-----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, ChJFRBMst8rVMnbCvWqzqMoDIWAciKLxM91M8jVc8z5nXZchqQjUUUy7FEutiNWx NqgLPH4nVXOyL6r+ycbbAg== 0001047469-98-020152.txt : 19980515 0001047469-98-020152.hdr.sgml : 19980515 ACCESSION NUMBER: 0001047469-98-020152 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: 98620298 BUSINESS ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02211 BUSINESS PHONE: 6173464000 MAIL ADDRESS: STREET 1: ONE FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02211 FORMER COMPANY: FORMER CONFORMED NAME: FLEET FINANCIAL GROUP INC DATE OF NAME CHANGE: 19880110 FORMER COMPANY: FORMER CONFORMED NAME: INDUSTRIAL NATIONAL CORP DATE OF NAME CHANGE: 19820512 10-Q 1 FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------- FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _________ TO __________ COMMISSION FILE NUMBER 1-6366 FLEET FINANCIAL GROUP, INC. (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0341324 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) ONE FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (Address of principal executive (Zip Code) office) (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 April 30, 1998 was 284,167,833. =============================================================================== FLEET FINANCIAL GROUP, INC. FORM 10-Q FOR QUARTER ENDED MARCH 31, 1998 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT PAGE PART I. ITEM 1. FINANCIAL INFORMATION Consolidated Statements of Income Three Months Ended March 31, 1998 and 1997 3 Consolidated Balance Sheets March 31, 1998 and December 31, 1997 4 Consolidated Statements of Changes in Stockholders' Equity Three Months Ended March 31, 1998 and 1997 5 Consolidated Statements of Cash Flows Three Months Ended March 31, 1998 and 1997 6 Condensed Notes to Consolidated Financial Statements 7 PART I. ITEM 2. Management's Discussion and Analysis of Financial Condition and 8 Results of Operations PART II. OTHER INFORMATION 20 SIGNATURES 22 EXHIBITS 23 2 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------ FOR THE THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1998 1997 - ------------------------------------------------------------------------------------------------------ Interest and fees on loans $1,378 $1,309 Interest on securities 162 140 Other 54 41 - ------------------------------------------------------------------------------------------------------ Total interest income 1,594 1,490 - ------------------------------------------------------------------------------------------------------ Interest expense: Deposits 438 416 Short-term borrowings 84 43 Long-term debt 89 90 Other 54 32 - ------------------------------------------------------------------------------------------------------ Total interest expense 665 581 - ------------------------------------------------------------------------------------------------------ Net interest income 929 909 - ------------------------------------------------------------------------------------------------------ Provision for credit losses 92 65 - ------------------------------------------------------------------------------------------------------ Net interest income after provision for credit losses 837 844 - ------------------------------------------------------------------------------------------------------ Noninterest income: Investment services revenue 201 171 Banking fees and commissions 178 175 Capital markets revenue 138 71 Processing-related revenue 59 142 Credit card revenue 56 14 Other 63 40 - ------------------------------------------------------------------------------------------------------ Total noninterest income 695 613 - ------------------------------------------------------------------------------------------------------ Noninterest expense: Employee compensation and benefits 445 459 Equipment 80 79 Occupancy 74 77 Intangible asset amortization 51 41 Legal and other professional 31 29 Merger-related expenses 73 --- Other 243 219 - ------------------------------------------------------------------------------------------------------ Total noninterest expense 997 904 - ------------------------------------------------------------------------------------------------------ Income before income taxes 535 553 Applicable income taxes 212 219 - ------------------------------------------------------------------------------------------------------ Net income $ 323 $ 334 - ------------------------------------------------------------------------------------------------------ Net income applicable to common shares $ 311 $ 317 Diluted weighted average common shares outstanding 293,591,781 288,513,429 Basic earnings per share 1.09 1.13 Diluted earnings per share 1.06 1.10 Dividends declared .49 .45 - ------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 FLEET FINANCIAL GROUP, INC. CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31, DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- ASSETS Cash, due from banks and interest-bearing deposits $ 5,253 $ 5,076 Federal funds sold and securities purchased under agreements to resell 240 498 Securities (market value: $11,284 and $9,367) 11,279 9,362 Loans 64,986 62,565 Reserve for credit losses (1,553) (1,432) - -------------------------------------------------------------------------------------------------------------------------- Net loans 63,433 61,133 - -------------------------------------------------------------------------------------------------------------------------- Due from brokers/dealers 3,567 3,510 Mortgages held for resale 2,416 1,526 Premises and equipment 1,258 1,205 Mortgage servicing rights 1,653 1,768 Intangible assets 2,816 2,196 Other assets 5,772 4,773 - -------------------------------------------------------------------------------------------------------------------------- Total assets $97,687 $91,047 - -------------------------------------------------------------------------------------------------------------------------- LIABILITIES Deposits: Demand $13,006 $13,148 Regular savings, NOW, money market 31,898 30,485 Time 23,261 20,102 - -------------------------------------------------------------------------------------------------------------------------- Total deposits 68,165 63,735 - -------------------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 3,907 3,635 Other short-term borrowings 4,331 3,870 Due to brokers/dealers 4,433 4,316 Long-term debt 5,095 4,500 Accrued expenses and other liabilities 3,136 2,539 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 89,067 82,595 - -------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock 691 691 Common stock (285,584,715 shares issued in 1998 and 285,602,282 shares issued in 1997) 3 3 Common surplus 3,315 3,329 Retained earnings 4,606 4,437 Accumulated other comprehensive income 76 97 Treasury stock, at cost (1,497,527 shares in 1998 and 1,939,464 shares in 1997) (71) (105) - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 8,620 8,452 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $97,687 $91,047 - --------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED OTHER COMMON COMPRE- STOCK AT HENSIVE THREE MONTHS ENDED MARCH 31 PREFERRED $.01 COMMON RETAINED INCOME TREASURY DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS STOCK PAR SURPLUS EARNINGS (LOSS) STOCK TOTAL --------------------------------------------------------------------------------------------------------------------------------- 1997 - ---- Balance at December 31, 1996 $ 953 $ 3 $3,223 $3,640 $ 31 $ (60) $7,790 Net income 334 334 Other comprehensive loss, net of tax: Adjustment of valuation reserve for securities available for sale (63) (63) --------- Comprehensive income 271 Cash dividends declared on common stock ($0.45 per share) (115) (115) Cash dividends declared on preferred stock (17) (17) Common stock issued in connection with employee benefit and stock option plans (6) (8) 42 28 Adjustment to retained earnings reflecting pooled entity different year end (23) (23) Treasury stock purchased (376) (376) Exchange of Series V preferred stock for trust preferred securities (84) (84) Other, net (2) (2) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1997 $ 869 $ 3 $3,215 $3,811 $(32) $ (394) $7,472 - ----------------------------------------------------------------------------------------------------------------------------------- 1998 - ---- Balance at December 31, 1997 $ 691 $ 3 $3,329 $4,437 $ 97 $ (105) $8,452 Net income 323 323 Other comprehensive loss, net of tax: Adjustment of valuation reserve for securities available for sale (21) (21) --------- Comprehensive income 302 Cash dividends declared on common stock ($0.49 per share) (139) (139) Cash dividends declared on preferred stock (13) (13) Common stock issued in connection with employee benefit and stock option plans (14) (2) 34 18 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1998 $ 691 $ 3 $3,315 $4,606 $ 76 $(71) $8,620 - -----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 5 FLEET FINANCIAL GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 323 $ 334 Adjustments for noncash items: Depreciation and amortization of premises and equipment 54 53 Amortization of mortgage servicing rights and other intangible assets 128 96 Impairment of mortgage servicing rights 75 --- Provision for credit losses 92 65 Deferred income tax (benefit)/expense (46) 50 Securities gains (51) (13) Merger and restructuring-related charges 73 --- Originations and purchases of mortgages held for resale (5,172) (4,589) Proceeds from sales of mortgages held for resale 4,281 4,815 Increase in due from brokers/dealers (57) (269) Increase in accrued receivables, net (195) (147) Increase in due to brokers/dealers 117 349 Increase/(decrease) in accrued liabilities, net 523 (31) Other, net (227) 71 - ------------------------------------------------------------------------------------------------------------ Net cash flow (used)/provided by operating activities (82) 784 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of securities available for sale (2,980) (983) Proceeds from maturities of securities available for sale 208 763 Proceeds from sales of securities available for sale 912 196 Purchases of securities held to maturity (172) (147) Proceeds from maturities of securities held to maturity 150 193 Net cash and cash equivalents received from businesses acquired 380 --- Loans made to customers, nonbanking subsidiaries (852) (620) Principal collected on loans made to customers, nonbanking subsidiaries 330 412 Net increase in loans, banking subsidiaries (324) (144) Purchases of premises and equipment (59) (40) Purchases of mortgage servicing rights (61) (73) - ------------------------------------------------------------------------------------------------------------ Net cash flow used in investing activities (2,468) (443) - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net increase/(decrease) in deposits 1,843 (2,932) Net increase/(decrease) in short-term borrowings 218 (48) Proceeds from issuance of long-term debt 918 --- Repayments of long-term debt (398) (587) Proceeds from the issuance of common stock 18 28 Repurchase of common stock --- (376) Cash dividends paid (130) (131) - ------------------------------------------------------------------------------------------------------------ Net cash flow (used)/provided by financing activities 2,469 (4,046) - ------------------------------------------------------------------------------------------------------------ Net decrease in cash and cash equivalents (81) (3,705) - ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at beginning of the period 5,574 9,104 - ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of the period $ 5,493 $ 5,399 - ------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 6 FLEET FINANCIAL GROUP, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 NOTE 1. FINANCIAL STATEMENTS The unaudited consolidated financial information included herein has been prepared in conformity with the accounting principles and practices in Fleet Financial Group, Inc.'s (Fleet or the corporation) consolidated financial statements included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 1997. On February 1, 1998, the corporation acquired The Quick & Reilly Group, Inc. (Quick & Reilly). Since the Quick & Reilly acquisition was accounted for under the pooling-of-interests method of accounting, all prior periods have been restated to include Quick & Reilly financial information. The corporation's December 31, 1997 Annual Report has been restated for the Quick & Reilly acquisition and has been filed on Form 8-K with the SEC. The accompanying interim consolidated financial statements contained herein are unaudited. However, in the opinion of the corporation, all adjustments consisting of normal recurring items necessary for a fair statement of the operating results for the periods shown have been made. The results of operations for the three months ended March 31, 1998 may not be indicative of operating results for the year ending December 31, 1998. Certain prior period amounts have been reclassified to conform to current classifications. NOTE 2. REPORTING COMPREHENSIVE INCOME 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. Fleet has adopted SFAS No. 130 effective for the current quarter. NOTE 3. ACQUISITIONS AND MERGER-RELATED CHARGES During the fourth quarter of 1997, the corporation entered into a definitive agreement to acquire the consumer credit card operations of Advanta Corporation (Advanta). This acquisition closed on February 20, 1998 under the purchase method of accounting and as such, the results of Advanta are included for the period subsequent to the acquisition date. Goodwill of approximately $500 million was recorded in connection with this transaction and will be amortized on a straight-line basis over 15 years. Additionally, purchased credit card intangible of approximately $150 million was recorded and will be amortized on a straight-line basis over 6 years. Fleet may be required to make additional payments up to $100 million which will be recorded as goodwill. During the first quarter of 1998, the corporation recorded $73 million of merger-related charges in connection with the acquisitions of Quick & Reilly and the consumer credit card operations of Advanta. The merger-related charges pertain primarily to exit costs, severance costs and professional fees. NOTE 4. SUPPLEMENTAL DISCLOSURE FOR STATEMENTS OF CASH FLOWS
CASH-FLOW DISCLOSURE - --------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - --------------------------------------------------------------- Supplemental disclosure for cash paid during the period for: Interest expense $ 594 $ 565 Income taxes, net of refunds 16 32 - --------------------------------------------------------------- - --------------------------------------------------------------- Supplemental disclosure of noncash investing and financing activities: Transfer of loans to foreclosed property and repossessed equipment 3 9 Exchange of Series V preferred stock for trust preferred securities --- 84 Adjustment to unrealized gain (loss) on securities available for sale (21) (63) - --------------------------------------------------------------- - --------------------------------------------------------------- Assets acquired and liabilities assumed in business combinations were as follows: Assets acquired, net of cash and cash equivalents received 2,845 --- Net cash and cash equivalents received 380 --- Liabilities assumed 3,225 --- - ---------------------------------------------------------------
7 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY - ----------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS EXCEPT PER SHARE DATA 1998 1997 - ----------------------------------------------------------------- EARNINGS Net income $ 323 $ 334 Net interest income (FTE)(A) 938 918 - ----------------------------------------------------------------- PER COMMON SHARE Basic earnings $ 1.09 $ 1.13 Diluted earnings 1.06 1.10 Cash dividends declared .49 .45 Book value 27.91 23.74 - ----------------------------------------------------------------- OPERATING RATIOS Return on average assets 1.43% 1.56% Return on common equity 16.00 19.17 Efficiency ratio 56.6 59.1 Equity to assets (period-end) 8.82 8.71 - ----------------------------------------------------------------- AT MARCH 31 Total assets $97,687 $85,824 Stockholders' equity 8,620 7,472 Nonperforming assets(B) 373 704 - -----------------------------------------------------------------
(A) THE FTE ADJUSTMENT INCLUDED IN NET INTEREST INCOME WAS $9 MILLION FOR EACH OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997. (B) NONPERFORMING ASSETS AND RELATED RATIOS AT MARCH 31, 1998 AND 1997 DO NOT INCLUDE $176 MILLION AND $253 MILLION, RESPECTIVELY, OF NONPERFORMING ASSETS CLASSIFIED AS HELD FOR SALE OR ACCELERATED DISPOSITION. Fleet reported net income of $323 million, or $1.06 per diluted share, for the quarter ended March 31, 1998, compared to $334 million, or $1.10 per diluted share, in the first quarter of 1997. Return on average assets (ROA) and return on common equity (ROE) were 1.43% and 16.00%, respectively, for the first quarter of 1998, compared to 1.56% and 19.17%, respectively, for the first quarter of 1997. The first quarter included merger-related charges of $73 million ($44 million post-tax) pertaining to the acquisitions of Quick & Reilly and the consumer credit card operations of Advanta. Excluding the impact of these charges, the corporation's net income was $367 million, or $1.21 per diluted share, while ROA and ROE were 1.62% and 18.27%, respectively, in the first quarter of 1998. Additionally, as a result of the sharply decreasing mortgage-rate environment, the corporation's mortgage banking business experienced a strong acceleration in mortgage prepayments this quarter. To recognize this, the corporation established a $75 million charge against the value of its mortgage servicing rights. The corporation protects itself against a decrease to net income from mortgage prepayments through various hedging strategies because of the anticipated volatility of this asset. As a result of these strategies, the corporation was able to fully offset the impact of this charge through the recognition of $50 million in gains from the securities portfolio, which had substantially increased in value as a result of this interest-rate environment, coupled with $25 million of gains from the sales of mortgage servicing. The corporation's ability to continue to experience similar gains in the future depends on a variety of factors, including the condition of the interest-rate environment. Thus, the likelihood of such gains in the future cannot be predicted. ACQUISITIONS On February 1, 1998, the corporation acquired Quick & Reilly, one of the country's largest national discount brokerage firms. This acquisition was accounted for under the pooling-of-interests method of accounting and, as such, financial results set forth in these financial statements have been restated to include Quick & Reilly. Under the terms of the Quick & Reilly merger, approximately 22 million Fleet common shares were exchanged for all of the outstanding Quick & Reilly common shares at an exchange ratio of 0.578 shares of Fleet for each share of Quick & Reilly. Additionally, on February 20, 1998, the corporation completed its acquisition of the consumer credit card operations of Advanta. The Advanta acquisition provided approximately $11.5 billion of managed credit card receivables, of which approximately $2 billion reside on the balance sheet in consumer loans. Since this acquisition was accounted for under the purchase method of accounting, the results of Advanta are included for the period subsequent to the acquisition date. 8 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME STATEMENT ANALYSIS
NET INTEREST INCOME - --------------------------------------- ---------- ----------- THREE MONTHS ENDED MARCH 31 FTE BASIS DOLLARS IN MILLIONS 1998 1997 - --------------------------------------- ---------- ----------- Interest income $1,594 $1,490 Tax-equivalent adjustment 9 9 Interest expense 665 581 - --------------------------------------- ---------- ----------- Net interest income $ 938 $ 918 - --------------------------------------- ---------- -----------
Net interest income on a fully taxable equivalent basis totaled $938 million for the quarter ended March 31, 1998, compared to $918 million for the same period in 1997. The increase is primarily attributable to strong growth in Fleet's earning assets and increased loan fees. Last year's first quarter included $15 million of net interest income relating to Option One, a mortgage banking subsidiary, and the corporation's indirect auto lending business which were sold in the second and third quarters of 1997, respectively.
NET INTEREST MARGIN AND INTEREST-RATE SPREAD - --------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 1998 1997 FTE BASIS AVERAGE AVERAGE DOLLARS IN MILLIONS BALANCE RATE BALANCE RATE - --------------------------------------------------------------------------- Securities $10,051 6.56 % $ 8,580 6.67 % Loans 62,603 8.66 59,687 8.63 Mortgages held for sale 1,637 7.25 1,686 7.59 Due from brokers/dealers 3,749 5.13 2,618 4.36 Other 1,025 4.99 1,735 5.28 - --------------------------------------------------------------------------- Total interest-earning assets 79,065 8.15 74,306 8.16 - --------------------------------------------------------------------------- Deposits 48,596 3.65 48,495 3.48 Short-term borrowings 6,914 4.90 4,175 4.18 Due to brokers/dealers 4,564 4.83 3,080 4.19 Long-term debt 4,853 7.31 5,003 7.18 - --------------------------------------------------------------------------- Interest-bearing liabilities 64,927 4.14 60,753 3.87 - --------------------------------------------------------------------------- Interest-rate spread 4.01 4.29 Interest-free sources of funds 14,138 13,553 - --------------------------------------------------------------------------- Total sources of funds $79,065 3.40 % $74,306 3.17 % - --------------------------------------------------------------------------- Net interest margin 4.75 % 4.99 % - ---------------------------------------------------------------------------
The corporation's net interest margin for the first quarter of 1998 was 4.75%, a decrease of 24 basis points from the first quarter of 1997. The decrease in net interest margin is primarily attributable to a shift to higher-cost sources of funds, principally, wholesale time deposits and short-term borrowings obtained as part of the Advanta acquisition. Average securities increased $1.5 billion from the first quarter of 1997, due to Fleet's efforts to reposition the corporation's interest-rate sensitivity, while the yield remained relatively consistent. Average loans increased $5.1 billion to $62.6 billion for the first quarter of 1998, when compared with the first quarter of 1997, excluding $2.2 million of indirect auto loans that were sold in the third quarter of 1997. This growth resulted primarily from loan increases in the commercial, corporate finance, and lease financing portfolios. Due from brokers/dealers and due to brokers/dealers both increased in excess of $1 billion as a result of the acquisition of Nash, Weiss & Company, a subsidiary of Quick & Reilly, in the second quarter of 1997. Average interest-bearing deposits increased slightly to $48.6 billion in the first quarter of 1998 compared to the first quarter of 1997. The net interest rate paid on average deposits increased to 3.65% for the first quarter of 1998 compared to 3.48% for the same period of 1997. The increase in the cost of deposits reflects a shift in the mix of deposits, partially attributable to an influx of wholesale time deposits as a result of the Advanta acquisition. The $2.7 billion 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 $150 million decrease in average long-term debt and 13 basis-point increase in the funding rate was due to scheduled maturities of lower-rate instruments and the issuance of higher-rate instruments, which included an average increase of $301 million in trust preferred securities.
NONINTEREST INCOME - ------------------------------------------------ --------- -------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ------------------------------------------------ --------- -------- Investment services revenue $201 $171 Banking fees and commissions 178 175 Capital markets revenue 138 71 Processing-related revenue 59 142 Credit card revenue 56 14 Other noninterest income 63 40 - ------------------------------------------------ --------- -------- Total noninterest income $695 $613 - ------------------------------------------------ --------- --------
Noninterest income for the first quarter of 1998 increased $82 million to $695 million compared to $613 million for the same period of 1997, an increase of 13%. Increases were noted in several core revenue categories including investment services revenue, capital markets revenue, as well as credit card revenue, partially offset by decreases in processing-related revenue. These increases primarily reflect the acquisitions of Columbia and the consumer credit card operations of Advanta. 9 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVESTMENT SERVICES REVENUE - -------------------------------------------- ---------- ---------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - -------------------------------------------- ---------- ---------- Investment services revenue $125 $ 98 Brokerage fees and commissions 76 73 - -------------------------------------------- ---------- ---------- Total investment services revenue $201 $171 - -------------------------------------------- ---------- ----------
Investment services revenue, which includes the traditional investment services revenue from assets under management, as well as brokerage fees and commissions, increased $30 million, or 18% over the first quarter of 1997. The major components of revenue from assets under management include:
- ---------------------------------------- --------- ----------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ---------------------------------------- --------- ----------- Private clients group $ 53 $ 48 Columbia Management Company 23 --- Retirement plan services 16 16 Retail investments 17 17 Not-for-profit institutional services 12 11 Other 4 6 - ---------------------------------------- --------- ----------- Total $125 $ 98 - ---------------------------------------- --------- -----------
Investment services revenue, excluding brokerage revenue, increased 28% for the first quarter of 1998 to $125 million compared to $98 million in the first quarter of 1997. This improvement was largely due to the acquisition of Columbia Management Company in December 1997, as well as growth in overall assets under management. Assets under management have grown 68% to $81 billion at March 31, 1998 from $48 billion at March 31, 1997. Fleet's total proprietary mutual fund complex reached $20 billion in assets under management for the first time, as of March 31, 1998, reflecting the corporation's continued focus on developing, acquiring and growing fee-based businesses. The Galaxy funds grew to $13 billion from $10 billion over the same period, and Columbia mutual funds represented $7 billion in assets under management at March 31, 1998.
CAPITAL MARKETS REVENUE - ---------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ---------------------------------------------------------------------- Securities gains $ 51 $ 13 Brokerage market-making revenue 31 17 Venture capital revenue 30 18 Foreign exchange/interest rate products 14 12 Corporate finance fees 6 7 Securities trading gains 6 4 - ---------------------------------------------------------------------- Total capital markets revenue $138 $ 71 - ----------------------------------------------------------------------
Capital markets revenue increased $67 million to $138 million for the quarter ended March 31, 1998, when compared to the same quarter of 1997. This was due primarily to securities gains taken to offset the impairment in mortgage servicing rights, as well as increased volume in the corporation's market-making activity at its discount brokerage firm, Quick & Reilly. The investments of Fleet Private Equity, the corporation's venture capital business, increased by $12 million when compared with the first quarter of 1997. The corporation's ability to continue to experience increases in the value of these venture capital investments depends on a variety of factors, including the condition of the economy and equity markets. Thus, the likelihood of such gains in the future cannot be predicted.
PROCESSING-RELATED REVENUE - ---------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ---------------------------------------------------------------------- Student loan servicing fees $ 28 $ 26 Mortgage banking revenue, net 18 104 Other 13 12 - ---------------------------------------------------------------------- Total processing-related revenue $ 59 $142 - ----------------------------------------------------------------------
Processing-related revenue decreased $83 million when compared to the first quarter of 1997 due primarily to a decline in mortgage banking revenue as a result of the impairment in mortgage servicing rights. Student loan servicing fees increased $2 million, or 8%, at AFSA Data Corporation (AFSA), the corporation's student loan servicing subsidiary. AFSA services 5.8 million accounts nationwide and is the largest third-party student loan servicer in the United States, with over $39 billion in loans serviced.
MORTGAGE BANKING REVENUE, NET - ----------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------------------- Net loan servicing revenue $117 $111 Mortgage production revenue 29 40 Gains on sales of mortgage servicing 25 10 Mortgage servicing rights amortization (78) (57) Impairment charge (75) --- - ----------------------------------------------------------------------- Total mortgage banking revenue, net $ 18 $104 - -----------------------------------------------------------------------
Net mortgage banking revenue was $18 million in the first quarter of 1998. The principal cause of the decrease was a $75 million impairment charge taken as a result of increased refinancings in a lower mortgage-rate environment, as well as the sale of Option One during the second quarter of 1997. Partially offsetting this impairment charge was a gain of $25 million on sales of mortgage servicing rights. Loan servicing revenue represents fees received for servicing residential mortgage loans. The $6 million, or 5%, increase in loan servicing revenue is attributable to the corporation receiving a higher servicing spread on mortgage servicing acquired primarily in the latter half of 1997. 10 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Mortgage production revenue declined $11 million to $29 million; however, excluding $21 million pertaining to Option One, production revenue increased $10 million due to increased gains on sales of mortgage loans as a result of more favorable market conditions. Mortgage servicing rights (MSRs) amortization increased $21 million to $78 million for the first quarter of 1998 as compared to $57 million for the same period of 1997. The level of amortization increased due to a strong acceleration in prepayments resulting from a decline in mortgage interest rates, coupled with a higher level of amortization of recently purchased mortgage servicing rights with a higher servicing spread. At March 31, 1998, the carrying value and fair value of the corporation's MSRs were $1.7 billion and $1.8 billion, respectively. Other noninterest income increased $23 million to $63 million due primarily to revenues resulting from the Advanta and Columbia acquisitions.
NONINTEREST EXPENSE - ---------------------------------------------------- ------- -------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - ---------------------------------------------------- ------- -------- Employee compensation and benefits $445 $459 Equipment 80 79 Occupancy 74 77 Intangible asset amortization 51 41 Legal and other professional 31 29 Marketing 27 22 Printing and mailing 23 20 Telephone 20 21 Other 173 156 - ---------------------------------------------------- ------- -------- Total noninterest expense excluding merger-related charges 924 904 Merger-related charges 73 --- - ---------------------------------------------------- ------- -------- Total noninterest expense $997 $904 - ---------------------------------------------------- ------- --------
Total noninterest expense for the first quarter of 1998 totaled $997 million compared to $904 million for the same period of 1997. The increase of $93 million over the first quarter of 1997 was due primarily to $73 million of merger-related charges relating to the previously mentioned acquisitions. Excluding merger-related charges, the corporation's efficiency ratio improved from 59.1% to 56.6% from the first quarter of 1997 to the first quarter of 1998, as a result of cost containment initiatives, in combination with revenue growth. Employee compensation and benefits decreased $14 million compared with the first quarter of 1997 due to a decline of compensation expense due primarily to divested businesses, partly offset by annual merit increases. Marketing expense increased $5 million over the prior year quarter due to increased marketing initiatives associated with the Advanta and Columbia acquisitions. Intangible asset amortization increased $10 million in the first quarter of 1998 when compared to the first quarter of 1997. This increase was due to the acquisition of Columbia in December 1997, Advanta in February 1998 and additional goodwill recorded in connection with the NatWest earnout agreement in the third quarter of 1997. The corporation anticipates additional intangible asset amortization during the second quarter of 1998 due to a full quarter's impact of Advanta. During the quarter, the corporation incurred $17 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 two to three years. During the first quarter of 1998, the corporation recorded $73 million of merger-related charges in connection with the acquisitions of Quick & Reilly and the consumer credit card operations of Advanta. The merger-related charges pertain primarily to exit costs, severance costs and professional fees. Other noninterest expense increased $17 million to $173 million in the first quarter of 1998 as a result of higher levels of various expenses attributable to the purchases of Advanta and Columbia, as well as increased volume at Quick & Reilly. INCOME TAXES For the first quarter of 1998, the corporation recognized income tax expense of $212 million, an effective tax rate of 39.6%. Tax expense for the same period of 1997 was $219 million, an effective tax rate of 39.6%. 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: commercial financial services, retail banking, investment services, national financial services, and treasury. Management accounting policies are in place for assigning expenses that are not directly incurred by lines of business, such as overhead, operations and technology expense. Additionally, equity, loan loss provision and loan loss reserves are assigned on an economic basis. The corporation has developed risk adjusted methodologies that quantify risk types within business units and assign 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 11 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS results may be restated to reflect changes in methodology and organizational structure. In addition to methodological changes, prior periods have been restated to reflect the Quick & Reilly acquisition, the realignment of direct banking under retail banking, and the creation of a national financial services unit comprised of mortgage banking, credit card, student lending, and venture capital.
FLEET FINANCIAL GROUP NET INCOME BY LINE OF BUSINESS - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Commercial Financial Services $101 $ 80 Retail Banking 94 101 Investment Services 54 47 National Financial Services 5 27 Treasury 37 26 All Other 32 53 - ----------------------------------------------------------- Total $323 $334 - -----------------------------------------------------------
COMMERCIAL FINANCIAL SERVICES - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Income statement data: Net interest income $ 316 $ 290 Noninterest income 94 90 Provision 49 53 Noninterest expense 187 180 - ----------------------------------------------------------- Net income $ 101 $ 80 - ----------------------------------------------------------- Balance sheet data: Average loans 36,948 32,909 Average deposits 11,653 10,997 - ----------------------------------------------------------- Return on equity 19 % 15 % - -----------------------------------------------------------
Commercial financial services provides a full range of credit and banking services to various markets. This unit includes traditional commercial banking, national, specialized and asset-based lending, as well as investment banking, trade finance and cash management services. Commercial financial services earned $101 million in the first quarter of 1998. Compared to the first quarter of 1997, earnings increased $21 million, or 26%, driven by strong loan growth, improved credit quality, higher noninterest revenues, and moderate expense growth. The year over year increase in loan volume was driven by several areas including commercial lending, leasing, and investment banking. Despite increased loan volumes, credit quality improved resulting in lower provision for loan losses (economic based provision is allocated among business lines). In addition to loan growth, deposit growth also contributed to increased net interest income. Deposit growth reflects effective cross selling of cash management services and other deposit products. Increased noninterest income was largely influenced by the continued success of corporate finance activities and the ability to effectively cross sell existing corporate accounts. Fleet's ability to meet the needs of customers in these new and innovative ways serves to strengthen business relationships and market position.
RETAIL BANKING - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Income statement data: Net interest income $ 439 $ 461 Noninterest income 135 131 Provision 27 29 Noninterest expense 372 376 - ----------------------------------------------------------- Net income $ 94 $ 101 - ----------------------------------------------------------- Balance sheet data: Average loans 10,081 10,916 Average deposits 42,367 44,791 - ----------------------------------------------------------- Return on equity 22 % 23 % - -----------------------------------------------------------
Retail Banking includes businesses engaged in consumer retail services through branch banking and direct banking units, as well as small business lending and deposit services through the business entrepreneurial services group (BESG). Earnings compared to the same quarter a year ago reflect lower loan and deposit balances, increased noninterest income, and lower operating costs. Lower balance sheet volumes and net interest income resulted partly from the reconfiguration of the branch network in the second quarter of 1997, as well as customer migration from traditional deposit products towards higher yielding products and mutual funds. This was offset by increased noninterest revenue from selected repricings, increased electronic banking activity associated with the deployment of almost 300 ATMs late in 1997, and increased debit card activity. Operating costs were down versus the first quarter of 1997 partly due to efficiencies gained in the reconfiguration of the branch network in the second quarter of 1997. These efficiencies helped to fund investments associated with the expansion of alternative delivery channels including remote ATMs, PC banking, and debit card promotions.
INVESTMENT SERVICES - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Income statement data: Net interest income $ 46 $ 41 Noninterest income 240 193 Provision 1 1 Noninterest expense 192 152 - ----------------------------------------------------------- Net income $ 54 $ 47 - ----------------------------------------------------------- Balance sheet data: Average loans 3,566 2,978 Average deposits 2,106 2,325 - ----------------------------------------------------------- Return on equity 20 % 30 % - -----------------------------------------------------------
12 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Investment services provides asset management services to institutional and wealthy market clients, retail mutual fund and annuity sales, and discount brokerage services. Prior period results have been restated to reflect the acquisition of Quick & Reilly. Investment services earned $54 million in the first quarter of 1998 compared to $47 million in the first quarter of 1997, an increase of 15%. The $7 million increase in earnings is partly due to the acquisition of Columbia Management, as well as growth in other business lines. Loan growth in both the brokerage and private clients group resulted in increased net interest revenues. Noninterest revenues grew significantly reflecting both the Columbia acquisition, as well as growth in assets under management and increased sales of mutual fund and annuity products. Assets under management totaled $81 billion at March 31, 1998, an increase of 68% compared to $48 billion at March 31, 1997. This growth reflects the acquisition of Columbia Management, which contributed $20 billion in assets under management as well as internal growth of 20%. The return on equity of 20% in the first quarter of 1998 reflects the impact of the premium paid in connection with the acquisition of Columbia Management. Excluding the impact of the goodwill associated with that transaction, return on equity would have been 38% in the first quarter of 1998.
NATIONAL FINANCIAL SERVICES - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Income statement data: Net interest income $ 75 $ 66 Noninterest income 142 143 Provision 63 44 Noninterest expense 146 120 - ----------------------------------------------------------- Net income $ 5 $ 27 - ----------------------------------------------------------- Balance sheet data: Average loans 3,393 3,220 Average deposits 2,243 1,617 - ----------------------------------------------------------- Return on equity 2 % 13 % - -----------------------------------------------------------
National financial services includes mortgage banking, credit card services, student loan processing, and venture capital services. The following table presents comparative data for the four principal businesses which comprise national financial services.
NATIONAL FINANCIAL SERVICES NET INCOME BY UNIT - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Venture capital $ 15 $ 9 Mortgage banking (18) 13 Student loan processing 6 6 Credit card 2 (1) - ----------------------------------------------------------- Total $ 5 $ 27 - -----------------------------------------------------------
First quarter 1998 earnings of $5 million include the net impact of impairment charges and related transactions in the mortgage banking unit. Excluding the impact of such items, national financial services earned $35 million, an increase of $8 million compared to 1997. Improved earnings are primarily the result of higher venture capital revenues. Venture capital earnings improvement was driven by increased noninterest revenue resulting from both realized and unrealized gains on investments. Venture capital revenue normally varies with market conditions and economic circumstances and as a result, earnings are expected to fluctuate from quarter to quarter. During the current quarter, the mortgage banking unit recorded a charge of $75 million related to the impairment of mortgage servicing rights. This charge was driven by a lower mortgage-rate environment and was entirely offset by gains on sales of servicing rights and gains on the sale of securities recorded in the treasury and all other business units. Earnings in the mortgage banking unit were relatively unchanged year over year after excluding impairment charges and related transactions. Earnings for the credit card unit reflect the acquisition of Advanta.
TREASURY - ----------------------------------------------------------- MARCH 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 - ----------------------------------------------------------- Income statement data: Net interest income $ 32 $ 33 Noninterest income 39 27 Provision 4 4 Noninterest expense 16 16 - ----------------------------------------------------------- Net income $ 37 $ 26 - ----------------------------------------------------------- Balance sheet data: Average loans 7,571 6,294 Average deposits 5,333 4,262 - ----------------------------------------------------------- Return on equity 48 % 41 % - -----------------------------------------------------------
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 $37 million compared to first quarter 1997 earnings of $26 million. Earnings for both 1998 and 1997 included after tax security gains of $12 million and $9 million, respectively. Excluding the impact of such gains, higher earnings were also the result of increased noninterest revenues including revenue from the sale of foreign exchange and interest rate protection products, coupled with tight expense controls. 13 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALL OTHER This unit includes allocated support units, the management accounting control units, and certain transactions or events not driven by specific business lines. Similarly, for comparative purposes, certain businesses sold in late 1997 have also been moved out of their business lines and into this unit. Accordingly, earnings in this unit can fluctuate with changes affecting total company loan loss provision, one time charges, gains and other actions not driven by specific business units. Earnings were $32 million compared to $53 million in the first quarter of 1997. Earnings for the first quarter of 1998 included gains on the sale of equity securities ($18 million after tax), taken to offset impairment charges recorded in mortgage banking. Compared to the first quarter of 1997, earnings declined due to the sale of certain businesses in 1997 and the inclusion of one time charges in 1998 in connection with the acquisitions of Quick & Reilly and Advanta. In addition, Fleet also increased its loan loss provision compared to the first quarter of 1997. As a result, earnings in this unit have been negatively impacted to the extent loan loss provision has increased in excess of amounts allocated to the business units on an economic basis.
SECURITIES - ------------------------------------------- -------------------------- ------------------------------- ---------------------------- MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1997 -------------- ----------------- -------------- AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET DOLLARS IN MILLIONS COST VALUE COST VALUE COST VALUE - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- ------------- Securities available for sale: US Treasury and government agencies $ 1,204 $ 1,211 $1,126 $1,134 $1,058 $1,053 Mortgage-backed securities 7,981 8,096 6,177 6,298 6,022 5,961 Other debt securities 255 255 186 189 31 31 - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- ------------- Total debt securities 9,440 9,562 7,489 7,621 7,111 7,045 - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- ------------- Marketable equity securities 289 288 256 282 201 213 Other securities 158 158 210 210 207 207 - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- ------------- Total securities available for sale 9,887 10,008 7,955 8,113 7,519 7,465 - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- ------------- Total securities held to maturity 1,271 1,276 1,249 1,254 1,092 1,095 - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- ------------- Total securities $11,158 $11,284 $9,204 $9,367 $8,611 $8,560 - ------------------------------------------- ------------- ------------ ----------- ------------ ------------- -------------
The amortized cost of securities available for sale increased $1.9 billion to $9.9 billion at March 31, 1998 compared to December 31, 1997 due to a program designed to reposition the corporation's interest-rate sensitivity. The valuation adjustment on securities available for sale decreased $37 million to an unrealized gain position of $121 million at March 31, 1998, due to gains on sales of securities taken during the quarter.
LOANS - ----------------------------------------------------------------- MARCH 31, DEC. 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 1997 - ----------------------------------------------------------------- Commercial and industrial $33,397 $32,000 $30,081 Lease financing 3,458 3,376 2,602 Commercial real estate: Construction 812 890 1,023 Interim/permanent 4,672 4,787 5,126 Residential real estate 9,344 10,019 7,921 Consumer 13,303 11,493 13,318 - ----------------------------------------------------------------- Total loans $64,986 $62,565 $60,071 - -----------------------------------------------------------------
Total loans increased $2.4 billion from December 31, 1997 to $65 billion at March 31, 1998, resulting primarily from loan growth in the commercial and industrial and lease financing portfolios, as well as $2.2 billion of credit card loans acquired as part of the Advanta acquisition, offset by a decrease in residential loans. Commercial and industrial (C&I) loans increased $1.4 billion from December 31, 1997 to March 31, 1998, due primarily to growth in asset-based lending and large corporate loans. Commercial real estate (CRE) loans decreased $193 million from December 31, 1997 to March 31, 1998 due to pay-downs. Outstanding residential real estate loans secured by one- to four-family residences decreased $675 million to $9.3 billion at March 31, 1998 compared to $10.0 billion at December 31, 1997. This decline is the result of accelerated prepayments coupled with the sale of residential loans anticipated to prepay in the near future.
CONSUMER LOANS - -------------------------------------------------------------------------- MARCH 31, DEC. 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 1997 - -------------------------------------------------------------------------- Home equity $ 4,662 $ 4,851 $ 4,997 Credit card 4,741 2,742 3,049 Student loans 1,046 1,029 1,301 Installment/Other 2,854 2,871 3,971 - -------------------------------------------------------------------------- Total $13,303 $11,493 $13,318 - --------------------------------------------------------------------------
Consumer loans increased $1.8 billion from December 31, 1997. The increase is primarily the result of the $2.2 billion acquisition of the consumer credit card portfolio of Advanta, partially offset by $189 million of attrition in the home equity portfolio. 14 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: Current or less than 90 days past due $ 84 $ 54 $ 3 $141 Noncurrent 115 34 62 211 OREO 1 3 17 21 - -------------------------------- -------- -------- ------------ -------- Total NPAs March 31, 1998 $200 $ 91 $ 82 $373 - -------------------------------- -------- -------- ------------ -------- Total NPAs December 31, 1997 $257 $ 83 $ 76 $416 - -------------------------------- -------- -------- ------------ -------- Total NPAs March 31, 1997 $344 $164 $196 $704 - -------------------------------- -------- -------- ------------ --------
(A) THROUGHOUT THIS DOCUMENT, NPAS AND RELATED RATIOS DO NOT INCLUDE LOANS GREATER THAN 90 DAYS PAST DUE AND STILL ACCRUING INTEREST ($225 MILLION, $202 MILLION, AND $226 MILLION AT MARCH 31, 1998, DECEMBER 31, 1997, AND MARCH 31, 1997, RESPECTIVELY). INCLUDED IN THE 90 DAYS PAST DUE AND STILL ACCRUING INTEREST WERE $194 MILLION, $172 MILLION, AND $186 MILLION OF CONSUMER AND RESIDENTIAL LOANS AT MARCH 31, 1998, DECEMBER 31, 1997, AND MARCH 31, 1997, RESPECTIVELY. Nonperforming assets (NPAs) decreased $43 million from December 31, 1997 to $373 million at March 31, 1998. NPAs at March 31, 1998, as a percentage of total loans and OREO and as a percentage of total assets improved to 0.57% and 0.38%, respectively, compared to 0.66% and 0.46%, respectively, at December 31, 1997. This improvement was due primarily to declining levels of nonperforming assets in the commercial and industrial portfolio.
RESERVE FOR CREDIT LOSS ACTIVITY - --------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31 DOLLARS IN MILLIONS 1998 1997 - --------------------------------------------------------------------- Balance at beginning of year $1,432 $1,488 Provision charged against income 92 65 Loans charged off (122) (127) Recoveries of loans charged off 30 37 - --------------------------------------------------------------------- Net charge-offs (92) (90) Acquisitions/Other 121 (1) - --------------------------------------------------------------------- Balance at end of period $1,553 $1,462 - --------------------------------------------------------------------- Ratios of net charge-offs to average loans .60 % .61 % - --------------------------------------------------------------------- Ratios of reserve for credit losses to period-end loans 2.39 2.43 - --------------------------------------------------------------------- Ratio of reserve for credit losses to period-end non-performing loans 441 217 - ---------------------------------------------------------------------
Fleet's reserve for credit losses increased from $1,462 million at March 31, 1997 to $1,553 million at March 31, 1998. The overall increase in the reserve for credit losses from the first quarter of 1997 is a result of reserves acquired as part of the acquisition of Advanta. The provision for credit losses for the first quarter of 1998 was $92 million, $27 million higher than the prior year's first quarter. The increase is a result of increased net charge-offs, principally in the credit card portfolio. The corporation anticipates that net charge-offs will increase in the second quarter of 1998 as a result of a full quarter's impact of the Advanta acquisition.
FUNDING SOURCES - -------------------------------- ------------ ------------ ------------ MARCH 31, DEC. 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 1997 - -------------------------------- ------------ ------------ ------------ Deposits: Demand $13,006 $13,148 $16,089 Regular savings, NOW, money market 31,898 30,485 27,738 Time: Domestic 19,429 16,258 17,545 Foreign 3,832 3,844 2,767 - -------------------------------- ------------ ------------ ------------ Total deposits 68,165 63,735 64,139 - -------------------------------- ------------ ------------ ------------ Short-term borrowed funds: Federal funds purchased 1,456 1,004 588 Securities sold under agree- ments to repurchase 2,451 2,630 2,176 Commercial paper 834 811 660 Other 3,497 3,060 721 - -------------------------------- ------------ ------------ ------------ Total short-term borrowed funds 8,238 7,505 4,145 - -------------------------------- ------------ ------------ ------------ Due to brokers/dealers 4,433 4,316 3,080 - -------------------------------- ------------ ------------ ------------ Long-term debt 5,095 4,500 4,617 - -------------------------------- ------------ ------------ ------------ Total $85,931 $80,056 $75,981 - -------------------------------- ------------ ------------ ------------
Total deposits increased $4.4 billion to $68.2 billion at March 31, 1998 when compared to December 31, 1997 due principally to the Advanta acquisition, which added $2.4 billion of time deposits, and a $1.0 billion increase in money market deposits as a result of rates aimed at attracting new sources of funds. 15 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The $733 million increase in short-term borrowings since December 31, 1997 is attributable to an increase in federal funds purchased, as well as bank notes acquired as part of the Advanta acquisition. Long-term debt increased $595 million to $5.1 billion at March 31, 1998 when compared to December 31, 1997 due to the issuance of $750 million of subordinated debt, $120 million of trust preferred securities, and $76 million of debt acquired from Advanta, offset by $398 million in repayments. ASSET-LIABILITY MANAGEMENT The goal of asset-liability management is the prudent control of market risk, liquidity, and capital. MARKET RISK Market risk is the sensitivity of income to variations in interest rates, foreign exchange rates, commodity prices, and other market-driven rates or prices. As discussed below, the corporation is exposed to market risk in both its non-trading and trading operations. NON-TRADING MARKET RISK Interest-rate risk, including mortgage prepayment risk, is by far the most significant non-trading market risk to which the corporation is exposed. Interest-rate risk is the sensitivity of income to variations in interest rates. The major source of the corporation's non-trading interest-rate risk is the difference in the repricing characteristics of the corporation's core banking assets and liabilities - loans and deposits. This difference or mismatch is a risk to net interest income. A second major source of the corporation's non-trading interest-rate risk is the sensitivity of its MSRs to prepayments. Since MSRs represent the right to service mortgage loans, a decline in interest rates and an actual (or probable) increase in mortgage prepayments shorten the expected life of the MSR asset and reduce its economic value. The corporation's Board limits on interest-rate risk specify that if interest rates were to shift immediately up or down 200 basis points, estimated net interest income for the subsequent 12 months should decline by less than 7.5%. The corporation was in compliance with this limit at March 31, 1998. The following table reflects the estimated exposure of the corporation's net interest income for the next 12 months, assuming an immediate shift in interest rates.
- ---------------------------- ---------------------------------- Estimated Exposure to Rate Change Net Interest Income (Basis Points) (Dollars in millions) - --------------------------------------------------------------- +200 $ 10 -200 (143) - ---------------------------------------------------------------
The most significant factors affecting the risk exposure of net interest income during the first quarter were the acquisitions of Quick & Reilly and Advanta, the uncertain repricing and run-off of noncontractual deposits and the acceleration of mortgage refinancings. In its management of these and other factors influencing the current environment, the corporation has attempted to maintain a modestly asset-sensitive position at the one-year time frame. Gap analysis provides a static view of the maturity and repricing characteristics of the on- and off-balance sheet positions. The interest-rate gap is prepared by scheduling all assets, liabilities, and off-balance sheet positions according to scheduled or anticipated repricing or maturity. Interest-rate gap analysis can be viewed as a complement to simulation analysis. The corporation's Board limits on interest-rate risk specify that the cumulative one-year gap should be less than 10% of total assets. As of March 31, 1998, the estimated exposure was 1.8% asset-sensitive (see the following table).
INTEREST-RATE GAP ANALYSIS - ----------------------------------------------------------------------------------------------------------------------------------- Cumulatively Repriced Within March 31, 1998 3 months 4 to 12 12 to 24 2 to 5 After 5 Dollars in millions, by repricing date or less months months years years Total - ----------------------------------------------------------------------------------------------------------------------------------- Total assets $57,845 $9,418 $5,063 $10,201 $15,160 $97,687 Total liabilities and stockholders' equity (47,856) (8,970) (6,220) (3,374) (31,267) (97,687) Net off-balance sheet (14,003) 5,283 3,046 4,568 1,106 --- - ----------------------------------------------------------------------------------------------------------------------------------- Periodic gap (4,014) 5,731 1,889 11,395 (15,001) --- Cumulative gap (4,014) 1,717 3,606 15,001 --- --- - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative gap as a percent of total assets-March 31, 1998 (4.1) % 1.8 % 3.7 % 15.4 % - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative gap as a percent of total assets-December 31, 4.8 3.6 2.2 9.2 1997 - -----------------------------------------------------------------------------------------------------------------------------------
16 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Valuation analysis involves projecting future cash flows from the corporation's assets, liabilities and off-balance sheet positions over a very long-term horizon, discounting those cash flows at appropriate interest rates, and then summing the discounted cash flows. The corporation's "economic value of equity" (EVE) is the estimated net present value of the discounted cash flows. The corporation's Board limits on interest-rate risk specify that if interest rates were to shift immediately up or down 200 basis points, the estimated economic value of equity should decline by less than 10%. The corporation was in compliance with this limit at March 31, 1998. The following table reflects the corporation's estimated exposure to economic value assuming an immediate shift in interest rates.
- ---------------------------- ---------------------------------- Estimated Exposure to Rate Change Economic Value (Basis Points) (Dollars in millions) - --------------------------------------------------------------- +200 $ (173) +100 (7) -100 (413) -200 (1,032) - ---------------------------------------------------------------
Off-balance sheet interest-rate instruments used to manage net interest income are designated as hedges of specific assets and liabilities. Accrual accounting is applied to these hedges, and the income or expense is recorded in the same category as that of the related balance sheet item. The periodic net settlement of the interest-rate risk-management instruments is recorded as an adjustment to net interest income. As of March 31, 1998, the corporation had net deferred income of $16 million relating to terminated interest-rate swap contracts, which will be amortized over the remaining life of the underlying terminated interest-rate contracts of approximately 5 years. During the first quarter of 1998, the corporation entered into $3.5 billion of receive/fixed swaps to offset swap run-off and control asset sensitivity. Off-balance sheet interest-rate instruments used to manage potential impairment of MSRs are designated as hedges of the MSRs. Changes in fair value of the hedges are recorded as adjustments to the carrying value of the MSRs. At March 31, 1998, net hedge gains of $129 million have been deferred and recorded as adjustments to the carrying value of the MSRs. Deferred hedge gains include $9 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 March 31, 1998, the carrying value and fair value of the corporation's MSRs were $1.7 billion and $1.8 billion, respectively. During the first quarter of 1998, the corporation terminated $6.0 billion of interest-rate floor agreements and added $3.2 billion of interest-rate swap contracts in its management of the mortgage servicing rights hedge program. These actions were taken to preserve the value of the option hedge position which had appreciated as interest rates declined.
RISK-MANAGEMENT INSTRUMENT ANALYSIS - ----------------------------------------------------------------------------- NOTIONAL DOLLARS IN MILLIONS VALUE - ----------------------------------------------------------------------------- INTEREST-RATE RISK-MANAGEMENT INSTRUMENTS Interest-rate swaps: Receive-fixed/pay-variable $10,515 617 1,724 175 ---------------- 13,031 - ----------------------------------------------------------------------------- Basis swaps 2,729 - ----------------------------------------------------------------------------- Total hedges of net-interest income 15,760 - ----------------------------------------------------------------------------- MORTGAGE BANKING RISK-MANAGEMENT INSTRUMENTS Interest rate swaps: Receive-fixed/pay-variable, PO swaps 5,651 Options: Interest-rate floors, synthetic floors and swaptions purchased 17,920 Interest-rate cap corridors sold 3,878 - ----------------------------------------------------------------------------- Total options 21,798 - ----------------------------------------------------------------------------- Total hedges of mortgage servicing rights and escrow deposits 27,449 - ----------------------------------------------------------------------------- Total risk-management instruments $43,209 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- WEIGHTED ASSETS- AVERAGE WEIGHTED AVERAGE LIABILITIES MATURITY FAIR RATE ------------------ DOLLARS IN MILLIONS HEDGED (YEARS) VALUE RECEIVE PAY - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST-RATE RISK-MANAGEMENT INSTRUMENTS Interest-rate swaps: Receive-fixed/pay-variable Variable-rate loans Fixed-rate deposits Long-term debt Short-term borrowings 2.5 $49 6.72 % 6.54 % - ----------------------------------------------------------------------------------------------------------------------------------- Basis swaps Deposits 1.0 (2) 5.74 5.72 - ----------------------------------------------------------------------------------------------------------------------------------- Total hedges of net-interest income 2.2 47 6.55 6.40 - ----------------------------------------------------------------------------------------------------------------------------------- MORTGAGE BANKING RISK-MANAGEMENT INSTRUMENTS Interest rate swaps: Mortgage servicing rights Receive-fixed/pay-variable, PO swaps and escrow deposits 4.0 9 5.99 5.66 Options: Interest-rate floors, synthetic floors and swaptions purchased Mortgage servicing rights 3.1 132 -(a) -(a) Interest-rate cap corridors sold Mortgage servicing rights 2.6 (9) -(a) -(a) - ----------------------------------------------------------------------------------------------------------------------------------- Total options 123 - - - ----------------------------------------------------------------------------------------------------------------------------------- Total hedges of mortgage servicing rights and escrow deposits 3.2 132 5.99 5.66 - ----------------------------------------------------------------------------------------------------------------------------------- Total risk-management instruments 2.9 $179 6.40 % 6.20 % - -----------------------------------------------------------------------------------------------------------------------------------
(a) The mortgage-banking risk-management interest-rate floors, synthetic floors and swaptions purchased, and interest-rate cap corridors sold have weighted average strike rates of 5.49% and 7.71%,respectively. 17 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TRADING MARKET RISK The corporation's trading portfolios are exposed to market risk due to variations in interest rates, currency exchange rates, precious metals prices, and related market volatilities. This exposure arises in the normal course of the corporation's business as a financial intermediary. The corporation uses an "earnings at risk" (EAR) system, based on an industry-standard risk measurement methodology, to measure the overall market risk inherent in its trading activities. The average daily exposure to this market risk was $8.8 million, and the maximum daily exposure was $10.2 million during the first quarter of 1998. The increase in EAR from December 31, 1997 was due principally to the first quarter 1998 acquisition of Quick & Reilly. LIQUIDITY RISK Liquidity risk-management's objective is to assure the ability of the corporation and its subsidiaries to meet their financial obligations. These obligations are the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. Liquidity is achieved by the maintenance of a strong base of core customer funds, maturing short-term assets, the ability to sell marketable securities, committed lines of credit and access to capital markets. Liquidity may also be enhanced through the securitization of consumer asset receivables. Liquidity at Fleet is measured and monitored daily, allowing management to better understand and react to balance sheet trends. ALCO is responsible for implementing the Board's policies and guidelines governing liquidity. Liquidity at the bank level is managed through the monitoring of anticipated changes in loans, core deposits, and wholesale funds. Diversification of liquidity sources by maturity, market, product, and counterparty are mandated through ALCO guidelines. The corporation's banking subsidiaries routinely model liquidity under three economic scenarios, two of which involve increasing levels of economic difficulty and financial market strain. Management also maintains a detailed contingency liquidity plan designed to respond either to an overall decline in the condition of the banking industry or a problem specific to Fleet. The strength of Fleet's liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources in the capital markets, as well as from direct customer contacts. Wholesale funding sources include large certificates of deposit, foreign branch deposits, federal funds, collateralized borrowings, and a bank-note program. The primary sources of liquidity for the parent company are interest and dividends from subsidiaries, committed lines of credit and access to the money and capital markets. Dividends from banking subsidiaries are limited by various regulatory requirements related to capital adequacy and earning trends. The corporation's subsidiaries rely on cash flows from operations, core deposits, borrowings, short-term high-quality liquid assets, and, in the case of nonbanking subsidiaries, funds from the parent company. At March 31, 1998 and December 31, 1997, the corporation had commercial paper outstanding of $834 million and $811 million, respectively. The corporation has a backup line of credit to ensure that funding is not interrupted if commercial paper is not available. The total amount of funds available under this agreement was $1 billion at March 31, 1998, with no outstanding balance under this line of credit. Fleet has shelf registration statements that provide for the issuance of common and preferred stock, senior or subordinated debt securities, and other securities with total amounts of funds available of approximately $1.137 billion at March 31, 1998. Subsequent to March 31, 1998, the corporation filed a $350 million shelf registration for trust preferred securities and issued $150 million of such securities, bringing the availability of the shelf registrations to $1.337 billion. As shown in the consolidated statement of cash flows, cash and cash equivalents decreased by $81 million during the first quarter of 1998. The decrease was due to cash used in investing activities of $2.5 billion and cash used in operating activities of $82 million, offset by cash provided by financing activities of $2.5 billion. Net cash used in investing activities was attributable to net purchases of securities and a net increase in loans resulting primarily from loan growth in the commercial and industrial and lease financing portfolios. Net cash provided by financing activities was principally due to an increase in deposits of $1.8 billion and a net increase in long-term debt of $520 million. 18 PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL - -------------------------------------------------------------------------- MARCH 31, DEC. 31, MARCH 31, DOLLARS IN MILLIONS 1998 1997 1997 - -------------------------------------------------------------------------- Risk-adjusted assets $100,087 $90,063 $81,962 Tier 1 risk-based capital (4% minimum) 6.39 % 7.26 % 7.58 % Total risk-based capital (8% minimum) 10.37 10.71 11.17 Leverage ratio (4% minimum) 7.19 7.66 7.26 Common equity-to-assets 8.12 8.52 7.69 Total equity-to-assets 8.82 9.28 8.71 Tangible common equity- to-assets 5.39 6.26 5.82 Tangible total equity-to- assets 6.12 7.04 6.85 - --------------------------------------------------------------------------
At March 31, 1998, the corporation exceeded all regulatory required minimum capital ratios as Fleet's Tier 1 and Total risk-based capital ratios were 6.39 percent and 10.37 percent, respectively, compared with 7.26 percent and 10.71 percent, respectively, at December 31, 1997. The leverage ratio, a measure of Tier 1 capital to average quarterly assets, was 7.19 percent at March 31, 1998 compared with 7.66 percent at December 31, 1997. 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. 19 PART II. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The corporation held its Annual Meeting of Stockholders on April 15, 1998. (b) Not applicable. (c) A brief description of each matter voted upon at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes, as to each such matter, follows. A separate tabulation with respect to each nominee for office is also included. Two matters were voted on at the Annual Meeting. 1. ELECTION OF DIRECTORS All 9 nominees for election as directors were elected. There were no abstentions nor broker non-votes for any of the nominees.
NAME OF DIRECTOR FOR AGAINST TERM EXPIRATION ---------------- --- ------- --------------- Marian L. Heard 238,890,783 2,945,959 2000 Joel B. Alvord 239,222,709 2,614,033 2001 Bradford R. Boss 219,056,609 22,780,133 2001 Stillman B. Brown 239,334,553 2,502,189 2001 Kim B. Clark 238,126,063 3,710,679 2001 James F. Hardymon 239,305,844 2,530,898 2001 Arthur C. Milot 239,320,106 2,516,636 2001 Lois D. Rice 239,219,724 2,617,018 2001 John R. Riedman 239,306,807 2,529,935 2001
The following directors will continue in office and were not up for re-election. Paul J. Choquette, Jr. 1999 Robert M. Kavner 1999 Thomas D. O'Connor 1999 Michael B. Picotte 1999 Thomas C. Quick 1999 Thomas M. Ryan 1999 Paul R. Tregurtha 1999 William Barnett, III 2000 John T. Collins 2000 Raymond C. Kennedy 2000 Robert J. Matura 2000 Terrence Murray 2000 Samuel O. Thier 2000
2. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS The second proposal voted on by stockholders of the corporation, to approve the appointment of KPMG Peat Marwick LLP to serve as independent auditors of the corporation for the current fiscal year ended December 31, 1998, was approved with 240,683,836 votes cast for, 385,687 votes cast against, and 767,219 abstentions. There were no broker non-votes. (d) Not applicable 20 PART II. OTHER INFORMATION PART II. ITEM 6. (a) Exhibit Index 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. (b) Ten Form 8-K's were filed during the period from January 1, 1998 to the date of the filing of this report. - Current Report on Form 8-K dated January 15, 1998 announcing fourth quarter earnings. - Current Report on Form 8-K dated January 15, 1998 reporting the sale of $500 million of 6 7/8% Subordinated Debentures due 2028. - Current Report on Form 8-K dated January 26, 1998 reporting the sale of 4,800,000 7.05% Trust Originated Preferred Securities. - Current Report on Form 8-K dated February 2, 1998 reporting the consummation of the Quick & Reilly merger. - Current Report on Form 8-K dated March 4, 1998 reporting the sale of $250 million of 6.50% Subordinated Notes due 2008. - Current Report on Form 8-K dated March 6, 1998 filing the Audited Financial Statements and Notes thereto as of December 31, 1997. - Current Report on Form 8-K dated March 30, 1998 filing Unaudited Pro Forma Combined Financial Information for Fleet and Quick & Reilly for the period ended December 31, 1997. - Current Report on Form 8-K dated April 15, 1998 announcing first quarter earnings. - Current Report on Form 8-K dated April 28, 1998 reporting the sale of 6,000,000 7.15% Trust Originated Preferred Securities. - Current Report on Form 8-K dated May 5, 1998 filing the Restated Audited Financial Statements and Notes thereto as of December 31, 1997 reflecting the merger of the registrant and The Quick & Reilly Group, Inc. 21 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEET FINANCIAL GROUP, INC. --------------------------- (Registrant) /s/ Eugene M. Mcquade --------------------- Eugene M. McQuade Vice Chairman Chief Financial Officer /s/ Robert C. Lamb, Jr. ----------------------- Robert C. Lamb, Jr. Controller Chief Accounting Officer DATE: May 14, 1998 22 EX-11 2 COMPUTATION OF EQUIVALENT SHARES EXHIBIT 11
FLEET FINANCIAL GROUP, INC. COMPUTATION OF EQUIVALENT SHARES AND PER SHARE EARNINGS ($ IN MILLIONS, EXCEPT PER SHARE DATA) For the Three Months ended March 31, ---------------------------------------------------------------------------------------- 1998 1997 ----------------------------------------- ------------------------------------------ BASIC DILUTED BASIC DILUTED ------------------- -------------------- ------------------ -------------------- Equivalent shares: Average shares outstanding 283,889,064 283,889,064 280,835,256 280,835,256 Additional shares due to: Stock options --- 3,622,582 --- 2,634,636 Warrants --- 6,080,135 --- 5,043,537 ------------------- -------------------- ------------------ -------------------- Total equivalent shares 283,889,064 293,591,781 280,835,256 288,513,429 ------------------- -------------------- ------------------ -------------------- Earnings per share Net income $323 $323 $334 $334 Less: Preferred stock dividends (12) (12) (17) (17) ------------------- -------------------- ------------------ -------------------- Adjusted net income $311 $311 $317 $317 ------------------- -------------------- ------------------ -------------------- Total equivalent shares 283,889,064 293,591,781 280,835,256 288,513,429 ------------------- -------------------- ------------------ -------------------- . Earnings per share on net income $1.09 $1.06 $1.13 $1.10 ------------------- -------------------- ------------------ --------------------
EX-12 3 COMPUTATION OF CONSOLIDATED RATIO EXHIBIT 12
FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS) Three Months Ended March 31, Year ended December 31, - ----------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes and cumulative effect of accounting changes $ 535 $2,294 $2,070 $1,156 $1,460 $1,173 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 227 737 813 1,413 1,074 790 (2) 1/3 of rent 13 53 55 52 53 54 (b) Preferred dividends 21 104 117 62 51 54 ========== ========== ========== ========== ========= ========== (c) Adjusted earnings $ 796 $3,188 $3,055 $2,683 $2,638 $2,071 ========== ========== ========== ========== ========= ========== Fixed charges and preferred dividends $ 261 $ 894 $ 985 $1,527 $1,178 $ 898 ========== ========== ========== ========== ========= ========== Adjusted earnings/fixed charges 3.05 x 3.57 x 3.10 x 1.76 x 2.24 x 2.31 x ========== ========== ========== ========== ========= ==========
INCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS) Three Months Ended March 31, Year ended December 31, - ----------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes and cumulative effect of accounting changes $ 535 $2,294 $2,070 $1,156 $1,460 $1,173 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 227 737 813 1,413 1,074 790 (2) 1/3 of rent 13 53 55 52 53 54 (3) Interest on deposits 438 1,654 1,754 1,726 1,170 1,165 (b) Preferred dividends 21 104 117 63 51 54 ========== ========== ========== ========== ========= ========== (c) Adjusted earnings $1,234 $4,842 $4,809 $4,410 $3,808 $3,236 ========== ========== ========== ========== ========= ========== Fixed charges and preferred dividends $ 699 $2,548 $2,739 $3,254 $2,348 $2,063 ========== ========== ========== ========== ========= ========== Adjusted earnings/fixed charges 1.77 x 1.90 x 1.76 x 1.36 x 1.62 x 1.57 x ========== ========== ========== ========== ========= ==========
EXHIBIT 12 (CONTINUED) FLEET FINANCIAL GROUP, INC. COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS) Three Months Ended March 31, Year ended December 31, - ----------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes and cumulative effect of accounting changes $ 535 $2,294 $2,070 $1,156 $1,460 $1,173 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 227 737 813 1,413 1,074 790 (2) 1/3 of rent 13 53 55 52 53 54 ========== ========== ========== ========== ========= ========== (b) Adjusted earnings $ 775 $3,084 $2,938 $2,621 $2,587 $2,017 ========== ========== ========== ========== ========= ========== Fixed charges $ 240 $ 790 $ 868 $1,465 $1,127 $ 844 ========== ========== ========== ========== ========= ========== Adjusted earnings/fixed charges 3.23 x 3.90 x 3.38 x 1.79 x 2.30 x 2.39 x ========== ========== ========== ========== ========= ==========
INCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS) Three Months Ended March 31, Year ended December 31, - ----------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes and cumulative effect of accounting changes $ 535 $2,294 $2,070 $1,156 $1,460 $1,173 Adjustments: (a) Fixed charges: (1) Interest on borrowed funds 227 737 813 1,413 1,074 790 (2) 1/3 of rent 13 53 55 52 53 54 (3) Interest on deposits 438 1,654 1,754 1,726 1,170 1,165 ========== ========== ========== ========== ========= ========== (b) Adjusted earnings $1,213 $4,738 $4,692 $4,347 $3,757 $3,182 ========== ========== ========== ========== ========= ========== Fixed charges $ 678 $2,444 $2,622 $3,191 $2,297 $2,009 ========== ========== ========== ========== ========= ========== Adjusted earnings/fixed charges 1.79 x 1.94 x 1.79 x 1.36 x 1.64 x 1.58 x ========== ========== ========== ========== ========= ==========
EX-27 4 FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFOMRATION EXTRACTED FROM THE MARCH 31, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1998 MAR-31-1998 4,797 456 240 284 10,008 1,271 1,276 64,986 1,553 97,687 68,165 8,238 7,569 5,095 0 691 3,318 4,611 97,687 1,378 162 54 1,594 438 665 929 92 51 997 535 323 0 0 323 1.09 1.06 4.75 352 225 0 0 1,432 122 30 1,553 1,553 0 311
EX-27.(A) 5 FDS #2
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 31 1998 CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINED IN THE FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 MAR-31-1997 4,984 153 262 281 7,465 1,092 1,095 60,071 1,462 85,824 64,139 4,145 5,451 4,617 0 869 3,218 3,385 85,824 1,309 140 41 1,490 416 581 909 65 13 904 553 334 0 0 334 1.13 1.10 4.99 674 226 0 0 1,488 127 37 1,462 1,462 0 220
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