-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Woie41g/3ztI7AfJ473W6f0x6U/wE0EKCh6kkpFeaXtxjQqgd3OKQ7iDncpPtgjl NQv8pMf2KptfwDFjNQSF6w== 0001047469-97-004803.txt : 19971117 0001047469-97-004803.hdr.sgml : 19971117 ACCESSION NUMBER: 0001047469-97-004803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEET FINANCIAL GROUP INC CENTRAL INDEX KEY: 0000050341 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 050341324 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06366 FILM NUMBER: 97719483 BUSINESS ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02211 BUSINESS PHONE: 6172922000 MAIL ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02211 FORMER COMPANY: FORMER CONFORMED NAME: FLEET FINANCIAL GROUP INC DATE OF NAME CHANGE: 19880110 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL NATIONAL CORP DATE OF NAME CHANGE: 19820512 10-Q 1 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 _________________ FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _________ TO __________ COMMISSION FILE NUMBER 1-6366 FLEET FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0341324 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) ONE FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (Address of principal executive office) (Zip Code) (617) 346-4000 Registrant's telephone number, including area code Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ _____ The number of shares of common stock of the Registrant outstanding as of October 31, 1997 was 250,218,766. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- FLEET FINANCIAL GROUP, INC. FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1997 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE ---- PART I. ITEM 1. FINANCIAL INFORMATION Consolidated Statements of Income Three Months Ended September 30, 1997 and 1996 3 Nine Months Ended September 30, 1997 and 1996 4 Consolidated Balance Sheets September 30, 1997 and December 31, 1996 5 Consolidated Statements of Changes in Stockholders' Equity Nine Months Ended September 30, 1997 and 1996 6 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 and 1996 7 Condensed Notes to Consolidated Financial Statements 8 PART I. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 23 SIGNATURES 24 EXHIBITS 25 2 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Interest and fees on loans and leases $ 1,331 $ 1,349 Interest on securities 145 190 - ----------------------------------------------------------------------------------------------------------------- Total interest income 1,476 1,539 - ----------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 410 467 Short-term borrowings 68 57 Long-term debt 82 91 - ----------------------------------------------------------------------------------------------------------------- Total interest expense 560 615 - ----------------------------------------------------------------------------------------------------------------- Net interest income 916 924 - ----------------------------------------------------------------------------------------------------------------- Provision for credit losses 85 65 - ----------------------------------------------------------------------------------------------------------------- Net interest income after provision for credit losses 831 859 - ----------------------------------------------------------------------------------------------------------------- Noninterest income: Service charges, fees and commissions 159 153 Investment services revenue 104 93 Mortgage banking revenue, net 66 96 Venture capital revenue 29 41 Student loan servicing fees 24 23 Securities gains 4 -- Other 128 99 - ----------------------------------------------------------------------------------------------------------------- Total noninterest income 514 505 - ----------------------------------------------------------------------------------------------------------------- Noninterest expense: Employee compensation and benefits 384 425 Occupancy 70 74 Equipment 70 71 Intangible asset amortization 41 40 Marketing 31 26 Legal and other professional 20 34 Other 175 191 - ----------------------------------------------------------------------------------------------------------------- Total noninterest expense 791 861 - ----------------------------------------------------------------------------------------------------------------- Income before income taxes 554 503 Applicable income taxes 225 208 - ----------------------------------------------------------------------------------------------------------------- Net income $ 329 $ 295 - ----------------------------------------------------------------------------------------------------------------- Net income applicable to common shares $ 313 $ 273 - ----------------------------------------------------------------------------------------------------------------- Fully diluted weighted average common shares outstanding 260,002,510 268,812,396 Fully diluted earnings per share $ 1.20 $ 1.02 Dividends declared $ .45 $ .43 - -----------------------------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements. 3 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Interest and fees on loans and leases $ 3,925 $ 3,776 Interest on securities 440 577 - ----------------------------------------------------------------------------------------------------------------- Total interest income 4,365 4,353 - ----------------------------------------------------------------------------------------------------------------- Interest expense: Deposits 1,233 1,299 Short-term borrowings 163 251 Long-term debt 253 300 - ----------------------------------------------------------------------------------------------------------------- Total interest expense 1,649 1,850 - ----------------------------------------------------------------------------------------------------------------- Net interest income 2,716 2,503 - ----------------------------------------------------------------------------------------------------------------- Provision for credit losses 233 148 - ----------------------------------------------------------------------------------------------------------------- Net interest income after provision for credit losses 2,483 2,355 - ----------------------------------------------------------------------------------------------------------------- Noninterest income: Service charges, fees and commissions 475 391 Investment services revenue 310 274 Mortgage banking revenue, net 260 264 Student loan servicing fees 76 67 Venture capital revenue 57 94 Securities gains 22 38 Net gains on sales of business units 175 -- Gain from branch divestiture -- 92 Other 355 264 - ----------------------------------------------------------------------------------------------------------------- Total noninterest income 1,730 1,484 - ----------------------------------------------------------------------------------------------------------------- Noninterest expense: Employee compensation and benefits 1,215 1,184 Occupancy 212 210 Equipment 207 196 Intangible asset amortization 120 96 Legal and other professional 82 92 Marketing 69 72 Other 679 566 - ----------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,584 2,416 - ----------------------------------------------------------------------------------------------------------------- Income before income taxes 1,629 1,423 Applicable income taxes 661 587 - ----------------------------------------------------------------------------------------------------------------- Net income $ 968 $ 836 - ----------------------------------------------------------------------------------------------------------------- Net income applicable to common shares $ 919 $ 783 - ----------------------------------------------------------------------------------------------------------------- Fully diluted weighted average common shares outstanding 264,022,822 269,259,878 Fully diluted earnings per share $ 3.48 $ 2.91 Dividends declared $ 1.35 $ 1.29 - -----------------------------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements. 4 FLEET FINANCIAL GROUP, INC. CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Assets Cash, due from banks and interest-bearing deposits $ 5,192 $ 7,243 Federal funds sold and securities purchased under agreements to resell 1,371 1,772 Securities available for sale 7,511 7,503 Securities held to maturity (market value: $1,264 and $1,172) 1,259 1,177 Loans and leases 59,264 58,844 Reserve for credit losses (1,432) (1,488) Net loans and leases 57,832 57,356 Mortgage servicing rights 1,800 1,566 Mortgages held for resale 1,396 1,560 Premises and equipment 1,252 1,347 Intangible assets 1,704 1,699 Other assets 4,258 4,295 - ----------------------------------------------------------------------------------------------------------------- Total assets $ 83,575 $ 85,518 - ----------------------------------------------------------------------------------------------------------------- Liabilities Deposits: Demand $ 15,821 $ 17,903 Regular savings, NOW, money market 27,569 27,976 Time 19,517 21,192 - ----------------------------------------------------------------------------------------------------------------- Total deposits 62,907 67,071 - ----------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 2,575 2,871 Other short-term borrowings 3,949 756 Accrued expenses and other liabilities 2,498 2,291 Long-term debt 4,459 5,114 - ----------------------------------------------------------------------------------------------------------------- Total liabilities 76,388 78,103 - ----------------------------------------------------------------------------------------------------------------- Stockholders' Equity Preferred stock 835 953 Common stock (shares issued: 263,239,019 in 1997 and 263,395,054 in 1996; shares outstanding: 249,872,588 in 1997 and 261,992,124 in 1996) 3 3 Common surplus 3,112 3,145 Retained earnings 3,919 3,342 Net unrealized gain on securities available for sale 71 31 Treasury stock, at cost (13,366,431 shares in 1997 and 1,402,930 shares in 1996) (753) (59) - ----------------------------------------------------------------------------------------------------------------- Total stockholders' equity 7,187 7,415 - ----------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 83,575 $ 85,518 - -----------------------------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements. 5 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------- NET UNREALIZED COMMON GAIN(LOSS) NINE MONTHS ENDED SEPTEMBER 30 STOCK AT ON SECURITIES DOLLARS IN MILLIONS, PREFERRED $.01 COMMON RETAINED AVAILABLE TREASURY EXCEPT SHARE AMOUNTS STOCK PAR SURPLUS EARNINGS FOR SALE STOCK TOTAL - --------------------------------------------------------------------------------------------------------------------------------- 1996 - ----- Balance at December 31, 1995 $ 399 $3 $3,149 $2,768 $52 $(6) $6,365 Net income 836 836 Cash dividends declared on commonstock ($1.29 per share) (339) (339) Cash dividends declared on preferred stock (51) (51) Issuance of preferred stock, net of issuance cost 650 (15) 635 Redemption of preferred stock (50) (3) (53) Common stock issued in connection with: Employee benefit and stock option plans 36 (21) 28 43 Warrants 15 15 Adjustment of valuation reserve for securities available for sale (69) (69) Treasury stock purchased (69) (69) Other, net 2 (43) (4) -- (45) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1996 $1,001 $3 $3,142 $3,186 $(17) $(47) $7,268 - ----------------------------------------------------------------------------------------------------------------------------------- 1997 - ----- Balance at December 31, 1996 $ 953 $3 $3,145 $3,342 $ 31 $(59) $7,415 Net income 968 968 Cash dividends declared on commonstock ($1.35 per share) (343) (343) Cash dividends declared on preferred stock (49) (49) Redemption of preferred stock (34) (34) Common stock issued in connection with employee benefit and stock option plans (31) 1 94 64 Treasury stock purchased (788) (788) Adjustment of valuation reserve for securities available for sale 40 40 Exchange of Series V preferred stock for trust preferred securities (84) (84) Other, net (2) (2) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 $835 $3 $3,112 $3,919 $71 $(753) $7,187 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying Condensed Notes to Consolidated Financial Statements. 6 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30 DOLLARS IN MILLIONS 1997 1996 - --------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $ 968 $ 836 Adjustments for noncash items: Depreciation and amortization of premises and equipment 158 144 Amortization of mortgage servicing rights and other intangible assets 299 235 Provision for credit losses 233 148 Deferred income tax expense 225 202 Securities gains (22) (38) Gain from branch divestitures -- (92) Net gain on sale of business units (175) -- Originations and purchases of mortgages held for resale (11,406) (14,621) Proceeds from sales of mortgages held for resale 11,134 15,891 Increase in accrued receivables, net (59) (448) Increase (decrease) in accrued liabilities, net 228 (176) Other, net (391) 799 - --------------------------------------------------------------------------------------------------- Net cash flow provided by operating activities 1,192 2,880 - --------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Purchases of securities available for sale (2,140) (5,210) Proceeds from maturities of securities available for sale 660 3,870 Proceeds from sales of securities available for sale 1,618 13,037 Purchases of securities held to maturity (1,240) (1,093) Proceeds from maturities of securities held to maturity 1,123 672 Loans made to customers, nonbanking subsidiaries (1,660) (1,125) Principal collected on loans made to customers, nonbanking subsidiaries 989 746 Proceeds from the sale of subsidiary -- 1,344 Net (increase) decrease in loans and leases, banking subsidiaries (2,320) 857 Net cash and cash equivalents received for businesses acquired -- 2,386 Net cash received from divestiture of loans -- 1,773 Net cash received from sale of business units 2,719 -- Purchases of premises and equipment (115) (113) Purchases of mortgage servicing rights (204) (171) - --------------------------------------------------------------------------------------------------- Net cash flow (used) provided by investing activities (570) 16,973 - --------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Net decrease in deposits (4,164) (5,659) Divestiture of deposits -- (2,349) Net increase (decrease) in short-term borrowings 2,897 (8,614) Proceeds from issuance of long-term debt 189 446 Repayments of long-term debt (844) (2,048) Proceeds from the issuance of common stock 64 58 Proceeds from the issuance of preferred stock -- 635 Redemption and repurchase of common and preferred stock (822) (122) Cash dividends paid (394) (367) - --------------------------------------------------------------------------------------------------- Net cash flow used by financing activities (3,074) (18,020) - --------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (2,452) 1,833 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of the period 9,015 4,566 - --------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of the period $ 6,563 $ 6,399 - ---------------------------------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements 7 FLEET FINANCIAL GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 NOTE 1. FINANCIAL STATEMENTS The unaudited consolidated financial information included herein has been prepared in conformity with the accounting principles and practices in Fleet Financial Group, Inc.'s (Fleet, FFG, or corporation) consolidated financial statements included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 1996. The accompanying interim consolidated financial statements contained herein are unaudited. However, in the opinion of the corporation, all adjustments consisting of normal recurring items necessary for a fair statement of the operating results for the periods shown have been made. The results of operations for the nine months ended September 30, 1997 may not be indicative of operating results for the year ending December 31, 1997. Certain prior period amounts have been reclassified to conform to current classifications. NOTE 2. ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES On January 1, 1997, the corporation adopted Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement requires that, after a transfer of financial assets, an entity recognize the financial and servicing assets it controls and the liabilities it has incurred, and derecognize financial assets when control has been surrendered. The adoption of this statement has not had a material impact on the corporation or its results of operations. NOTE 3. ACQUISITIONS During the third quarter of 1997, the corporation entered into definitive agreements to acquire Quick & Reilly, the third largest national discount brokerage firm, and Columbia Management Company, an institutional asset management firm with approximately $22 billion of assets under management. The Columbia acquisition is expected to close either late in the fourth quarter of 1997 or early in the first quarter of 1998 under the purchase method of accounting. The Quick & Reilly acquisition is expected to close during the first quarter of 1998 under the pooling of interests method of accounting. During the fourth quarter of 1997, the corporation entered into a definitive agreement to acquire the credit card operations of Advanta Corporation. The Advanta acquisition will provide approximately $11.5 billion of managed credit card receivables and is expected to close during the first quarter of 1998 under the purchase method of accounting. NOTE 4. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS Cash-Flow Disclosure - ------------------------------------------------------------------------------
Nine months ended September 30 Dollars in millions 1997 1996 - ----------------------------------------------------------------------------- Supplemental disclosure for cash paid during the period for: Interest expense $1,744 $1,808 Income taxes, net of refunds 184 255 - ------------------------------------------------------------------------------ Supplemental disclosure of noncash investing and financing activities: Transfer of loans to foreclosed property and repossessed equipment 23 15 Securitization of residential loans -- 1,998 Exchange of Series V preferred stock for trust preferred securities 84 -- Adjustment to unrealized gain (loss) on securities available for sale 40 (69) Retirement of common stock -- 34 - ------------------------------------------------------------------------------ Assets acquired and liabilities assumed in business combinations were as follows: Assets acquired, net of cash and cash equivalents received -- 17,848 Net cash and cash equivalents received -- 2,386 Liabilities assumed -- 20,234 - ------------------------------------------------------------------------------ Divestitures: Assets sold 2,552 1,773 Net cash received/(paid) for divestitures 2,719 (484) Liabilities sold 24 2,349 - ------------------------------------------------------------------------------
8 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY
- ------------------------------------------------------------------------------------- Three months Nine months Dollars in millions, ended Sept. 30 ended Sept. 30 except per share data 1997 1996 1997 1996 - ------------------------------------------------------------------------------------- Earnings Net income $ 329 $ 295 $ 968 $ 836 Net interest income (FTE)(a) 926 934 2,744 2,529 - ------------------------------------------------------------------------------------- Per Common Share Fully diluted earnings $ 1.20 $ 1.02 $ 3.48 $ 2.91 Cash dividends declared .45 .43 1.35 1.29 Book value 25.42 23.90 25.42 23.90 - ------------------------------------------------------------------------------------- Operation Ratios Return on average Assets 1.60 % 1.35 % 1.58 % 1.36 % Return on common Equity 19.89 17.83 19.65 17.34 Efficiency ratio 54.9 59.9 56.5 60.2 Equity to assets (period-end) 8.60 8.34 8.60 8.34 - ------------------------------------------------------------------------------------- At September 30 Total assets $83,575 $87,194 $83,575 $87,194 Stockholders' equity 7,187 7,268 7,187 7,268 Nonperforming Assets(b) 479 759 479 759 - -------------------------------------------------------------------------------------
(a) The FTE adjustment included in net interest income was $10 million and $10 million for the three months ended and $28 million and $26 million for the nine months ended September 30, 1997 and 1996, respectively. (b) Nonperforming assets and related ratios at September 30, 1997 and 1996 do not include $172 million and $287 million, respectively, of nonperforming assets classified as held for sale or accelerated disposition. Fleet reported net income of $329 million, or $1.20 per fully diluted share, for the quarter ended September 30, 1997, compared to $295 million, or $1.02 per fully diluted share, in the third quarter of 1996, an increase of 18%. Return on average assets (ROA) and return on common equity (ROE) improved to 1.60% and 19.89%, respectively, for the third quarter of 1997, from 1.35% and 17.83%, respectively, for the third quarter of 1996. Net income for the first nine months of 1997 was $968 million, an increase of $132 million from the first nine months of 1996. Earnings per share were $3.48 for the first nine months compared with $2.91 earned in the first nine months of 1996. ROA and ROE for the first nine months of 1997 were 1.58% and 19.65%, respectively, compared with 1.36% and 17.34%, respectively, for the first nine months of 1996. During the third quarter of 1997, the corporation entered into definitive agreements to acquire Quick & Reilly, the third largest national discount brokerage firm, and Columbia Management Company, an institutional asset management firm with approximately $22 billion of assets under management. The Columbia acquisition is expected to close either late in the fourth quarter of 1997 or early in the first quarter of 1998 under the purchase method of accounting, while the Quick & Reilly acquisition is expected to close during the first quarter of 1998 under the pooling of interests method of accounting. During the fourth quarter of 1997, the corporation entered into a definitive agreement to acquire the credit card operations of Advanta Corporation. The Advanta acquisition will provide approximately $11.5 billion of managed credit card receivables and is expected to close during the first quarter of 1998 under the purchase method of accounting. The corporation has experienced growth in its core revenue categories, including investment services revenue and service charges, fees and commissions over the prior year's third quarter. Continuing declining levels of expenses are primarily attributable to the successful integration of the NatWest ("NatWest") and Shawmut acquisitions which positively impacted the third quarter. During the quarter, the corporation repurchased 1.4 million shares of common stock, bringing the 1997 shares repurchased to 13.3 million. As part of the acquisition of Quick & Reilly, the Board of Directors rescinded its prior authority granted in January of 1997 to repurchase up to 20 million shares of its common stock effective immediately prior to completion of the acquisition. In the event that the acquisition is not completed, the authority to repurchase such shares will remain in full force and effect. INCOME STATEMENT ANALYSIS Net Interest Income
- ------------------------------------------------------------------------------------ Three months Nine months FTE Basis ended Sept. 30 ended Sept. 30 Dollars in millions 1997 1996 1997 1996 - ------------------------------------------------------------------------------------ Interest income $1,476 $1,539 $4,365 $4,353 Tax-equivalent adjustment 10 10 28 26 Interest expense 560 615 1,649 1,850 - ------------------------------------------------------------------------------------ Net interest income $926 $ 934 $2,744 $2,529 - ------------------------------------------------------------------------------------
Net interest income on a fully taxable equivalent basis totaled $926 million for the quarter ended September 30, 1997, compared to $934 million for the same period in 1996. Net interest income was negatively impacted by $9 million compared to the third quarter of 1996 relating to the sales of both Option One, the corporation's nonconforming mortgage banking subsidiary, and the corporation's indirect auto lending business. The sale of Option One was completed in the second quarter of 1997 and the sale of the indirect auto business was completed in the third quarter of 1997. Excluding the impact of these divested businesses, net interest income increased slightly compared to the third quarter of 1996. 9 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Interest Margin and Interest-Rate Spread - ---------------------------------------------- Three months ended Sept. 30 1997 1996 - ----------------------------------------------------------------------------- FTE Basis Average Average Dollars in millions Balance Rate Balance Rate - ----------------------------------------------------------------------------- Securities $ 8,690 6.78% $11,838 6.58% Loans and leases 58,087 8.72 59,536 8.66 Mortgages held for sale 1,222 7.47 1,676 8.16 Other 2,434 6.58 1,247 7.65 - ----------------------------------------------------------------------------- Total interest-earning assets 70,433 8.38 74,297 8.30 - ----------------------------------------------------------------------------- Deposits 47,020 3.46 50,759 3.66 Short-term borrowings 5,315 5.03 4,512 5.04 Long-term debt 4,487 7.42 5,063 7.18 - ----------------------------------------------------------------------------- Interest-bearing liabilities 56,822 3.91 60,334 4.06 - ----------------------------------------------------------------------------- Interest-rate spread 4.47 4.24 Interest-free sources of funds 13,611 13,963 - ----------------------------------------------------------------------------- Total sources of funds $70,433 3.15% $74,297 3.29% - ----------------------------------------------------------------------------- Net interest margin 5.23% 5.01% - -----------------------------------------------------------------------------
The corporation's net interest margin for the third quarter of 1997 was 5.23%, an increase of 22 basis points from the third quarter of 1996. The increase in net interest margin is primarily attributable to an increase in the yield on loans and securities and a corresponding decrease in the cost of deposits. When compared with the third quarter of 1996, excluding $2,170 million of indirect auto loans that were sold in the third quarter, average loans and leases increased $721 million to $58.1 billion for the third quarter of 1997 due to loan growth in the commercial, leasing and residential portfolios. Other average interest earning assets increased $1.2 billion from the third quarter of 1996 to $2.4 billion in the third quarter of 1997 primarily resulting from the reclassification of the aforementioned indirect auto loans. Average interest-bearing deposits decreased $3.7 billion to $47 billion in the third quarter of 1997 compared to the third quarter of 1996. The net interest rate paid on average deposits declined to 3.46% for the third quarter of 1997 compared to 3.66% for the same period of 1996. The decrease in the cost of deposits reflects a more advantageous mix of deposits, as lower cost savings deposits currently represent a higher percentage of total interest-bearing deposits compared to the third quarter of 1996. The $803 million increase in average short-term borrowings is attributable to an increase in treasury, tax and loan borrowings as the corporation utilized this favorably priced funding vehicle to replace deposit outflows, principally retail time deposits. The $576 million decrease in average long-term debt and 24 basis point increase in the funding rate was due to scheduled maturities of lower-rate instruments and the issuance of higher-rate instruments, which includes the trust preferred securities issued by the corporation's trust subsidiary. The contribution to the net interest margin of interest-free sources of funds during the third quarter of 1997 remained consistent with the third quarter of 1996 at 76 basis points and 77 basis points, respectively.
Noninterest Income - ----------------------------------------------------------------------------- Three months Nine months ended Sept. 30 ended Sept. 30 Dollars in millions 1997 1996 1997 1996 - ----------------------------------------------------------------------------- Service charges, fees and Commissions $159 $153 $ 475 $ 391 Investment services revenue 104 93 310 274 Mortgage banking revenues, net 66 96 260 264 Venture capital revenue 29 41 57 94 Student loan servicing fees 24 23 76 67 Securities gains 4 -- 22 38 Gain from branch divestitures -- -- -- 92 Other noninterest income 128 99 355 264 - ----------------------------------------------------------------------------- Total noninterest income before net gains on sales of business units 514 505 1,555 1,484 Net gains on sales of business units -- -- 175 -- - ----------------------------------------------------------------------------- Total noninterest income $514 $505 $1,730 $1,484 - -----------------------------------------------------------------------------
Total noninterest income for the third quarter of 1997 totaled $514 million compared to $505 million for the same period of 1996. Excluding the $21 million related to divested businesses in the third quarter of 1996, noninterest income increased by $30 million, or 6%, over the third quarter of 1996. Increases were noted in several core revenue categories including investment services revenue and service charges, fees and commissions, as well as increases in corporate finance fees.
Service Charges, Fees and Commissions - ----------------------------------------------------------------------------- Three months Nine months ended Sept. 30 ended Sept. 30 Dollars in millions 1997 1996 1997 1996 - ----------------------------------------------------------------------------- Cash management fees $ 51 $ 48 $ 152 $ 132 Service charges on deposits 33 34 99 80 Return check charges 30 32 97 78 Electronic banking fees 28 21 69 51 Other 17 18 58 50 - ----------------------------------------------------------------------------- Total service charges, fees and commissions $159 $153 $ 475 $ 391 - -----------------------------------------------------------------------------
10 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Service charges, fees and commissions totaled $159 million for the third quarter of 1997 as increases were realized in cash management fees, as well as electronic banking fees due to the adoption of convenience charges in certain markets.
Mortgage Banking Revenue, Net - ------------------------------------------------------------------------------ Three months Nine months ended Sept. 30 ended Sept. 30 Dollars in millions 1997 1996 1997 1996 - ------------------------------------------------------------------------------ Net loan servicing revenue $112 $98 $337 $283 Mortgage production revenue 18 34 92 102 Gains on sales of mortgage servicing -- 14 10 18 Mortgage servicing rights amortization (64) (50) (179) (139) - ------------------------------------------------------------------------------ Total mortgage banking revenue, net $ 66 $96 $260 $264 - ------------------------------------------------------------------------------
Net mortgage banking revenue of $66 million in the third quarter of 1997 decreased $30 million from the same period of 1996. The principal cause of the decrease was the sale of Option One during the second quarter of 1997 which contributed $13 million of mortgage banking revenue, principally mortgage production revenue, during the third quarter of 1996. Additionally, there were no gains on the sales of mortgage servicing during the third quarter of 1997, while $14 million of gains were realized in the third quarter of 1996. Loan servicing revenue represents fees received for servicing residential mortgage loans. The $14 million, or 14%, increase in loan servicing revenue is attributable to the corporation receiving a higher servicing spread on mortgage servicing acquired primarily in 1997. Mortgage servicing rights (MSR) amortization increased $14 million to $64 million for the third quarter of 1997 as compared to $50 million for the same period of 1996. The level of amortization increased due to a slight increase in prepayments resulting from a decline in mortgage interest rates, coupled with a higher level of amortization of recently purchased mortgage servicing rights with a higher servicing spread. At September 30, 1997, the carrying value and fair value of the corporation's MSRs were $1.8 billion and $2.0 billion, respectively.
Investment Services Revenue - ------------------------------------------------------------------------------ Three months Nine months ended Sept. 30 ended Sept. 30 Dollars in millions 1997 1996 1997 1996 - ------------------------------------------------------------------------------ Private clients group $52 $44 $149 $133 Retirement plan services 16 13 47 43 Retail investments 16 12 47 34 Not-for-profit institutional services 12 10 35 30 Corporate trust -- 4 7 12 Other 8 10 25 22 - ------------------------------------------------------------------------------ Total investment services revenue $104 $93 $310 $274 - ------------------------------------------------------------------------------
Investment services revenue increased 12% in the third quarter of 1997 to $104 million compared to $93 million in the third quarter of 1996. The increase was due to continued strong sales of mutual funds and annuity products and an increase in the overall amount and value of assets under management and administration resulting from a strong equity market. Assets under management increased from $45 billion at September 30, 1996 to $55 billion at September 30, 1997. The increase in revenue was partially offset by the sale of the corporate trust unit during the second quarter of 1997 which generated $4 million of revenue during the third quarter of 1996. Student loan servicing fees remained consistent with the prior year period at AFSA Data Corporation (AFSA), the corporation's student loan servicing subsidiary. AFSA services 5.1 million accounts nationwide and is the largest third-party student loan servicer in the United States, with over $30 billion in loans serviced. Venture capital revenue decreased $12 million to $29 million for the quarter ended September 30, 1997 when compared to the same quarter of 1996. The investments of Fleet Private Equity, the corporation's venture capital business, did not experience the same level of appreciation when compared with the third quarter of 1996. The corporation's ability to continue to experience increases in the value of these investments depends on a variety of factors, including the condition of the economy and equity markets. Thus, the likelihood of such gains in the future cannot be predicted. 11 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other noninterest income increased $29 million to $128 million due primarily to higher corporate finance fees and trading and foreign exchange gains. Corporate finance fees of $21 million have grown nearly seven times from the third quarter of 1996 level as a result of serving in an advisory capacity in the restructuring, recapitalization and private placements in a number of transactions.
Noninterest Expense - ------------------------------------------------------------------------------------------- Three months Nine months ended Sept. 30 ended Sept. 30 Dollars in millions 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------- Employee compensation and benefits $384 $425 $1,215 $1,184 Occupancy 70 74 212 210 Equipment 70 71 207 196 Intangible asset amortization 41 40 120 96 Marketing 31 26 69 72 Legal and other professional 20 34 82 92 Telephone 19 21 58 60 Printing and mailing 18 21 55 54 Other 138 149 566 452 - ------------------------------------------------------------------------------------------- Total noninterest expense $791 $861 $2,584 $2,416 - -------------------------------------------------------------------------------------------
Total noninterest expense for the third quarter of 1997 totaled $791 million compared to $861 million for the same period of 1996. The decrease of $70 million over the third quarter of 1996 was due primarily to expense reductions in nearly all categories resulting from the integrations of NatWest and Shawmut, as well as the impact of divested businesses. As a result of declining levels of noninterest expense from cost containment initiatives and revenue growth, the corporation's efficiency ratio improved from 59.9% to 54.9% from the third quarter of 1996 to the third quarter of 1997. Employee compensation and benefits decreased $41 million compared with the third quarter of 1996 level due to a decline of over 5,000 full-time equivalent employees over the period. Legal and other professional fees declined $14 million to $20 million in the third quarter of 1997 from $34 million in the third quarter of 1996 as the third quarter of 1996 included a high level of professional fees related to the acquisition of NatWest. Marketing expense increased $5 million over the prior year quarter due to increased marketing initiatives as the corporation initiated a new corporate branding campaign in the metropolitan New York area. Intangible asset amortization remained consistent in the third quarter of 1997 when compared to the third quarter of 1996. Additional goodwill of approximately $117 million was recorded in the third quarter of 1997 related to the NatWest acquisition. The contingent earnout provision stipulates that additional payments be made annually based upon the attainment of specified earnings levels from the NatWest franchise, not to exceed $560 million during an eight-year period beginning in 1997. During the quarter, the corporation incurred $3 million of expenses relating to Year 2000 projects as the corporation continues the process of updating its computer application systems in preparation for Year 2000. The corporation will continue to incur charges related to this project over the next several years. In connection with the NatWest acquisition, the corporation recorded a restructuring liability of $250 million during the second quarter of 1996. This liability was supplemented with an additional $22 million severance reserve during the second quarter of 1997, resulting from the refinement of previous estimates. The following table presents a summary of activity with respect to the corporation's merger-related charges pertaining to NatWest, as well as the Shawmut related restructuring liability for the nine months ended September 30, 1997.
Merger and Restructuring-Related Liabilities - ------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1997 Dollars in millions Shawmut NatWest Total - ------------------------------------------------------------------------------------------- Balance at December 31, 1996 $158 $ 89 $247 Cash outlays (112) (59) (171) Severance charge -- 22 22 - ------------------------------------------------------------------------------------------- Balance at September 30, 1997 $ 46 $ 52 $ 98 - -------------------------------------------------------------------------------------------
The cash outlays made during the first nine months of 1997 relate primarily to severance costs. The corporation's liquidity has not been significantly affected by these cash outlays and future cash outlays are not anticipated to significantly impact the corporation's liquidity. During the first nine months of 1997, $9 million of incremental costs have been incurred relating to the NatWest acquisition and have been expensed. It is anticipated that approximately $2 million of additional incremental costs will be incurred in 1997. Income Taxes For the third quarter of 1997, the corporation recognized income tax expense of $225 million, an effective tax rate of 40.6%. Tax expense for the same period of 1996 was $208 million, an effective tax rate of 41.3% 12 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Lines of Business The financial performance of the corporation is monitored by an internal profitability system, which provides line of business results and key performance measures. The corporation is managed along the following business lines: Consumer Banking, Commercial Financial Services, Investment Services, Financial Services, Mortgage Banking/Venture Capital, Treasury and All Other. Management accounting policies are in place for assigning expenses that are not directly incurred by lines of business, such as overhead, operations and technology expense. Additionally, equity, loan loss provision and loan loss reserves are assigned on an economic basis. The corporation has developed a risk adjusted methodology that quantifies risk types within business units and assigns capital accordingly. Within business units, assets and liabilities are match-funded utilizing similar maturity, liquidity and repricing information. Management accounting concepts and organizational hierarchies are periodically refined and results may be restated to reflect changes in methodology and organizational structure. Results by lines of business are presented below.
Selected Financial Highlights by Lines of Business - ---------------------------------------------------------------------------------------------------------------------------------- Commercial Mortgage Consumer Financial Investment Financial Bkg/Venture Dollars in millions Banking Services Services Services Capital Treasury All Other Total - ---------------------------------------------------------------------------------------------------------------------------------- Three months ended Sept. 30, 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Income Statement Data Net Interest Income (FTE) $ 484 $ 311 $ 26 $ 69 $ 6 $ 30 $ 0 $ 926 Noninterest Income 127 99 108 58 105 17 0 514 Noninterest Expense 342 172 84 65 67 15 46 791 Net Income 138 106 28 16 27 20 (6) 329 - ---------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data Average Loans and Leases $10,424 $35,110 $2,064 $2,731 $ 200 $6,563 $995 $58,087 Average Deposits 42,740 10,532 2,070 98 1,928 5,059 68 62,495 ROE 35% 19% 51% 28% 17% 29% N/M 20% - ---------------------------------------------------------------------------------------------------------------------------------- Three months ended Sept. 30, 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Income Statement Data Net Interest Income (FTE) $ 488 $ 306 $ 29 $ 59 $ 25 $ 39 $ (12) $ 934 Noninterest Income 107 81 97 67 127 7 19 505 Noninterest Expense 386 186 87 84 73 19 26 861 Net Income 99 85 21 3 48 15 24 295 - ---------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data Average Loans and Leases $11,368 $32,842 $1,814 $3,067 $ 138 $ 7,129 $3,178 $59,536 Average Deposits 47,576 9,879 2,353 129 1,878 4,951 927 67,693 ROE 23% 20% 41% 5% 26% 18% N/M 18% - ----------------------------------------------------------------------------------------------------------------------------------
Consumer Banking Consumer Banking includes businesses engaged in branch banking, small business lending and insurance services. Earnings for the third quarter of 1997 were $138 million compared to $99 million a year ago, driven primarily by increased noninterest income and reduced operating expenses. Lower net interest income primarily reflects the impact of deposit divestiture and migration to alternate investment products. Noninterest income increased $20 million year over year, driven in part by higher service charges on deposits due to pricing. The decline in noninterest expense of 11% is attributed to savings from the consolidation and integration of the former NatWest franchise and divested branches from the Shawmut merger. Commercial Financial Services Commercial Financing Services provides a full range of credit and banking services to its corporate, middle market, real estate, municipal and leasing customers. This group earned $106 million in the third quarter of 1997, an increase of $21 million compared to the same quarter in 1996. Growth in loans and deposits of 7% contributed to a $5 million improvement in net interest income and was driven by growth in commercial lending, corporate finance and leasing business units. Noninterest income also improved compared to 1996 due to cross-selling of corporate finance, cash management and foreign exchange services. Decreasing operational costs are the result of expense management combined with lower back office expenses associated with consolidation cost savings. 13 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investment Services Investment Services provides asset management services to institutional and wealthy market clients, retail mutual fund and annuity sales, and brokerage services. Investment Services net income increased $7 million compared to the third quarter of 1996 on the strength of increased revenues. Higher investment fees resulted from the continued strong growth in assets under management, which have increased by $10 billion to $55 billion at September 30, 1997. Additionally, higher revenues in the Retail Investments unit reflected growth in the sales of mutual fund and annuity products. Improved earnings were also influenced by lower noninterest expenses, as lower support unit costs offset volume driven increases. Financial Services Financial Services includes student loan processing, alternative delivery banking and credit card. Financial Services earned $16 million in the third quarter of 1997 compared to $3 million in the same quarter of 1996, principally due to higher revenues in credit card services and alternative delivery banking, which more than offset the loss of earnings attributable to Option One which was sold in the second quarter of 1997. Excluding Option One, earnings improved $17 million over the third quarter of 1996. Compared to the same period last year, net interest income improved by $10 million which was attributable to increased credit card fees and selected portfolio repricing. Lower noninterest income was driven by mortgage banking revenues at Option One in 1996. Excluding Option One, noninterest income improved due to volume related increases in debit card activity and the expansion of Fleet's ATM network with the addition of 165 ATM sites since September 1996. Mortgage Banking/Venture Capital This unit earned $27 million in the third quarter of 1997, down from $48 million a year ago. The decline is attributable to lower levels of both venture capital gains and mortgage banking income. Strong prior period venture capital earnings resulted from gains due to the sale of investments, and increased valuations of equity investments. The likelihood of such gains is subject to market conditions and is normally expected to vary. Fleet's mortgage banking business earned $10 million in the third quarter of 1997, compared to $24 million in 1996. Lower earnings were mainly due to lower loan production volumes and 1996 results including a gain on sale of servicing rights. Treasury Treasury is responsible for managing the corporation's securities and residential mortgage portfolios, trading operations, asset-liability management function and wholesale funding needs. The Treasury unit earned $20 million in the third quarter of 1997 compared to $15 million in the third quarter of 1996. Improved earnings resulted from higher noninterest income and lower operating expenses offsetting lower net interest income. The decreased net interest income resulted from selected balance sheet downsizing attributable to the NatWest acquisition. Increased noninterest income resulted from strong customer-driven foreign exchange revenue and securities gains. Lower operating expenses were a result of decreased support unit costs related to lower balance sheet volumes. All Other This unit includes allocated support units, the management accounting control units and discontinued operations. Lower earnings in 1997 are primarily the result of increased loan loss provision and lower earnings from sold businesses. 14 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BALANCE SHEET ANALYSIS Total assets decreased from $85.5 billion at December 31, 1996 to $83.6 billion at September 30, 1997 due primarily to lower levels of cash and short-term investments, which were utilized to fund anticipated demand and time deposit runoff, long-term debt maturities and common share repurchases.
Securities - -------------------------------------------------------------------------------------------------------------------------------- September 30, 1997 June 30, 1997 December 31, 1996 ---------------------- ----------------------- ---------------------- Amortized Market Amortized Market Amortized Market Dollars in millions Cost Value Cost Value Cost Value - -------------------------------------------------------------------------------------------------------------------------------- Securities available for sale US Treasury and government agencies $ 645 $ 650 $ 675 $ 675 $1,077 $1,083 Mortgage-backed securities 6,239 6,326 6,477 6,503 5,987 6,006 Other debt securities 106 107 82 80 -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total debt securities 6,990 7,083 7,234 7,258 7,064 7,089 - -------------------------------------------------------------------------------------------------------------------------------- Marketable equity securities 195 215 208 225 229 255 Other securities 212 213 182 182 159 159 - -------------------------------------------------------------------------------------------------------------------------------- Total securities available for sale 7,397 7,511 7,624 7,665 7,452 7,503 - -------------------------------------------------------------------------------------------------------------------------------- Total securities held to maturity 1,259 1,264 1,039 1,044 1,177 1,172 - -------------------------------------------------------------------------------------------------------------------------------- Total securities $8,656 $8,775 $8,663 $8,709 $8,629 $8,675 - --------------------------------------------------------------------------------------------------------------------------------
The amortized cost of securities available for sale remained consistent at $7.4 billion at September 30, 1997 compared to December 31, 1996. The valuation adjustment on securities available for sale increased $63 million to an unrealized gain position of $114 million at September 30, 1997, due to a more favorable interest rate environment.
Loans and Leases - ------------------------------------------------------------------------- Sept. 30, June 30, Dec. 31, Dollars in millions 1997 1997 1996 - ------------------------------------------------------------------------- Commercial and industrial $31,088 $30,772 $29,278 Lease financing 3,064 2,858 2,611 Commercial real estate: Construction 867 1,046 1,074 Interim/permanent 4,847 5,059 5,379 Residential real estate 9,377 8,168 8,048 Consumer 10,021 10,283 12,454 - ------------------------------------------------------------------------- Total loans and leases $59,264 $58,186 $58,844 - -------------------------------------------------------------------------
Total loans and leases, excluding the sale of the $2.2 billion indirect auto lending portfolio, increased $2.6 billion, or 6.1% on an annualized basis, from December 31, 1996 to $59.3 billion at September 30, 1997, resulting primarily from loan growth in the commercial and industrial, lease financing and residential portfolios. Excluding the indirect auto lending portfolio, commercial and industrial (C&I) loans increased $2.5 billion from December 31, 1996 to September 30, 1997, primarily due to growth in corporate finance, middle-market lending and national banking. Commercial real estate (CRE) decreased $739 million from December 31, 1996 to September 30, 1997 due to the increased structuring and syndication of several loans in the first nine months of 1997, coupled with normal pay-downs. Outstanding residential real estate loans secured by one- to four-family residences increased $1.4 billion to $9.4 billion at September 30, 1997 compared to $8.0 billion at December 31, 1996. This growth is the result of the corporation's efforts to steadily build the residential real estate portfolio with quality interest-earning assets.
Consumer Loans - ------------------------------------------------------------------------- Sept. 30, June 30, Dec. 31, Dollars in millions 1997 1997 1996 - ------------------------------------------------------------------------- Home equity $ 4,948 $ 5,070 $ 5,072 Credit card 2,683 2,823 3,227 Student loans 1,198 1,174 1,255 Installment/Other 1,192 1,216 2,900 - ------------------------------------------------------------------------- Total $10,021 $10,283 $12,454 - -------------------------------------------------------------------------
Consumer loans, excluding the sale of the $1.5 billion indirect auto lending portfolio, decreased $1 billion from December 31, 1996. The decrease is primarily the result of a $544 million decline in credit card loans due to balance pay-offs as the contractual repricing to higher rates resulted in customer attrition. 15 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nonperforming Assets(a) - --------------------------------------------------------------------------- Dollars in millions C&I CRE Consumer Total - --------------------------------------------------------------------------- Nonperforming loans and leases: Current or less than 90 days past due $153 $ 48 $ 2 $203 Noncurrent 143 51 58 252 OREO 3 3 18 24 - -------------------------------------------------------------------------- Total NPAs September 30, 1997 $299 $102 $ 78 $479 - -------------------------------------------------------------------------- Total NPAs June 30, 1997 $320 $127 $ 84 $531 - -------------------------------------------------------------------------- Total NPAs December 31, 1996 $351 $166 $206 $723 - -------------------------------------------------------------------------- (a) Throughout this document, NPAs and related ratios do not include loans greater than 90 days past due and still accruing interest ($236 million, $252 million and $247 million at September 30, 1997, June 30, 1997, and December 31, 1996, respectively). Included in the 90 days past due and still accruing interest were $177 million, $174 million, and $192 million of consumer loans at September 30, 1997, June 30, 1997, and December 31, 1996, respectively).
Nonperforming assets (NPAs) decreased $52 million from June 30, 1997 to $479 million at September 30, 1997. NPAs at September 30, 1997, as a percentage of total loans, leases and OREO and as a percentage of total assets were 0.81% and 0.57%, respectively, compared to 0.91% and 0.64%, respectively, at June 30, 1997. The improvement was due primarily to declining levels of nonperforming assets in all loan and OREO portfolios as a result of the successful resolution of certain commercial and industrial and commercial real estate loans, as well as $17 million transfer to assets held for disposition.
Activity in Nonperforming Assets - -------------------------------------------------------------------------- 3rd Qtr. 2nd Qtr. 3rd Qtr. Dollars in millions 1997 1997 1996 - -------------------------------------------------------------------------- Balance at beginning of period $531 $704 $745 Additions 111 203 275 Reductions: Payments/interest applied (80) (144) (104) Returned to accrual (14) (22) (55) Charge-offs/writedowns (37) (41) (80) Sales/other (15) (38) (22) NPAs reclassified as held for accelerated disposition (17) (131) -- - ------------------------------------------------------------------------- Total reductions (163) (376) (261) - ------------------------------------------------------------------------- Balance at end of period $479 $531 $759 - -------------------------------------------------------------------------
Nonperforming assets and related ratios do not include NPAs classified as held for sale or accelerated disposition as disclosed by loan category in the following table.
Nonperforming Assets Held for Sale or Accelerated Dispositions - ------------------------------------------------------------------------- Dollars in millions C&I CRE Consumer Total - ------------------------------------------------------------------------- Nonaccrual loans and leases: $32 $ 36 $ 92 $160 OREO -- 5 7 12 - ------------------------------------------------------------------------- September 30, 1997 $32 $ 41 $ 99 $172 - ------------------------------------------------------------------------- June 30, 1997 $93 $ 52 $104 $249 - ------------------------------------------------------------------------- December 31, 1996 $93 $147 $ 25 $265 - -------------------------------------------------------------------------
Reserve for Credit Loss Activity - ------------------------------------------------------------------------- Nine months ended September 30, Dollars in millions 1997 1996 - ------------------------------------------------------------------------- Balance at beginning of year $1,488 $1,321 Provision charged against income 233 148 Loans and leases charged off (386) (335) Recoveries of loans and leases charged off 101 89 - ------------------------------------------------------------------------- Net charge-off (285) (246) Other (4) 325 - ------------------------------------------------------------------------- Balance at end of period $1,432 $1,548 - ------------------------------------------------------------------------- Ratios of net charge-offs to average loans and leases 0.66% 0.60% - ------------------------------------------------------------------------- Ratios of reserve for credit losses to period-end loans and leases 2.42 2.58 - ------------------------------------------------------------------------- Ratio of reserve for credit losses to period-end NPAs 299 204 - ------------------------------------------------------------------------- Ratio of reserve for credit losses to period- end non-performing loans and leases 315 218 - -------------------------------------------------------------------------
Fleet's reserve for credit losses decreased from $1,548 million at September 30, 1996 to $1,432 million at September 30, 1997. The overall decline in the reserve for credit losses from the third quarter of 1996 is a result of higher levels of net charge-offs. The provision for credit losses for the first nine months of 1997 was $233 million, $85 million higher than the prior year's first nine months. The increase is a result of increased net charge-offs, principally in the credit card portfolio. 16 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Funding Sources - ------------------------------------------------------------------- Sept. 30, June 30, Dec. 31, Dollars in millions 1997 1997 1996 - ------------------------------------------------------------------- Deposits: Demand $15,821 $16,471 $17,903 Regular savings, NOW, money market 27,569 27,641 27,976 Time: Domestic 16,103 16,421 18,583 Foreign 3,414 2,696 2,609 - ------------------------------------------------------------------- Total deposits 62,907 63,229 67,071 - ------------------------------------------------------------------- Short-term borrowed funds: Federal funds purchased 316 1,440 488 Securities sold under agree- ments to repurchase 2,260 2,392 2,382 Commercial paper 778 694 676 Other 3,170 1,260 81 - ------------------------------------------------------------------- Total short-term borrowed funds 6,524 5,786 3,627 - ------------------------------------------------------------------- Long-term debt 4,459 4,550 5,114 - ------------------------------------------------------------------- Total $73,890 $73,565 $75,812 - -------------------------------------------------------------------
Total deposits decreased $4.2 billion to $62.9 billion at September 30, 1997 when compared to December 31, 1996 due primarily to demand and time deposit runoff. Demand deposits decreased $2.1 billion as a result of seasonal increases in year-end balances and anticipated deposit runoff. Time deposits decreased $1.7 billion due to decreases in retail certificates of deposit and individual retirement accounts resulting from the corporation's efforts to maintain a competitive cost structure, combined with the continued migration of interest bearing accounts to higher yielding investment products. In comparison to June 30, 1997, total deposits have decreased $322 million, or less than 1%. A $650 million decline in demand deposits, has been partially offset by a $400 million increase in time deposits. The $2.9 billion increase in short-term borrowings since December 31, 1996 is principally due to increasing levels of treasury, tax and loan borrowings as the corporation utilized this favorably priced funding vehicle to replace time and demand deposit outflows. Long-term debt decreased $655 million to $4.5 billion at September 30, 1997 when compared to December 31, 1996 due to $819 million in scheduled maturities, partially offset by $84 million of trust preferred securities issued in exchange for Series V preferred stock. ASSET-LIABILITY MANAGEMENT The goal of asset-liability management is to ensure that liquidity, capital and market risk are prudently managed. Asset-liability management is governed by policies reviewed and approved annually by the corporation's Board of Directors (Board). The Board delegates responsibility for asset-liability management to the corporate Asset-Liability Management Committee (ALCO). ALCO sets strategic directives that guide the day-to-day asset-liability management activities of the corporation. ALCO also reviews and approves all major funding, capital and market risk-management programs. Interest-Rate Risk Interest-rate risk is the sensitivity of income to variations in interest rates over both short-term and long-term time horizons. The primary goal of interest-rate risk management is to control this risk within limits approved by the Board and narrower guidelines approved by ALCO. These limits and guidelines reflect the corporation's tolerance for interest-rate risk. The corporation attempts to control interest-rate risk by identifying exposures, quantifying and hedging them. The corporation quantifies its interest-rate risk exposures using sophisticated simulation and valuation models, as well as simpler gap analyses. The corporation manages its interest-rate exposures using a combination of on- and off-balance sheet instruments, primarily fixed-rate portfolio securities, interest-rate swaps and options. The corporation uses simulation analysis to measure the exposure of net interest income to changes in interest rates over a relatively short (i.e., greater than 2 year) time horizon. Simulation analysis involves projecting future interest income and expense from the corporation's assets, liabilities, and off-balance sheet positions under various scenarios. The corporation's limits on interest-rate risk specify that if interest rates were to shift immediately up or down 200 basis points, estimated net interest income for the next 12 months should decline by less than 7.5%. The following table reflects the corporation's estimated exposure, as a percentage of estimated net interest income for the next 12 months, assuming an immediate shift in interest rates:
- ------------------------------------------------------------------- Rate Change Estimated Exposure as a % of (Basis Points) Net Interest Income - ------------------------------------------------------------------- +200 2.6% -200 (3.6%) - -------------------------------------------------------------------
17 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The corporation uses valuation analysis to provide insight into the exposure of earnings and equity to changes in interest rates over a relatively long (i.e., greater than 2 year) time horizon. Valuation analysis involves projecting future cash flows from the corporation's assets, liabilities and off-balance sheet positions and then discounting such cash flows at appropriate interest rates. The corporation's economic value of equity is the estimated net present value of its assets, liabilities and off-balance sheet positions. The interest sensitivity of economic value of equity is a measure of the sensitivity of long-term earnings. The corporation's limits on interest-rate risk specify that if interest rates were to shift immediately up or down 200 basis points, the estimated economic value of equity should decline by less than 10%. The following table reflects the corporation's estimated exposure as a percentage of estimated economic value of equity assuming an immediate shift in interest rates:
- ------------------------------------------------------------------------- Rate Change Estimated Exposure as a (Basis Points) % of Economic Value - ------------------------------------------------------------------------- +200 (1.2)% -200 (7.6)% - -------------------------------------------------------------------------
Interest-rate gap analysis provides a static view of the maturity and repricing characteristics of the on- and off-balance sheet positions. The interest-rate gap analysis is prepared by scheduling all assets, liabilities and off-balance sheet positions according to scheduled repricing or maturity. Interest-rate gap analysis can be viewed as a short-hand complement to simulation and valuation analysis. The corporation's limits on interest-rate risk specify that the cumulative one-year gap should be less than 10% of total assets. As of September 30, 1997, the estimated exposure was 2.9% asset-sensitive. INTEREST-RATE GAP ANALYSIS
- ----------------------------------------------------------------------------------------------------------------------- Repricing Within - ----------------------------------------------------------------------------------------------------------------------- September 30, 1997 3 months 4 to 12 12 to 24 2 to 5 After 5 Dollars in millions by repricing date or less months months years Years Total - ----------------------------------------------------------------------------------------------------------------------- Total assets $48,028 $8,166 $5,248 $8,997 $13,136 $83,575 Total liabilities and stockholders' equity (33,600) (13,220) (9,719) (6,809) (20,227) (83,575) Net off-balance sheet (8,741) 1,824 2,980 3,442 495 - ---------------------------------------------------------------------------------------------------------------------- Periodic gap 5,687 (3,230) (1,491) 5,630 (6,596) -- Cumulative gap 5,687 2,457 966 6,596 -- -- - ---------------------------------------------------------------------------------------------------------------------- Cumulative gap as a percent of total assets at September 30, 1997 6.8% 2.9% 1.2% 7.9% - ---------------------------------------------------------------------------------------------------------------------- Cumulative gap as a percent of total assets at June 30, 1997 6.0% (0.2)% 0.5% 6.9% - ----------------------------------------------------------------------------------------------------------------------
The most significant factors affecting the interest rate risk position in the third quarter were a shift in the mix of earning assets, which became more sensitive to interest rate changes, and an increase in longer term deposit balances. In its management of these and other factors influencing the current environment, the corporation has attempted to maintain a moderately asset sensitive position. 18 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risk-Management Instrument Analysis - ---------------------------------------------------------------------------------------------------------------- Weighted Weighted Average Assets/ Average Rate September 30, 1997 Notional Liabilities Maturity Fair ------------------- Dollars in millions Value Hedged (Years) Value Receive Pay - ---------------------------------------------------------------------------------------------------------------- Interest rate swaps: Receive fixed/pay variable $6,665 Variable rate loans 626 Fixed rate deposits 850 Escrow deposits 595 Long-term debt 175 Short-term borrowings ------- 8,911 2.6 $(3) 7.20% 6.96% - ---------------------------------------------------------------------------------------------------------------- Basis swaps 2,729 Deposits 30 Long-term debt ------- 2,759 1.5 -- 5.80 5.69 - ---------------------------------------------------------------------------------------------------------------- Interest-rate floors-purchased 24,022 Mortgage servicing rights 3.7 88 --(a) --(a) Interest-rate caps-purchased 4,309 Mortgage servicing rights 3.1 14 --(a) --(a) Interest-rate caps-sold 4,309 Mortgage servicing rights 3.1 (50) --(a) --(a) Call options-purchased 90 Mortgage servicing rights 0.3 1 -- -- - ---------------------------------------------------------------------------------------------------------------- Total risk-management instruments $44,400 3.2 $50 6.87% 6.66% - ----------------------------------------------------------------------------------------------------------------
(a) The mortgage-banking risk-management interest-rate floors-purchased, caps-purchased and caps-sold have weighted average strike rates of 5.38%, 7.69%, and 6.41%, respectively. Fleet uses derivative instruments primarily to manage interest-rate risk associated with interest-earning assets and interest-bearing liabilities, as well as prepayment risk associated with the corporation's mortgage servicing portfolio, within management guidelines designed to limit risk to the corporation's earnings. At September 30, 1997, derivative instruments totaling $44.4 billion (notional amount) were being used for interest-rate and mortgage-banking risk-management purposes. At September 30, 1997, the corporation had net deferred income of $23.8 million relating to terminated interest-rate swaps, which is being amortized over the remaining life of the underlying interest-rate contracts of approximately 5 years. Risk management instruments are used to protect net interest margin, which would otherwise be interest rate sensitive due to the generally faster repricing of assets than liabilities. To mitigate the earnings risk of declining short-term interest rates, the corporation uses interest rate swaps. In these swaps, the corporation normally receives a fixed rate but pays a floating rate, such as LIBOR or Prime. These instruments are therefore structured to enhance net interest margin when interest rates decline, mitigating the margin pressure due to the faster repricing of loans than deposits. Risk-management instruments are also used to protect the value of the corporation's mortgage banking assets, particularly MSRs, which are very interest-rate sensitive due to the mortgage borrower's option to prepay the mortgage loan. To mitigate the prepayment risk of declining long-term interest rates, higher than expected mortgage prepayments and a potential impairment of MSRs, the corporation mainly uses combinations of purchased interest-rate floors together with purchased and sold interest-rate caps with strike rates tied to yields on the 3-, 5- and 10-year "constant maturity" Treasury notes. Combinations of these instruments result in a net purchased option position. At September 30, 1997, the corporation had approximately $24.0 billion of purchased interest-rate floor agreements outstanding in combination with $4.3 billion of purchased and sold interest-rate cap agreements. The corporation also buys and sells call option contracts on long-term U.S. Treasury securities. These instruments, when combined, are structured such that they gain value as interest rates decline, mitigating the impairment of MSRs. These risk-management instruments are designated as hedges. Changes in the value are recorded as adjustments to the carrying value of the MSRs. At September 30, 1997, net hedge gains of $15.0 million have been deferred and recorded as adjustments to the carrying value of MSRs. Deferred hedge gains include $32.1 million of realized hedge losses related to the termination of certain risk management instruments. Amounts paid for interest-rate contracts are amortized over the life of the contracts and are included as a component of MSR amortization. At September 30, 1997, the carrying value and fair value of the corporation's MSRs were $1.8 billion and $2.0 billion, respectively. 19 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Risk-Management Instrument Activity The risk-management instrument activity for the nine months ended September 30, 1997 is summarized in the following table (all amounts are notional amounts):
Risk-Management Instrument Activity - --------------------------------------------------------------------------------------------------------------------------------- Interest-Rate Swaps Interest-Rate Options ----------------------------------- --------------------------------------------------------- Call Call Nine months ended Receive- Pay- Index- Floors Caps Caps Options Options Dollars in millions Fixed Fixed Basis Amortizing Other Purchased Purchased Sold Purchased Sold Total - ---------------------------------------------------------------------------------------------------------------------------------- Notional amounts: Balance at December 31, 1996 $11,055 $ 4 $3,823 $ 11 $112 $15,911 $2,515 $2,515 $1,276 $225 $37,447 Additions 125 -- -- -- -- 8,111 2,441 2,441 1,385 -- 14,503 Maturities (2,269) -- -- (11) (112) -- -- -- (1,235) -- (3,627) Terminations -- (4) (1,064) -- -- -- (647) (647) (1,336) (225) (3,923) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 $ 8,911 $ -- $2,759 $ -- $ -- $24,022 $4,309 $4,309 $ 90 $ -- $44,400 - ----------------------------------------------------------------------------------------------------------------------------------
During the first nine months of 1997 there was a net increase of approximately $7.0 billion of risk-management instruments as the corporation expanded its hedge program for mortgage servicing rights in anticipation that a lower-rate environment would cause increased prepayments. The maturities of the risk-management instruments are shown in the following table:
Maturities of the Risk-Management Instruments - ---------------------------------------------------------------------------------------------------------------------------------- September 30, 1997 Dollars in millions Within 1 Year 1 to 2 Years 2 to 3 Years 3 to 4 Years 4 to 5 Years After 5 Years Total - ---------------------------------------------------------------------------------------------------------------------------------- Notional amounts: Interest rate swaps Receive-fixed $1,710 $2,975 $1,996 $ 285 $1,150 $ 795 $ 8,911 Basis 30 2,729 -- -- -- -- 2,759 Interest-rate floors- purchased -- 450 8,677 2,395 12,000 500 24,022 Interest-rate caps- purchased -- 225 1,633 1,783 668 -- 4,309 Interest-rate caps-sold -- 225 1,633 1,783 668 -- 4,309 Call options-purchased 90 -- -- -- -- -- 90 - ---------------------------------------------------------------------------------------------------------------------------------- Total risk-management instruments $1,830 $6,604 $13,939 $6,246 $14,486 $1,295 $ 44,400 - ----------------------------------------------------------------------------------------------------------------------------------
Liquidity Risk Liquidity risk-management's objective is to assure the ability of the corporation and its subsidiaries to meet their financial obligations. These obligations are the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature and the ability to fund new and existing loan commitments and to take advantage of business opportunities. Liquidity is composed of the maintenance of a strong base of core customer funds, maturing short-term assets, the ability to sell marketable securities, committed lines of credit and access to capital markets. Increasingly, liquidity is enhanced through the securitization of consumer asset receivables. Liquidity at Fleet is measured and monitored daily, allowing management to better understand and react to balance sheet trends. ALCO is responsible for implementing the Board's policies and guidelines governing liquidity. The strength of Fleet's liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources in the national and international capital markets, as well as from direct customer contacts. Wholesale funding sources include large certificates of deposit, foreign branch deposits, federal funds, collateralized borrowings and a $4 billion bank note program. 20 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS At September 30, 1997 and December 31, 1996, the corporation had a commercial paper outstanding of $778 million and $676 million, respectively. The corporation has a backup line of credit to ensure that funding is not interrupted if commercial paper is not available. The total amount of funds available under this agreement was $1 billion at September 30, 1997, with no outstanding balance under this line of credit. Fleet has shelf registration statements that provide for the issuance of common and preferred stock, senior or subordinated debt securities and other securities with total amounts of funds available of approximately $833.4 million at September 30, 1997. On October 6, 1997, the corporation filed a $2 billion universal shelf registration statement, which became effective on October 24, 1997 giving a combined availability of $2.8 billion. CAPITAL - ------------------------------------------------------------------------------
Sept. 30, June 30, Sept. 30, Dollars in millions 1997 1997 1996 - ------------------------------------------------------------------------------ Risk-adjusted assets $81,499 $80,334 $80,036 Tier 1 risk-based capital (4% minimum) 7.13% 7.21% 7.06% Total risk-based capital (8% minimum) 10.79 10.80 10.82 Leverage ratio (4% minimum) 7.24 7.19 7.19 Common equity-to-assets 7.60 7.41 8.34 Total equity-to-assets 8.60 8.42 6.48 Tangible common equity- to-assets 5.68 5.59 5.30 Tangible total equity-to- assets 6.70 6.61 6.48 - ------------------------------------------------------------------------------
At September 30, 1997, the corporation exceeded all regulatory required minimum capital ratios as Fleet's Tier 1 and Total risk based capital ratios were 7.13 percent and 10.79 percent, respectively, compared with 7.21 percent and 10.80 percent, respectively, at June 30, 1997. The leverage ratio, a measure of Tier 1 capital to average quarterly assets, was 7.24 percent at September 30, 1997 compared with 7.19 percent at June 30, 1997. RECENT ACCOUNTING DEVELOPMENTS In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which will be effective for financial statements for both interim and annual periods ending December 31, 1997. Primary EPS will be replaced with basic EPS and fully diluted EPS will be replaced with diluted EPS. Primary EPS includes the dilutive effect of common stock equivalents; basic EPS will exclude all common stock equivalents. Diluted EPS is very similar to fully diluted EPS. The statement also requires a reconciliation of basic EPS to diluted EPS. For the quarter ended September 30, 1997, basic and diluted EPS, as calculated under the new statement, are $1.25 and $1.20, respectively, compared to the reported EPS of $1.20 for both fully diluted and primary earnings per share. Also in February, 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure", which will be effective for 1997 financial statements. The corporation's disclosures currently comply with the provisions of this statement. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income, which is defined as all changes to equity except investments by and distributions to shareholders. Net income is a component of comprehensive income, with all other components referred to in the aggregate as other comprehensive income. This statement is effective for 1998 financial statements. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes standards for reporting information about operating segments. An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. This statement requires a company to disclose certain income statement and balance sheet information by operating segment, as well as provide a reconciliation of operating segment information to the company's consolidated balances. This statement is effective for 1998 annual financial statements. 21 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT This Quarterly Report on Form 10-Q contains statements relating to future results of the corporation (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in political and economic conditions, interest rate fluctuations, competitive product and pricing pressures within the corporation's market, equity and bond market fluctuations, personal and corporate customers' bankruptcies, inflation, acquisitions and integrations of acquired businesses, as well as other risks and uncertainties detailed from time to time in the filings of the corporation with the Securities and Exchange Commission. 22 PART II. OTHER INFORMATION PART II. ITEM 6. (a) Exhibit Index Exhibit Number Exhibit Number - ------- 4* Instruments defining the rights of security holders, including Debentures 11 Statement re: computation of per share earnings 12 Statement re: computation of ratios 27 Financial data schedule * Registrant has no instruments defining the rights of holders of equity or debt securities where the amount of securities authorized thereunder exceeds 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. Registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request. ** Management contract, or compensatory plan or arrangement. (b) Two Form 8-K's were filed during the period from July 1, 1997 to the date of the filing of this report. - Current Report on Form 8-K dated July 16, 1997 announcing second quarter earnings. - Current Report on Form 8-K dated October 15, 1997 announcing third quarter earnings. 23 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Fleet Financial Group, Inc. --------------------------- (Registrant) /s/ Eugene M. McQuade ------------------------ Eugene M. McQuade Vice Chairman Chief Financial Officer /s/ Robert C. Lamb, Jr. ------------------------- Robert C. Lamb, Jr. Controller Chief Accounting Officer DATE: November 14, 1997 24 EX-11 2 EXHIBIT 11 EXHIBIT 11 FLEET FINANCIAL GROUP, INC. COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS ($ in thousands, except per share data)
FOR THE THREE MONTHS ENDED SEPTEMBER 30 ---------------------------------------------------------- 1997 1996 ---------------------------- ---------------------------- FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED ------------- ------------- ------------- ------------- Equivalent shares: Average shares outstanding.......................... 250,085,204 250,085,204 262,603,407 262,603,407 Additional shares due to: Stock options.................................... 4,322,096 4,328,283 1,946,598 2,287,079 Warrants......................................... 5,589,023 5,589,023 3,799,826 3,921,910 ------------- ------------- ------------- ------------- Total equivalent shares............................. 259,996,323 260,002,510 268,349,831 268,812,396 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings per share Net income.......................................... $ 329,219 $ 329,219 $ 294,942 $ 294,942 Less: Preferred stock dividends..................... 15,974 15,974 18,977 18,977 Premium paid on redemption of Series III preferred stock.............................. -- -- 2,630 2,630 ------------- ------------- ------------- ------------- Adjusted net income................................. $ 313,245 $ 313,245 $ 273,335 $ 273,335 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total equivalent shares............................. 259,996,323 260,002,510 268,349,831 268,812,396 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings per share on net income.................... $ 1.20 $ 1.20 $ 1.02 $ 1.02 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
EXHIBIT 11 FLEET FINANCIAL GROUP, INC. COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS ($ in thousands, except per share data)
FOR THE NINE MONTHS ENDED SEPTEMBER 30 ---------------------------------------------------------- 1997 1996 ---------------------------- ---------------------------- FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED ------------- ------------- ------------- ------------- Equivalent shares: Average shares outstanding.......................... 253,978,291 253,978,291 262,767,969 262,767,969 Additional shares due to: Stock options.................................... 3,982,989 4,470,706 2,118,316 2,569,999 Warrants......................................... 5,333,810 5,573,825 3,769,752 3,921,910 ------------- ------------- ------------- ------------- Total equivalent shares............................. 263,295,090 264,022,822 268,656,037 269,259,878 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings per share Net income.......................................... $ 968,086 $ 968,086 $ 836,471 $ 836,471 Less: Preferred stock dividends..................... 49,148 49,148 50,829 50,829 Premium paid on redemption of Series III preferred stock............................. -- -- 2,630 2,630 ------------- ------------- ------------- ------------- Adjusted net income................................. $ 918,938 $ 918,938 $ 783,012 $ 783,012 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Total equivalent shares............................. 263,295,090 264,022,822 268,656,037 269,259,878 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings per share on net income.................... $ 3.49 $ 3.48 $ 2.91 $ 2.91 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
EX-12 3 EXHIBIT 12 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)
THREE NINE MONTHS MONTHS ENDED ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30 SEPTEMBER 30 ------------------------------------------------------------------- 1997 1997 1996 1995 1994 1993 1992 ---------- ------------ ------------ ------------ ------------ ------------ ----------- Earnings: Income before income taxes, extraordinary credit and cumulative effect of change in method of accounting............. $ 554,333 $ 1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds.............. 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent........ 11,842 36,386 52,264 49,921 50,597 52,254 49,197 (b) Preferred dividends... 26,897 82,686 117,676 62,064 48,859 60,365 65,658 ---------- ------------ ------------ ------------ ------------ ------------ ------------ (c) Adjusted earnings..... $ 743,729 $ 2,163,959 $ 2,785,594 $ 2,424,339 $ 2,469,490 $ 1,958,829 $ 1,370,654 ---------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------ ------------ ------------ ------------ Fixed charges and preferred dividends................ $ 189,396 $ 535,259 $ 854,996 $ 1,390,583 $ 1,089,851 $ 864,373 $ 753,285 ---------- ------------ ------------ ------------ ------------ ------------ ------------ ---------- ------------ ------------ ------------ ------------ ------------ ------------ Adjusted earnings/fixed charges.................. 3.93x 4.04x 3.26x 1.74x 2.27x 2.27x 1.82x ---------- ------------ ------------ ------------ ------------ ------------ ------------
INCLUDING INTEREST ON DEPOSITS (dollars in thousands)
THREE MONTHS NINE MONTHS ENDED ENDED YEAR ENDED DECEMBER 31 SEPTEMBER 30 SEPTEMBER 30 ------------------------------------------------------ 1997 1997 1996 1995 1994 1993 1992 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Earnings: Income before income taxes, extra-ordinary credit and cumulative effect of change in method of accounting...$ 554,333 $1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds.......... 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent..... 11,842 36,386 52,264 49,921 50,597 52,254 49,197 (3) Interest on deposits....... 409,844 1,233,258 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804 (b) Preferred dividends.......... 26,897 82,686 117,676 62,064 48,859 60,365 65,658 ------------- ------------ ------------ ------------ ------------ ------------ ------------ (c) Adjusted earnings.... $ 1,153,573 $3,397,217 $ 4,539,317 $ 4,150,742 $ 3,640,022 $ 3,123,875 $ 3,069,458 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Fixed charges and preferred dividends..... $ 599,240 $1,768,517 $ 2,608,719 $ 3,116,986 $ 2,260,383 $ 2,029,419 $ 2,452,089 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Adjusted earnings/ fixed charges................ 1.93x 1.92x 1.74x 1.33x 1.61x 1.54x 1.25x ------------- ------------ ------------ ------------ ------------ ------------ ------------
EXHIBIT 12 FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS (dollars in thousands)
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 YEAR ENDED DECEMBER 31 ------------ ------------ -------------------------------------------------------------------- 1997 1997 1996 1995 1994 1993 1992 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Earnings: Income before income taxes, extraordinary credit and cumulative effect of change in method of accounting.......... $ 554,333 $1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds.......... 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent.... 11,842 36,386 52,264 49,921 50,597 52,254 49,197 ------------- ------------ ------------ ------------ ------------ ------------ ------------ (b) Adjusted earnings. $ 716,832 $2,081,273 $ 2,667,918 $ 2,362,275 $ 2,420,631 $ 1,898,464 $ 1,304,996 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Fixed charges........... $ 162,499 $ 452,573 $ 737,320 $ 1,328,519 $ 1,040,992 $ 804,008 $ 687,627 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Adjusted earnings/fixed charges............... 4.41x 4.60x 3.62x 1.78x 2.33x 2.36x 1.90x ------------- ------------ ------------ ------------ ------------ ------------ ------------
INCLUDING INTEREST ON DEPOSITS (dollars in thousands)
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 YEAR ENDED DECEMBER 31 ------------- ------------ -------------------------------------------------------------------- 1997 1997 1996 1995 1994 1993 1992 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Earnings: Income before income taxes, extraordinary credit and cumulative effect of change in method of accounting.......... $ 554,333 $1,628,700 $ 1,930,598 $ 1,033,756 $ 1,379,639 $ 1,094,456 $ 617,369 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds........... 150,657 416,187 685,056 1,278,598 990,395 751,754 638,430 (2) 1/3 of Rent..... 11,842 36,386 52,264 49,921 50,597 52,254 49,197 (3) Interest on deposits........ 409,844 1,233,258 1,753,723 1,726,403 1,170,532 1,165,046 1,698,804 (b) Adjusted earnings.. $ 1,126,676 $3,314,531 $ 4,421,641 $ 4,088,678 $ 3,591,163 $ 3,063,510 $ 3,003,800 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Fixed charges............ $ 572,343 $1,685,831 $ 2,491,043 $ 3,054,922 $ 2,211,524 $ 1,969,054 $ 2,386,431 ------------- ------------ ------------ ------------ ------------ ------------ ------------ Adjusted earnings/fixed charges................ 1.97x 1.97x 1.78x 1.34x 1.62x 1.56x 1.26x ------------- ------------ ------------ ------------ ------------ ------------ ------------
EX-27.1 4 EXHIBIT 27.1
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 SEP-30-1997 5,042 150 1,371 51 7,511 1,259 1,264 59,264 (1,432) 83,575 62,907 6,524 2,498 4,459 0 835 3,115 3,237 83,575 3,925 440 0 4,365 1,233 1,649 2,716 233 22 2,584 1,629 1,629 0 0 968 3.49 3.48 5.21 455 236 26 0 1,488 386 101 1,432 1,432 0 272
EX-27.2 5 EXHIBIT 27.2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1997 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 SEP-30-1996 6,332 35 32 74 10,456 1,277 1,269 60,086 1,548 87,194 67,551 5,117 2,333 4,923 0 1,001 3,145 3,122 7,268 3,776 577 0 4,353 1,299 1,850 2,503 148 38 2,416 1,423 836 0 0 836 2.91 2.91 4.75 710 215 39 0 1,321 335 89 1,548 1,548 0 243
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