any anticipated to be declared in 1994. In certain instances, no sooner than six years after issuance (four years with regulatory approval, or earlier if certain capital ratios of Fleet are not met), DCP stockholders can convert into a 50% interest of Fleet Banking Group. However, Fleet will have the option to redeem DCP stock at a 39 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP redemption price equal to 50% of the appraised value of Fleet Banking Group less the sum of (1) the market value of the shares of Fleet common stock into which the DCP stock is then convertible (and such shares of common stock will be distributed to the holders of the DCP stock), and (2) the value of the rights referred to below. Fleet has the option to pay such redemption price in cash or in any combination of Fleet securities having a realizable market value equal to such redemption price. It is the corporation's intent to exercise its unilateral right to issue shares of its own common stock in connection with such a conversion, and the corporation has reserved shares of its own common stock for this purpose. In addition, Fleet issued to the holders of the DCP stock nontransferrable rights to purchase 6,500,000 shares of common stock at an exercise price of $17.65 per share (the rights). The rights, which are exercisable immediately, will expire on July 12, 2001, and are not transferrable. Fleet has the option to pay appreciation on the rights in lieu of delivering the shares upon exercise of the rights. NOTE 11. COMMON STOCK At December 31, 1993, Fleet had 300 million shares of $1 par value common stock authorized and 137 million shares outstanding. Shares reserved for future issuance in connection with the corporation's stock plans, the DCP stock, the rights, and stock options totaled 33 million. During February 1993, the corporation sold approximately 12.3 million shares of common stock, which produced net proceeds of approximately $391 million. During 1990, Fleet's Board of Directors declared a dividend of one preferred share purchase right for each outstanding share of Fleet common stock. Under certain conditions, a right may be exercised to purchase 1/100 of a new series of participating preferred stock at a price of $50, subject to adjustment. The rights become exercisable if a party acquires 10% or more (in the case of certain qualified investors, 15% or more) of the issued and outstanding shares of Fleet common stock or after the commencement of a tender or exchange offer for 10% or more of the issued and outstanding shares. When exercisable, under certain conditions, each right would entitle the holder to receive upon exercise of a right, that number of shares of common stock having a market value of two times the exercise price of the right. The rights will expire in the year 2000 and may be redeemed in whole, but not in part, at a price of $.01 per share at any time prior to expiration or the acquisition of 10% of Fleet common stock. 40 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 12. EMPLOYEE BENEFITS Stock Option Plan. The corporation has a stock option plan under which key employees may be granted options and stock appreciation rights (SARs) at not less than fair market value at the date of grant. In most cases, options granted under the plan vest in 5 equal installments and expire at the end of 10 years. Option plans resulted in charges to expense of $2 million in 1993, $7 million in 1992, and $2 million in 1991. At December 31, 1993, 1992, and 1991, exercisable options totaled 1,832,072, 1,516,846, and 1,682,196, respectively. The following table shows the activity for the plans. STOCK OPTIONS
1993 1992 1991 - ------------------------------------------------------------------ Balance at January 1(a) 4,249,946 3,358,596 3,544,126 Granted 1,747,200 1,588,550 110,000 Exercised 474,584 637,100 140,630 Expired or cancelled 144,000 60,100 154,900 - ------------------------------------------------------------------ Balance at December 31 5,378,562 4,249,946 3,358,596 ==================================================================
(a) At December 31, 1993, 1,472,286 options were issued in tandem with SARs that entitle the holder to tender an option for cancellation and receive the appreciation in value in cash and common stock of the corporation.
Price range--high 1993 1992 1991 - ------------------------------------------------------------------ Balance at January 1 $30.31 $29.19 $29.19 Granted 37.31 30.31 25.50 Exercised 28.44 26.63 23.16 Expired or cancelled 32.75 26.63 26.63 - ------------------------------------------------------------------ Balance at December 31 $37.31 $30.31 $29.19 ================================================================== ================================================================== Price range--low 1993 1992 1991 - ------------------------------------------------------------------ Balance at January 1 $11.00 $ 5.69 $ 5.69 Granted 29.19 27.56 11.00 Exercised 11.69 5.69 5.69 Expired or cancelled 11.69 11.69 11.69 - ------------------------------------------------------------------ Balance at December 31 $11.00 $11.00 $ 5.69 ==================================================================
Restricted Stock Plan. The corporation has a restricted stock grant plan under which key employees are awarded shares of the corporation's common stock subject to certain vesting requirements. Awards provide that restrictions lapse on the fifth anniversary of the date of the agreement awarding such restricted stock (or sooner if the price of Fleet common stock attains certain levels). As of December 31, 1993 and 1992, 140,000 grants were outstanding with an average grant price of $24.11. Pension Plans. The corporation maintains a noncontributory, defined-benefit retirement and pension plan covering substantially all employees. The corporation maintains a supplemental plan to provide benefits to certain employees whose calculated benefits under the qualified plan exceeds the Internal Revenue Service (IRS) limitation. Benefit payments to retired employees are based upon years of service and a percentage of qualifying compensation during the final years of employment. The amounts contributed to the plan are determined annually based upon the amount needed to satisfy the Employee Retirement Income Security Act (ERISA) funding standards. Assets of the plans are primarily invested in listed stocks, corporate obligations, and U.S. Treasury and government agency obligations. FUNDED STATUS OF PLANS
Qualified Nonqualified December 31 Plans Plans Dollars in millions 1993 1992 1993 1992 - ----------------------------------------------------------------------- Actuarial present value of accumulated benefit obligations: Vested benefits $ 86 $ 57 $ 11 $ 9 Nonvested benefits 13 5 1 - - ---------------------------------------------------------------------- Accumulated benefit obligations 99 62 12 9 Additional benefits related to future compensation levels 84 68 4 5 - ---------------------------------------------------------------------- Projected benefits obligation rendered to date 183 130 16 14 Plan assets at fair value 178 158 - - - ---------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligations (5) 28 (16) (14) Unrecognized net transition (asset) obligation being amortized (6) (7) 2 2 Unrecognized prior service cost being amortized 13 14 1 1 Unrecognized net loss from past experience different from that assumed 33 18 6 4 Additional amounts recognized due to minimum level funding - - (5) (2) - ---------------------------------------------------------------------- Prepaid (accrued) pension cost $ 35 $ 53 $(12) $ (9) ======================================================================
41 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP COMPONENTS OF PENSION EXPENSE
Year ended December 31 Dollars in millions 1993 1992 1991 - --------------------------------------------------------------- Service cost benefits earned during the period $ 20 $ 17 $ 9 Interest cost on projected benefit obligation 14 11 8 Actual return on plan assets (14) (10) (31) Net amortization and deferral 2 (2) 22 - --------------------------------------------------------------- Net pension expense $ 22 $ 16 $ 8 ===============================================================
For December 31, 1993, 1992, and 1991, the assumed discount rate was 7.25%, 7.85%, and 8%, respectively, while the rate of increase in compensation levels used to measure the projected benefit obligation was 5% in 1993, 1992, and 1991. The expected long-term rate-of-return on plan assets was 8.85% for 1993 and 9.00% for both 1992 and 1991. Postretirement Health-Care Benefits. In addition to providing pension benefits, the corporation provides health-care cost assistance and life insurance benefits for retired employees. In 1990, the corporation froze the health-care life insurance benefits at 1990 levels for all participating retirees (approximately 2,800). For employees retiring after December 31, 1990, these benefits have been eliminated with the exception of health-care for those employees who had attained 20 years of service and age 55 at December 31, 1990. Such employees (approximately 300) will be offered a reduced frozen level of benefits upon retirement. Prior to 1993, the cost associated with these benefits was expensed as paid. Effective January 1, 1993, the corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions," which requires the accrual of expected costs for providing postretirement benefits. The corporation has elected to amortize the transition obligation, which represents the unfunded accumulated benefit obligation as of January 1, 1993, on a straight-line basis over 20 years. The cost of providing these benefits was $10 million, $8 million, and $4 million in 1993, 1992, and 1991, respectively. The following table presents the plan's funded status reconciled with amounts recognized on the corporation's balance sheet. FUNDED STATUS OF POSTRETIREMENT PLAN
December 31 Dollars in millions 1993 - --------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(61) Fully eligible active plan participants (11) Other active plan participants (3) - -------------------------------------------------------------------- Total accumulated postretirement benefit obligation (75) Plan assets - - -------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets (75) Unrecognized transition obligation 72 - -------------------------------------------------------------------- Accrued postretirement benefit cost $ 3 ====================================================================
The components of the net periodic postretirement benefit cost of $10 million for the year ended December 31, 1993, includes interest cost and the amortization of the transition obligation of $6 million and $4 million, respectively. The discount rate of 7.25% was used in determining the accumulated postretirement benefit obligation. The health-care cost trend rate is 12.5% for 1994, decreasing gradually to 4.5% through the year 2001, and level thereafter. The health-care cost trend rate assumption has a minimal effect on the amounts reported. For example, increasing the assumed health-care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993, by $1 million, and the aggregate of the service cost and interest cost components of the net periodic postretirement benefit cost for 1993 by approximately $115 thousand. Other Plans. Fleet and its subsidiaries have various savings and thrift plans covering substantially all employees. The corporation's savings and thrift plan expense was $15 million, $14 million, and $12 million for 1993, 1992, and 1991, respectively. 42 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 13. INCOME TAXES Effective January 1, 1993, the corporation changed its method of accounting for income taxes from the deferred method to the liability method required by the Financial Accounting Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes." Prior years' financial statements have not been restated. Due to immateriality, the cumulative effect of this accounting change has not been separately disclosed in the statement of income. The effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993, are presented below. NET DEFERRED TAX ASSETS
December 31 Dollars in millions 1993 - -------------------------------------------------------------------- DEFERRED TAX ASSETS: Reserve for credit losses $341 Lease financing 129 Expenses not currently deductible 93 Amortization of PMSRs and marketing gains 92 Core deposit intangible 69 Other 118 - -------------------------------------------------------------------- Total gross deferred tax assets 842 Less: valuation reserve 5 - -------------------------------------------------------------------- Deferred tax assets 837 - -------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Lease financing 267 Purchase accounting adjustments 78 Subsidiary stock transaction 50 Depreciation 29 Other 53 - -------------------------------------------------------------------- Total gross deferred tax liabilities 477 - -------------------------------------------------------------------- Net deferred tax assets $360 ====================================================================
Deferred tax assets, net of the valuation reserve, are expected to be realized from the reversal of existing deferred tax liabilities and from the recognition of future taxable income. The $5-million valuation reserve was established to reflect that portion of deferred tax assets that more likely than not will not be realized for state income tax purposes. The deferred tax benefit of $114 million includes a benefit of $3 million due to a decrease from the beginning of the year in the deferred tax asset-valuation reserve. INCOME TAX EXPENSE (BENEFIT)
December 31 Dollars in millions 1993 1992 1991 - ------------------------------------------------------------------------------ Current income taxes: Federal $ 336 $165 $ 147 State and local 105 61 49 - ------------------------------------------------------------------------------ 441 226 196 Deferred income tax expense (benefit): Federal (85) (1) (116) State and local (29) 3 (25) - ------------------------------------------------------------------------------ (114) 2 (141) Total: Federal 251 164 31 State and local 76 64 24 - ------------------------------------------------------------------------------ $ 327 $228 $ 55 ==============================================================================
COMPONENTS OF DEFERRED INCOME TAX EXPENSE (BENEFIT)
December 31 Dollars in millions 1992 1991 - ------------------------------------------------------------------ Gain on partial sale of FMG $ 49 $ - Provision for credit losses 16 (48) Write-down of marketable equity securities - (6) Capitalized excess servicing fees (net) - (11) Pension funding (6) (5) Lease financing transactions (9) (10) Expenses not currently deductible (14) (43) Purchase accounting adjustments (17) (7) Other -- net (17) (11) - ------------------------------------------------------------------ Total deferred income tax expense (benefit) $ 2 $(141) ==================================================================
The income tax expense for the years ended December 31, 1993, 1992, and 1991, varied from the amount computed by applying the statutory income tax rate to income before taxes. The reasons for the differences are as follows. STATUTORY RATE ANALYSIS
December 31 1993 1992 1991 - ---------------------------------------------------------------------------------- Tax at statutory rate 35.0% 34.0% 34.0% Increases (decreases) in taxes resulting from: Tax-exempt income (2.0) (3.0) (18.8) Alternative minimum tax - (1.4) (17.0) Rate differential on carryback - - 21.3 State and local income taxes, net of federal income tax benefit 6.0 8.2 10.8 Other--net .9 6.4 5.8 - ---------------------------------------------------------------------------------- Effective tax rate 39.9% 44.2% 36.1% ==================================================================================
43 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 14. OFF-BALANCE-SHEET ITEMS AND CONCENTRATION OF CREDIT RISK INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
December 31 Contract or Notional Amount - --------------------------------------------------------------------------------------- Dollars in millions 1993 1992 - --------------------------------------------------------------------------------------- Financial instruments whose contractual amounts represent potential credit risk: Commitments to extend credit $14,136 $10,980 Letters of credit, financial guarantees, and foreign office guarantees (net of participations) 1,303 1,284 Financial instruments whose notional or contractual amounts exceed the amount of potential credit risk: Interest-rate swap transactions 6,618 3,012 Commitments to sell loans 3,106 2,591 Commitments to originate or purchase loans 1,918 1,769 Foreign currency forward contracts 1,281 2,427 Interest-rate futures, forward contracts, and option contracts 1,097 296 Interest-rate caps and floors: Purchased 642 446 Sold 618 511 Assets sold with recourse 291 351 Foreign currency options: Purchased 21 38 Sold 21 77 =======================================================================================
Commitments to extend credit are agreements to lend to customers in accordance with contractual provisions. These commitments usually are for specific periods or contain termination clauses and may require the payment of a fee. The total amounts of unused commitments do not necessarily represent future cash requirements in that commitments often expire without being drawn upon. COMMITMENTS TO EXTEND CREDIT
December 31 Dollars in millions 1993 1992 - --------------------------------------------------------------------------------------- Commercial and industrial loans $ 5,966 $ 4,387 Revolving, open-end loans secured by resi- dential properties (e.g., home equity lines) 2,550 2,448 Credit card lines 1,828 1,127 Commercial real estate 600 270 Other unused commitments 3,192 2,748 - --------------------------------------------------------------------------------------- Total $14,136 $10,980 =======================================================================================
Letters of credit and financial guarantees are agreements whereby the corporation guarantees the performance of a customer to a third party. Collateral is required to support letters of credit in accordance with management's evaluation of the creditworthiness of each customer. The credit risk assumed in issuing letters of credit is essentially equal to that in other lending activities. Management does not anticipate any material losses as a result of these transactions. The corporation's interest-rate swaps are used as an interest-rate risk tool. The corporation is exposed to risk should the swap counterparty default. However, the corporation minimizes this risk by performing normal credit reviews on the counterparties and by limiting its exposure to any one counterparty. Notional principal amounts are a measure of the volume of agreements transacted, but the level of credit risk is significantly less. The amount of credit risk can be estimated by calculating the cost to replace, on a present value basis, and at current market rates, all profitable contracts outstanding at year-end. Using this methodology, the corporation's interest-rate swap portfolio had an exposure of $125 million on December 31, 1993. On the same date, the corporation had a notional principal amount outstanding of $6.6 billion in interest-rate swap transactions with unrelated (notional amount) parties, of which $5 billion of these swaps represent agreements in which Fleet receives a fixed rate and pays a floating rate, and $1.6 billion represented agreements in which Fleet pays a fixed rate and receives a floating rate. Commitments to sell loans have off-balance-sheet market risk to the extent the corporation does not have available loans to fill those commitments, which would require the corporation to purchase loans in the open market. Commitments to originate or purchase loans have off-balance-sheet market risk to the extent that the corporation does not have matching commitments to sell loans obtained under such commitments, which could expose the corporation to lower-of-cost or market-valuation adjustments in a rising interest-rate environment. The corporation enters into forward exchange contracts for foreign currencies. Credit risks may 44 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP arise from the possibility that counterparties will not be able to meet the terms of their contracts. However, management controls these risks by entering into agreements only in accordance with established credit guidelines and limits. The corporation transacts interest-rate options for the purpose of assisting its customers to manage their interest-rate risk. Credit risks may arise from the possibility that the counterparties that have sold options to the corporation will not meet the terms of their contracts. The corporation mitigates these risks by adhering to strict credit guidelines. CONCENTRATIONS OF CREDIT RISK. Although the corporation is engaged in business nationwide, the lending done by the banking subsidiaries is primarily concentrated in the Northeast. NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience, and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. Derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair values, Fleet's fair values should not be compared to other banks. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not purport to represent the underlying market value of the corporation. The following describes the methods and assumptions used by Fleet in estimating the fair values. Cash and Cash Equivalents. The carrying amounts reported in the balance sheet approximate fair values because maturities are less than 90 days. Securities. Fair values are primarily based on quoted market prices. Loans. The fair values of commercial, commercial real estate, and certain consumer loans are estimated by discounting the contractual cash flows using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. For certain variable-rate consumer loans, including home equity lines of credit and credit card receivables, the carrying amounts approximate fair value. This method of estimating 45 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP the fair value of the credit card portfolio excludes the value of the ongoing customer relationships, a factor that can represent a significant premium over book value. For residential real estate loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted for servicing costs. For nonperforming loans and certain loans where the credit quality of the borrower has deteriorated significantly, fair values are estimated by discounting expected cash flows at a rate commensurate with the risk associated with the estimated cash flows, based on recent appraisals of the underlying collateral or by reference to recent loan sales. Mortgages Held for Resale. Fair value is estimated using the quoted market prices for securities backed by similar types of loans and current dealer commitments to purchase loans. These loans are priced to be sold with servicing rights retained (as is the corporation's ordinary course of business). Deposits. The fair value of deposits with no stated maturity is considered to be equal to the carrying amount. The fair value of time deposits is estimated by discounting contractual cash flows using interest rates currently being offered on the deposit products. The fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of alternative forms of funding (core base intangibles). Short-Term Borrowings. Short-term borrowings generally mature in 90 days or less; therefore, the carrying amount reported in the balance sheet approximates fair value. Long-Term Debt. The fair value of Fleet's long-term debt, including the short-term portion, is estimated based on quoted market prices for the issues for which there is a market or by discounting cash flows based on current rates available to Fleet for similar types of borrowing arrangements. Off-Balance-Sheet Instruments. Fair values for off-balance-sheet instruments are based on quoted market prices, current settlement values, or established pricing models using current assumptions. ON-BALANCE-SHEET FINANCIAL INSTRUMENTS - -------------------------------------------------------------------------------------------------
December 31 1993 1992 - ------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Dollars in millions Value Value Value Value - ------------------------------------------------------------------------------------------------- Financial assets: Financial assets for which carrying value approx- imates fair value $ 2,560 $ 2,560 $ 3,361 $ 3,361 Securities 14,123 14,511 12,660 13,063 Loans 24,302 25,136 24,575 25,252 Mortgages held for resale 2,622 2,630 2,087 2,094 Trading account securities 91 91 127 127 Other 187 236 423 446 Financial liabilities: Deposits with no stated maturity 22,910 22,910 22,266 22,266 Time deposits 8,175 8,271 10,469 10,747 Short-term borrowings 8,107 8,107 6,399 6,399 Long-term debt 3,444 3,620 3,812 3,883 Other 124 124 57 57 ================================================================================================
At December 31, 1993 and 1992, the fair value of Fleet's hedge-related interest-rate swaps was $70 million and $71 million, respectively. The fair values of all other off-balance-sheet financial instruments were not material. Certain assets, which are not financial instruments and, accordingly, are not included in the above fair values, contribute substantial value to the corporation in excess of the related amounts recognized in the balance sheet. These include the core deposit intangible and the related retail banking network, the value of customer relationships associated with certain types of consumer loans, particularly the credit card portfolio, lease financing business, and mortgage servicing rights. 46 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 16. COMMITMENTS, CONTINGENCIES, AND OTHER DISCLOSURES The corporation's subsidiary, Fleet Finance, is a defendant in several class-action lawsuits filed in federal and state courts in Georgia and Alabama. Plaintiffs in these suits allege that they are borrowers from lenders from whom Fleet Finance regularly purchased loans or that they are an obligor on a loan that is the subject of a foreclosure action by Fleet Finance. Issues in the cases involve Truth-in-Lending Act regulations, the Georgia Fair Housing Act, laws regarding methods of computing finance charges, and other claims. In December 1993, Fleet Finance of Georgia and Fleet Finance, a Rhode Island corporation, entered into a settlement agreement with the Georgia Attorney General and the Governor's Office of Consumer Affairs, to settle an ongoing investigation by those offices. Pursuant to this settlement, Fleet Finance agreed to invest $70 million in low- to moderate-income housing programs administered by the Georgia Housing and Finance Authority, to provide up to $30 million in relief to eligible current and former Fleet Finance customers meeting specific criteria, to expand by $2 million (to a total of $10 million) its commitment to programs benefiting Atlanta's Olympic stadium impacted neighborhoods, and to pay $2.75 million to Georgia as additional compensation and to cover costs of the investigation. Fleet Finance also reached an agreement in principle in the fourth quarter of 1993 to settle the Alexander class-action lawsuit, subject to final documentation and court approval. Fleet Finance anticipates that, pursuant to such settlement, it will provide benefits that include cash payments to certain borrowers whose loans included specified points or were foreclosed upon. In addition, pursuant to the proposed settlement, Fleet Finance will prospectively reduce the interest rates of active loans it still owns and pay a monthly supplement on certain loans it has sold. In June 1993, the Georgia Supreme Court ruled in Fleet's favor in Fleet Finance v. Jones, et al., ruling that the loans made or purchased by Fleet Finance were not in violation of Georgia's usury statute. The action was dismissed and subsequently appealed. Fleet believes that such appeal will not be successful on the merits. A class-action lawsuit filed by Lillie Mae Starr against Fleet Finance in 1992 alleges violations of the Federal Extortionate Credit Transaction Statute (FECTS) and the Racketeer Influenced and Corrupt Organization (RICO) Act and other claims, based on methods of computing and collecting finance charges. The plaintiffs seek actual, compensatory, and punitive damages. The court granted plaintiff's motion for class certification. The case is in discovery and is scheduled to go to trial later in 1994. Fleet Finance believes that it has meritorious defenses to the pending suits and intends to defend them vigorously. Based on its current analysis of the various suits, the corporation does not believe that they will have a materially adverse effect on the corporation's financial position. The corporation and its subsidiaries are involved in various other legal proceedings arising out of, and incidental to, their respective businesses. Management of the corporation, based on its review with counsel of the development of these matters to date, does not anticipate that any losses incurred as a result of these legal proceedings would have a materially adverse effect on the corporation's financial position. LEASE COMMITMENTS. The corporation has entered into a number of noncancellable operating lease agreements for premises and equipment. The minimum annual rental commitments under these leases at December 31, 1993, exclusive of taxes and other charges, were $83 million in 1994; $72 million, 1995; $62 million, 1996; $43 million, 1997; $39 million, 1998; and $215 million, 1999 and subsequent years. Total rental expense for 1993, 1992, and 1991, including cancellable and noncancellable leases, amounted to $103 million, $89 million, and $69 million, respectively. 47 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP Certain leases contain escalation clauses, which correspond with increased real estate taxes and other operating expenses, and renewal options calling for increased rents as the leases are renewed. No restrictions are imposed by any lease agreement regarding the payment of dividends, additional debt financing, or entering into further lease agreements. REGULATORY MATTERS. As a bank holding company, Fleet is subject to regulation by the Federal Reserve Board. Bank subsidiaries are subject to regulation by the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) as well as state regulators. Each subsidiary bank's deposits are insured by the FDIC. In addition to Fleet's own monitoring of activities, the credit quality of the assets held by certain Fleet subsidiaries is subject to periodic review by the state and federal bank regulatory agencies noted above. While Fleet believes its current reserves for credit losses are adequate in light of prevailing economic conditions and the current regulatory environment, there can be no assurance that Fleet's subsidiaries will not be required to make certain adjustments to the reserve for credit losses and charge-off policies in response to changing economic conditions or regulatory examinations. Neither Fleet nor any of its subsidiaries has entered into formal written agreements with state and federal regulators. TRANSACTION AND DIVIDEND RESTRICTIONS. Fleet's banking subsidiaries are subject to restrictions under federal law that limit the transfer of funds by the subsidiary banks to Fleet and its nonbanking subsidiaries. Such transfers by any subsidiary bank to Fleet or any nonbank subsidiary are limited in amount to 10% of the bank's capital and surplus. Various federal and state banking statutes limit the amount of dividends the subsidiary banks can pay to Fleet without regulatory approval. The payment of dividends by any subsidiary bank may also be affected by other factors such as the maintenance of adequate capital for such subsidiary bank. Various regulators and the boards of directors of the affected institutions continue to review dividend declarations and capital requirements of Fleet and its subsidiaries consistent with current earnings, future earnings prospects, and other factors. RESTRICTIONS ON CASH AND DUE FROM BANKS. The corporation's banking subsidiaries are subject to requirements of the Federal Reserve Board to maintain certain reserve balances. At December 31, 1993 and 1992, these reserve balances were $936 million and $928 million, respectively. 48 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 17. PARENT COMPANY ONLY FINANCIAL STATEMENTS STATEMENTS OF INCOME
Year ended December 31 Dollars in millions 1993 1992 1991 - --------------------------------------------------------------------------------------------- Dividends from subsidiaries: Banking subsidiaries $205 $132 $ 201 Other subsidiaries 24 88 103 Interest 118 123 154 Gain on partial sale of FMG - 121 - Other 89 57 55 - --------------------------------------------------------------------------------------------- Total income 436 521 513 - --------------------------------------------------------------------------------------------- Interest 163 183 220 Noninterest expense 185 118 56 - --------------------------------------------------------------------------------------------- Total expenses 348 301 276 - --------------------------------------------------------------------------------------------- Income before income taxes and equity in undistributed income of subsidiaries 88 220 237 Applicable income taxes (benefit) (45) 27 (4) - --------------------------------------------------------------------------------------------- Income before equity in undistributed income of subsidiaries 133 193 241 Equity in undistributed income (loss) of subsidiaries 355 87 (143) - ---------------------------------------------------------------------------------------------- Net income $488 $280 $ 98 ==============================================================================================
BALANCE SHEETS
- ---------------------------------------------------------------------------------------------- December 31 Dollars in millions 1993 1992 - ---------------------------------------------------------------------------------------------- Money market instruments $ 265 $ 422 Securities (market value: $206 and $179) 189 147 Loans receivable from: Banking subsidiaries 167 168 Other subsidiaries 1,603 1,469 - ---------------------------------------------------------------------------------------------- 1,770 1,637 Investment in subsidiaries: Banking subsidiaries 3,068 2,676 Other subsidiaries 759 687 - ---------------------------------------------------------------------------------------------- 3,827 3,363 Other 329 337 - ---------------------------------------------------------------------------------------------- Total assets $6,380 $5,906 ============================================================================================== Short-term borrowings $ 591 $ 546 Accrued liabilities 368 265 Long-term debt 1,782 2,085 - ---------------------------------------------------------------------------------------------- Total liabilities 2,741 2,896 - ---------------------------------------------------------------------------------------------- Stockholders' equity 3,639 3,010 - ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $6,380 $5,906 ==============================================================================================
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------ December 31 Dollars in millions 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 488 $ 280 $ 98 Adjustments for noncash items: Equity in undistributed (income) loss of subsidiaries (355) (87) 143 Depreciation and amortization 17 13 23 Net securities gains (47) (4) (9) Gain on partial sale of FMG - (121) - Increase in accrued liabilities, net 102 130 51 Other--net 38 20 (66) - ------------------------------------------------------------------------------------------------------------------------ Net cash flow provided by operating activities 243 231 240 - ------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities (132) (27) (1) Proceeds from sales and maturities of securities 137 18 85 Net (increase) decrease in loans made to affiliates (133) (49) 662 Capital contributions to subsidiaries (171) (310) (759) - ------------------------------------------------------------------------------------------------------------------------ Net cash flow used by investing activities (299) (368) (13) - ------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in short-term borrowings 45 (383) (1,253) Proceeds from issuance of long-term debt 300 868 533 Repayments of long-term debt (603) (63) (15) Proceeds from issuance of common and preferred stock 432 27 711 Repurchase of preferred stock Series III and IV (126) - - Cash dividends paid (149) (125) (105) - ------------------------------------------------------------------------------------------------------------------------ Net cash flow provided (used) by financing activities (101) 324 (129) - ------------------------------------------------------------------------------------------------------------------------ Net (decrease) increase in cash and cash equivalents (157) 187 98 Cash and cash equivalents at beginning of the year 422 235 137 - ------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 265 $ 422 $ 235 ========================================================================================================================
49 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FLEET FINANCIAL GROUP NOTE 18. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS CASH-FLOW DISCLOSURE
December 31 Dollars in millions 1993 1992 1991 - ----------------------------------------------------------------------------- Supplemental disclosure of cash-flow information: Cash paid during the period for: Interest expense $1,339 $1,559 $1,979 Income taxes, net of refunds 428 260 130 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Supplemental disclosure of noncash investing and financing activities: Transfer of loans to foreclosed property and repossessed equipment 149 378 528 Conversion of subordinated notes to common stock -- 33 -- Issuance of Class I redeemable preferred stock to the FDIC for no consideration -- -- 100 Transfer of investment securities to securities available for sale -- -- 8,421 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Acquisitions: Assets acquired, net of cash and cash equivalents received -- 1,966 12,046 Cash and cash equivalents received -- 401 5,808 Liabilities assumed -- 2,367 17,854 =============================================================================
NOTE 19. ACQUISITIONS AND SALES On October 11, 1993, the corporation agreed to acquire Sterling Bancshares Corp. (Sterling) of Waltham, Massachusetts, for approximately $125 million in stock, or $39.50 for each share of Sterling common stock. Sterling operates 13 banking offices in Middlesex County, Massachusetts, and had assets of approximately $1 billion at December 31, 1993. Under the terms of the acquisition agreement, Sterling stockholders will receive 1.1575 shares of Fleet Financial Group common stock for each Sterling share subject to a floating exchange rate that may fluctuate 15% in either direction. The merger is subject to approval by Sterling stockholders and various federal and state regulatory agencies. Closing of the transaction is anticipated to take place in the middle of 1994. It is anticipated that the transaction will be accounted for as a pooling of interests. The corporation has also received regulatory approval to acquire approximately $700 million in consumer deposits of 29 upstate New York branches of Chemical Bank. The transaction is expected to close by the end of the first quarter of 1994. During the first quarter of 1994 the corporation sold its factoring and commercial finance subsidiary, Fleet Factors Corp. to GFC Financial Corp. in an all-cash transaction. Fleet Factors had total assets of approximately $350 million at December 31, 1993, and approximately $800 million in factoring volume for 1993. During December 1992, the corporation assumed deposits of approximately $1.5 billion and purchased certain assets of Heritage and Eastland banks from the FDIC. The transactions resulted in the corporation purchasing approximately $1.2 billion in loans, of which approximately $630 million, substantially all commercial real estate and commercial and industrial loans, were subject to loss sharing arrangements with the FDIC. In accordance with the loss arrangements, the FDIC will reimburse the corporation 80% of net charge-offs (subject to an increase to 95% for losses exceeding certain amounts) taken in accordance with regulatory guidelines for periods ranging from three to five years from the date of acquisition. During 1992, Fleet also assumed $739 million in deposits from four separate financial institutions located in New England. 50 52 SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP TEN-YEAR STATISTICAL SUMMARY (UNAUDITED)
Dollars in millions, except per share data 1993 1992 1991 1990 1989 - ----------------------------------------------------------------------------------- Net income (loss) $ 488 $ 280 $ 98 $ (74) $ 371 Earnings (loss) per share 3.01 1.77 0.67 (0.75) 3.30 Return on average assets 1.06% 0.62% 0.25% (0.21)% 1.25% Return on average common stockholders' equity 16.07 11.01 4.02 (3.93) 17.70 Book value per share $22.84 $19.50 $18.15 $ 17.65 $19.87 ===================================================================================
Dollars in millions, except per share data 1988 1987 1986 1985 1984 - --------------------------------------------------------------------------------------- Net income (loss) $ 336 $ 200 $ 253 $ 209 $ 173 Earnings (loss) per share 3.01 1.82 2.37 1.97 1.74 Return on average assets 1.24% 0.81% 1.19% 1.19% 1.18% Return on average common stockholders' equity 18.15 11.88 17.50 16.34 16.12 Book value per share $17.84 $15.83 $14.84 $13.21 $12.03 =======================================================================================
QUARTERLY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
By quarter 1993 - ---------------------------------------------------------------------------------- Dollars in millions, except per share data 1 2 3 4 Year - ---------------------------------------------------------------------------------- Interest income $ 814 $ 802 $ 801 $ 795 $3,212 Interest expense 309 292 279 281 1,161 - ---------------------------------------------------------------------------------- Net interest income 505 510 522 514 2,051 - ---------------------------------------------------------------------------------- Provision for credit losses 85 70 60 56 271 - ---------------------------------------------------------------------------------- Net interest income after provision for credit losses 420 440 462 458 1,780 Securities available for sale gains 19 114 126 23 282 Other noninterest income 290 277 319 297 1,183 - ---------------------------------------------------------------------------------- 729 831 907 778 3,245 Noninterest expense 543 641 687 553 2,424 - ----------------------------------------------------------------------------------- Income before income taxes 186 190 220 225 821 Applicable income taxes 75 78 88 86 327 - ---------------------------------------------------------------------------------- Net income before minority interest 111 112 132 139 494 Minority interest (5) 7 (5) (3) (6) - ---------------------------------------------------------------------------------- Net income $ 106 $ 119 $ 127 $ 136 $ 488 ================================================================================== Earnings per share $0.66 $0.72 $0.78 $0.85 $ 3.01 ================================================================================== Taxable equivalent basis: Interest income--as above $ 814 $ 802 $ 801 $ 795 $3,212 Taxable equivalent adjustment 8 8 9 8 33 - ---------------------------------------------------------------------------------- Interest income--taxable equivalent basis 822 810 810 803 3,245 Interest expense 309 292 279 281 1,161 - ---------------------------------------------------------------------------------- Net interest income--taxable equivalent basis $ 513 $ 518 $ 531 $ 522 $2,084 ==================================================================================
By quarter 1992 - ------------------------------------------------------------------------------------------- Dollars in millions, except per share data 1 2 3 4 Year - ------------------------------------------------------------------------------------------- Interest income $ 871 $ 864 $ 851 $ 830 $3,416 Interest expense 405 383 351 324 1,463 - ------------------------------------------------------------------------------------------- Net interest income 466 481 500 506 1,953 - ------------------------------------------------------------------------------------------- Provision for credit losses 111 129 108 138 486 - ------------------------------------------------------------------------------------------- Net interest income after provision for credit losses 355 352 392 368 1,467 Securities available for sale gains 10 55 12 130 207 Other noninterest income 252 258 384 267 1,161 - ------------------------------------------------------------------------------------------- 617 665 788 765 2,835 Noninterest expense 528 544 634 612 2,318 - ------------------------------------------------------------------------------------------- Income before income taxes 89 121 154 153 517 Applicable income taxes 39 50 74 65 228 - ------------------------------------------------------------------------------------------- Net income before minority interest 50 71 80 88 289 Minority interest - - (4) (5) (9) - -------------------------------------------------------------------------------------------- Net income $ 50 $ 71 $ 76 $ 83 $ 280 =========================================================================================== Earnings per share $0.31 $0.45 $0.49 $0.52 $ 1.77 =========================================================================================== Taxable equivalent basis: Interest income--as above $ 871 $ 864 $ 851 $ 830 $3,416 Taxable equivalent adjustment 6 8 8 8 30 - ------------------------------------------------------------------------------------------- Interest income--taxable equivalent basis 877 872 859 838 3,446 Interest expense 405 383 351 324 1,463 - ------------------------------------------------------------------------------------------- Net interest income--taxable equivalent basis $ 472 $ 489 $ 508 $ 514 $1,983 ===========================================================================================
COMMON STOCK PRICE AND DIVIDEND INFORMATION(a) (UNAUDITED)
By quarter 1993 - ---------------------------------------------------------------------------------- 1 2 3 4 Year - ---------------------------------------------------------------------------------- Stock Price High 37 7/8 37 1/2 35 35 1/4 37 7/8 Low 30 7/8 28 1/4 30 5/8 30 28 1/4 - ---------------------------------------------------------------------------------- Dividends declared 0.225 0.250 0.25 0.30 1.025 Dividends paid 0.225 0.225 0.25 0.25 0.95 ==================================================================================
By quarter 1992 - ----------------------------------------------------------------------------------------- 1 2 3 4 Year - ----------------------------------------------------------------------------------------- Stock Price High 30 3/4 31 30 7/8 33 7/8 33 7/8 Low 24 1/4 26 3/4 25 3/4 27 1/2 24 1/4 - ----------------------------------------------------------------------------------------- Dividends declared 0.20 0.20 0.20 0.225 0.825 Dividends paid 0.20 0.20 0.20 0.20 0.800 ========================================================================================= (a) Fleet's common stock is listed on the New York Stock Exchange. The table above sets forth, for the period indicated, the range of high and low sale prices per share of Fleet's common stock on the composite tape and dividends declared and paid per share. At December 31, 1993, the corporation had 38,888 common stockholders of record.
51 53 SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP CONSOLIDATED AVERAGE BALANCES/INTEREST EARNED-PAID/RATES 1989-1993 (UNAUDITED)
December 31 1993 - ---------------------------------------------------------------------------------------------- Interest Average Earned/ Dollars in millions(a) Balance Paid(b) Rate - ---------------------------------------------------------------------------------------------- ASSETS: Interest-bearing deposits $ 21 $ 1 2.87% Federal funds sold and securities purchased under agreements to resell 163 5 3.02 Trading account securities 79 3 4.05 Securities available for sale 10,442 722 6.91 Investment securities 1,817 120 6.60 Nontaxable securities 679 44 6.49 Loans and leases(c) 26,144 2,210 8.46 Mortgages held for resale 1,979 140 7.05 Foreclosed property and repossessed equipment 211 -- -- - ---------------------------------------------------------------------------------------------- Total interest-earning assets 41,535 3,245 7.81% - ---------------------------------------------------------------------------------------------- Accrued interest receivable 348 -- -- Reserve for credit losses (1,033) -- -- Other assets 5,116 -- -- - ---------------------------------------------------------------------------------------------- Total assets $45,966 $3,245 -- ============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Savings $15,990 $ 342 2.14% Time 9,183 402 4.37 - ---------------------------------------------------------------------------------------------- Total interest-bearing deposits 25,173 744 2.96 - ---------------------------------------------------------------------------------------------- Short-term borrowings 5,971 180 3.02 Long-term debt 3,718 237 6.37 - ---------------------------------------------------------------------------------------------- Total interest-bearing liabilities 34,862 1,161 3.33 - ---------------------------------------------------------------------------------------------- Net interest spread -- 2,084 4.48% - ---------------------------------------------------------------------------------------------- Demand deposits and other noninterest-bearing time deposits 6,429 -- -- Other liabilities 1,222 -- -- - ---------------------------------------------------------------------------------------------- Total liabilities 42,513 1,161 -- - ---------------------------------------------------------------------------------------------- Dual convertible preferred stock -- -- -- Stockholders' equity and dual convertible preferred stock 3,453 -- -- - ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $45,966 $1,161 -- ============================================================================================== Net interest margin 5.02% ==============================================================================================
December 31 1992 - ---------------------------------------------------------------------------------------------- Interest Average Earned/ Dollars in millions(a) Balance Paid(b) Rate - ---------------------------------------------------------------------------------------------- ASSETS: Interest-bearing deposits $ 22 $ 1 3.21% Federal funds sold and securities purchased under agreements to resell 657 14 2.25 Trading account securities 81 4 4.86 Securities available for sale 11,059 863 7.80 Investment securities 196 14 7.06 Nontaxable securities 454 24 5.25 Loans and leases(c) 26,615 2,378 8.94 Mortgages held for resale 1,630 148 9.08 Foreclosed property and repossessed equipment 514 -- -- - ---------------------------------------------------------------------------------------------- Total interest-earning assets 41,228 3,446 8.36% - ---------------------------------------------------------------------------------------------- Accrued interest receivable 335 -- -- Reserve for credit losses (1,058) -- -- Other assets 4,661 -- -- - ---------------------------------------------------------------------------------------------- Total assets $45,166 $3,446 -- ============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Savings $14,816 $ 446 3.01% Time 11,735 630 5.37 - ---------------------------------------------------------------------------------------------- Total interest-bearing deposits 26,551 1,076 4.05 - ---------------------------------------------------------------------------------------------- Short-term borrowings 4,753 164 3.45 Long-term debt 3,127 223 7.10 - ---------------------------------------------------------------------------------------------- Total interest-bearing liabilities 34,431 1,463 4.25 - ---------------------------------------------------------------------------------------------- Net interest spread -- 1,983 4.11% - ---------------------------------------------------------------------------------------------- Demand deposits and other noninterest-bearing time deposits 6,850 -- -- Other liabilities 991 -- -- - ---------------------------------------------------------------------------------------------- Total liabilities 42,272 1,463 -- - ---------------------------------------------------------------------------------------------- Dual convertible preferred stock 283 -- -- Stockholders' equity and dual convertible preferred stock 2,611 -- -- - ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $45,166 $1,463 -- ============================================================================================== Net interest margin 4.80% ==============================================================================================
(a) The data in this table is presented on a taxable equivalent basis. The tax-equivalent adjustment is based upon the applicable federal and state income tax rates. (b) Includes fee income of $58 million, $69 million, $67 million, $59 million, and $89 million for the years ended December 31, 1993, 1992, 1991, 1990, and 1989, respectively. (c) Nonperforming loans are included in average balances used to determine rates. 52 54 SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP
1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------- Interest Interest Interest Average Earned/ Average Earned/ Average Earned/ Balance Paid(b) Rate Balance Paid(b) Rate Balance Paid(b) Rate - --------------------------------------------------------------------------------------------------------------------- $ 68 $ 4 5.46% $ 193 $ 17 8.98% $ 176 $ 16 9.05% 1,455 86 5.93 1,681 135 8.05 220 21 9.53 73 5 6.89 31 2 6.48 25 2 7.15 1,376 91 6.63 - - - - - - 5,838 530 9.07 5,473 535 9.78 3,383 277 8.19 949 66 6.91 1,654 117 7.04 1,511 165 10.96 23,995 2,475 10.31 21,027 2,434 11.57 20,371 2,569 12.61 1,225 118 9.67 1,227 133 10.86 1,028 108 10.48 468 - - 503 - - 324 - - - --------------------------------------------------------------------------------------------------------------------- 35,447 3,375 9.52% 31,789 3,373 10.61% 27,038 3,158 11.68% - --------------------------------------------------------------------------------------------------------------------- 307 - - - - - - - - (828) - - (563) - - (325) - - 3,913 - - 3,137 - - 3,085 - - - --------------------------------------------------------------------------------------------------------------------- $38,839 $3,375 - $34,363 $3,373 - $29,798 $3,158 - ===================================================================================================================== $10,849 $ 523 4.82% $ 7,439 $ 420 5.65% $ 7,080 $ 403 5.69% 13,399 957 7.15 11,168 923 8.27 9,834 853 8.68 - --------------------------------------------------------------------------------------------------------------------- 24,248 1,480 6.11 18,607 1,343 7.22 16,914 1,256 7.43 - --------------------------------------------------------------------------------------------------------------------- 3,284 217 6.60 6,366 551 8.65 4,260 385 9.04 3,020 233 7.71 2,544 232 9.12 1,809 175 9.68 - --------------------------------------------------------------------------------------------------------------------- 30,552 1,930 6.32 27,517 2,126 7.73 22,983 1,816 7.90 - --------------------------------------------------------------------------------------------------------------------- 1,445 3.20% 1,247 2.88% 1,342 3.78% - --------------------------------------------------------------------------------------------------------------------- 5,267 - - 4,118 - - 3,958 - - 617 - - 531 - - 675 - - - --------------------------------------------------------------------------------------------------------------------- 36,436 1,930 - 32,166 2,126 - 27,616 1,816 - - --------------------------------------------------------------------------------------------------------------------- 134 - - - - - - - - 2,269 - - 2,197 - - 2,182 - - - --------------------------------------------------------------------------------------------------------------------- $38,839 $1,930 - $34,363 $2,126 - $29,798 $1,816 - ===================================================================================================================== 4.09% 3.92% 4.96% =====================================================================================================================
53 55 SUPPLEMENTAL FINANCIAL INFORMATION FLEET FINANCIAL GROUP The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rate. RATE/VOLUME ANALYSIS (UNAUDITED)
1993 Compared to 1992 1992 Compared to 1991 - ------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) Due to(a) Increase (Decrease) Due to(a) - -------------------------------------------------------------------------------------------------------------------------- Dollars in millions Volume Rate Net Volume Rate Net - -------------------------------------------------------------------------------------------------------------------------- Interest earned on:(b) Interest-bearing deposits $ - $ - $ - $ (1) $ (2) $ (3) Federal funds sold and securities purchased under agreements to resell (17) 8 (9) (18) (54) (72) Trading account securities - (1) (1) - (1) (1) Securities available for sale (46) (95) (141) 756 16 772 Investment securities 107 (1) 106 (399) (117) (516) Nontaxable securities 14 6 20 (26) (16) (42) Loans and leases (42) (126) (168) 234 (331) (97) Mortgages held for resale 181 (189) (8) 37 (7) 30 - --------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 197 (398) (201) 583 (512) 71 - --------------------------------------------------------------------------------------------------------------------------- Interest paid on: Deposits: Savings 39 (143) (104) 119 (196) (77) Time (123) (105) (228) (89) (238) (327) - --------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits (84) (248) (332) 30 (434) (404) - --------------------------------------------------------------------------------------------------------------------------- Short-term borrowings 32 (16) 16 50 (103) (53) Long-term debt 32 (18) 14 8 (18) (10) - --------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities (20) (282) (302) 88 (555) (467) - --------------------------------------------------------------------------------------------------------------------------- Net interest differential(b)(c) $ 217 $(116) $ 101 $ 495 $ 43 $ 538 =========================================================================================================================== (a) The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each. (b) A tax-equivalent adjustment has been included in the calculations to reflect this income as if it had been fully taxable. The tax-equivalent adjustment is based upon the applicable federal and state income tax rates. (c) Includes fee income of $58 million, $69 million, and $67 million for the years ended December 31, 1993, 1992, and 1991, respectively.
LOAN AND LEASE MATURITY (UNAUDITED)
December 31, 1993 Within 1 1 to 5 After 5 Dollars in millions Year Years Years Total - --------------------------------------------------------------------- Commercial and industrial $4,811 $ 4,934 $1,359 $11,104 Consumer 1,536 4,434 1,561 7,531 Commercial real estate: Construction 194 247 36 477 Interim/permanent 1,042 2,348 527 3,917 Residential real estate 92 525 1,435 2,052 Lease financing 373 587 74 1,034 Other - 195 - 195 - ---------------------------------------------------------------------- Total $8,048 $13,270 $4,992 $26,310 ======================================================================
INTEREST SENSITIVITY OF LOANS OVER ONE YEAR (UNAUDITED)
December 31, 1993 Predetermined Floating Dollars in millions Interest Rates Interest Rates Total - -------------------------------------------------------------------------------------- 1 to 5 years $4,848 $ 8,422 $13,270 After 5 years 3,288 1,704 4,992 - --------------------------------------------------------------------------------------- Total $8,136 $10,126 $18,262 =======================================================================================
54 56 AFFILIATES FLEET FINACIAL GROUP BANKING COMPANIES FINANCIAL SERVICES COMPANIES FLEET BANK AFSA DATA CORP. Thomas A. Doherty Douglas A. Leafstedt Chairman, President, and Chairman and Chief Executive Officer Chief Executive Officer Steven Snyder 300 Broad Hollow Road President Melville, NY 11747 2277 East 220th Street Telephone: (516) 547-8000 Long Beach, CA 90810-1690 Telephone: (310) 513-2700 FLEET BANK, N.A. Frederick C. Copeland, Jr. FLEET BROKERAGE SECURITIES Chairman, President, and Frieda Z. Lewis Chief Executive Officer President and Chief Executive Officer One Constitution Plaza 67 Wall Street Hartford, CT 06115 New York, NY 10005 Telephone: (203) 244-5000 Telephone: (212) 806-2888 FLEET BANK OF MAINE FLEET CREDIT CORP. M. Anne Szostak Ronald H. Chamides Chairman, President, and President Chief Executive Officer 50 Kennedy Plaza One City Center Providence, RI 02903 P.O. Box 9791 Telephone: (401) 278-6000 Portland, ME 04104-5091 Telephone: (207) 874-5000 FLEET FINANCE, INC. John S. Poelker FLEET BANK OF MASSACHUSETTS, N.A. Chairman and Chief Executive Officer Leo R. Breitman R. Harold Owens Chairman and Chief Executive Officer President and Chief Operating Officer John P. Hamill Suite 800 President 211 Perimeter Center Parkway 75 State Street Atlanta, GA 30346 Boston, MA 02109 Telephone: (404) 392-2400 Telephone: (617) 346-4000 FLEET MORTGAGE GROUP, INC. FLEET BANK-NH Andrew D. Woodward, Jr. Dean T. Holt Chairman and Chief Executive Officer Chairman Robert T. Golitz Michael C. Whitney President and Chief Operating Officer President and Chief Executive Officer 1333 Main Street One Indian Head Plaza P.O. Box 11988 Albany, NY 12207 Columbia, SC 29211 Telephone: (603) 594-5000 Telephone: (803) 929-7900 FLEET BANK OF NEW YORK FLEET INVESTMENT ADVISORS Erland E. Kailbourne Harold A. Mackinney, Jr. Chairman and Chief Credit Officer Chairman and Chief Executive Officer Dean T. Holt 50 Kennedy Plaza President and Chief Credit Officer Providence, RI 02903 Peter D. Kiernan Plaza Telephone: (401) 278-6600 Albany, NY 12207 Telephone: (518) 447-4100 FLEET INVESTMENT SERVICES Richard H. Jones FLEET BANK-RI President and Chief Executive Officer Thomas J. Skala 50 Kennedy Plaza Chairman and Chief Executive Officer Providence, RI 02903 Richard A. Higginbotham Telephone: (401) 278-6600 President 111 Westminster Street FLEET SECURITIES, INC. Providence, RI 02903 John P. O'Brien Telephone: (401) 278-6000 President 14 Wall Street--27th Floor New York, NY 10005 Telephone: (212) 285-0800 FLEET SERVICES CORP. David M. Sheppard Chairman and Chief Executive Officer P.O. Box 366 Providence, RI 02901 Telephone: (401) 275-7050 Robert P. Drum President Peter D. Kiernan Plaza Albany, NY 12207 (518) 447-4100 RECOLL MANAGEMENT CORP. Thomas W. Lucey President and Chief Executive Officer 245 Summer Street Boston, MA 02209-9173 Telephone: (617) 742-0020
55 57 OFFICERS AND DIRECTORS FLEET FINANCIAL GROUP
OFFICERS BOARD OF DIRECTORS Terrence Murray Terrence Murray Ruth R. McMullin Chairman, President, and Chairman, President, and President and Chief Executive Chief Executive Officer Chief Executive Officer Officer Fleet Financial Group Harvard Business School Robert J. Higgins Providence, R.I. Publishing Corp. Vice Chairman Boston, Mass., a professional William Barnet, III publishing organization of the H. Jay Sarles President Harvard Business School Vice Chairman William Barnet & Son, Inc. Spartanburg, S.C., processing and Arthur C. Milot Michael R. Zucchini trading natural and synthetic Private Investor Vice Chairman yarns, fibers, and resins Jamestown, R.I. Eugene M. McQuade Bradford R. Boss Thomas D. O'Connor Executive Vice President and Chairman President Chief Financial Officer A.T. Cross Company Mohawk Paper Mills, Inc. Lincoln, R.I., a manufacturer and Cohoes, N.Y., a manufacturer and James P. Murphy distributor of fine writing distributor of fine printing Executive Vice President instruments and leather goods papers John B. Robinson, Jr. James E. Chandler Michael B. Picotte Executive Vice President Retired Chairman and Director Managing General Partner and Fleet Bank-NH Chief Executive Officer Edward J. Devin Nashua, N.H. The Picotte Companies Senior Vice President Albany, N.Y., investment builders Paul J. Choquette, Jr. of commercial office buildings Peter C. Fitts President Senior Vice President Gilbane Building Company James J. Preble Providence, R.I., a national Retired Vice Chairman William C. Mutterperl construction firm Fleet Financial Group Senior Vice President, Secretary Providence, R.I.; and General Counsel James F. Hardymon Retired Chairman Chairman and Chief Executive Fleet Bank, N.A. Anne M. Slattery Officer Hartford, Conn. Senior Vice President Textron Inc. Providence, R.I., a John D. Reardon P. Emery Covington multi-industry company Retired Chairman Vice President Daniel Green Company Robert M. Kavner Dolgeville, N.Y., a manufacture Thomas E. Freeman Executive Vice President of leisure footwear Vice President American Telephone and Telegraph Co.; John A. Reeves Richard A. Higginbotham Chief Executive Officer President Vice President Multimedia Products and Services Pitkin Iron Corp. Group Carbondale, Colo. Peter L. Hood New York, N.Y., a corporation Vice President engaged in the electronic movement John R. Riedman and management of information Chairman Richard H. Jones worldwide Riedman Corp. Vice President Rochester, N.Y., a national Lafayette Keeney insurance brokerage Robert W. Lougee, Jr. Retired Chairman Vice President Sage-Allen & Co., Inc. John S. Scott Hartford, Conn., a retail Retired Chairman Harold A. Mackinney, Jr. department store Richardson-Vicks Inc. Vice President Wilton, Conn., a worldwide E. Douglas Kenna marketer of consumer products Robert L. Nellson Chairman Vice President Roper Industries, Inc. Athens, Ga., a diversified Robert C. Lamb, Jr. manufacturing company Controller Raymond C. Kennedy Richard R. Pannone Chairman Treasurer Kendell Holdings, Inc. Hudson, N.Y., a private venture capital company investing in small, new companies
56 58 STOCKHOLDERS' INFORMATION FLEET FINANCIAL GROUP DIVIDEND POLICY The Board of Directors of Fleet Financial Group considers dividends at least annually. The current annualized dividend rate is $1.20 per common share. DIVIDEND REINVESTMENT SERVICE Fleet's automatic dividend reinvestment service, available on request, enables stockholders to have their quarterly dividends reinvested in shares of the corporation and/or to make voluntary cash investments. All brokerage fees and commissions for these transactions are absorbed by the corporation. Occasionally, the corporation may establish discounts on these transactions. STOCK TRANSFER AGENTS Fleet Bank-RI, Providence, Rhode Island Mellon Financial Securities, Inc., New York, New York DIVIDEND DISBURSING AGENT Fleet Bank-RI, Providence, Rhode Island REGISTRARS OF STOCK Citizens Trust Company, Providence, Rhode Island Chemical Bank, New York, New York INDEPENDENT AUDITORS KPMG Peat Marwick, Providence, Rhode Island MARKET DATA OF FLEET FINANCIAL GROUP'S COMMON STOCK Traded: New York Stock Exchange Symbol: FLT Stockholders of record (12/31/93): 38,888 Shares outstanding (12/31/93): 137,381,588 DATE AND PLACE OF NEXT ANNUAL MEETING OF STOCKHOLDERS April 20, 1994, Albany, New York INFORMATION SERVICE Fleet welcomes stockholder and public interest in our services and activities. Questions pertaining to material presented in this report and requests for other reports filed with the Securities and Exchange Commission should be directed to: Corporate Communications Fleet Financial Group 50 Kennedy Plaza Providence, Rhode Island 02903 (401) 278-5800 57 EX-21 8 SUBSIDARIES OF THE REGISTRANT 1 EXHIBIT 21 FLEET FINANCIAL GROUP, INC. SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY JURISDICTION OF INCORPORATION - ---------- ----------------------------- Banking Subsidiaries: - -------------------- Fleet Banking Group, Inc. Rhode Island Fleet Bank, National Association United States Fleet Bank of Massachusetts, National Association United States Fleet National Bank United States Fleet New York, Inc. New York Fleet Bank of New York New York Fleet Bank New York Merrill/Norstar Bankshare Association Maine Fleet Bank of Maine Maine Indian Head Banks, Inc. New Hampshire Fleet Bank-NH New Hampshire Nonbanking Subsidiaries: - ------------------------ Fleet Mortgage Group, Inc. Rhode Island Fleet Mortgage Corp. Rhode Island Fleet Real Estate Funding Corp. South Carolina Fleet Mortgage Securities, Inc. Rhode Island Fleet Financial Corporation Rhode Island Fleet Finance, Inc. Rhode Island Fleet Finance, Inc. Delaware Fleet Credit Corporation Rhode Island Fleet Securities, Inc. New York Fleet Brokerage Securities, Inc. Delaware AFSA Data Corporation California Fleet Private Equity Co., Inc. Rhode Island Fleet Investment Services, Inc. Rhode Island Fleet Services Corporation New York Fleet Investment Advisors, Inc. New York Fleet Trust Company New York Fleet Trust Company of Florida, N.A. United States Recoll Management Corporation Rhode Island
EX-23 9 INDEPENDENT AUDITORS CONSENT 1 EXHIBIT 23 FLEET FINANCIAL GROUP, INC. ACCOUNTANTS' CONSENT INDEPENDENT AUDITORS' CONSENT ----------------------------- The Board of Directors Fleet Financial Group, Inc.: We consent to incorporation by reference in the Registration Statements (Nos. 33-19425, 33-22045, 33-32460 and 33-48818) on Form S-8, the Registration Statements (Nos. 33-22808, 33-36707, 33-40965, 33-50214 and 33-50216) on Form S-3 and the Registration Statement (No. 33-51745) on Form S-4 of Fleet Financial Group, Inc. of our report dated January 19, 1994, relating to the consolidated balance sheets of Fleet Financial Group, Inc. as of December 31, 1993 and 1992 and the related consolidated statements of income, changes in stockholders' equity and cash flows, for each of the years in the three-year period ended December 31, 1993, which report appears in the Fleet Financial Group, Inc. 1993 Annual Report to Shareholders which has been incorporated by reference in the 1993 annual report on Form 10-K of Fleet Financial Group, Inc. /s/ KPMG Peat Marwick Providence, Rhode Island March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----